Q3 2023 Pool Corp Earnings Call

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Speaker 1: you

Speaker 2: Good day and welcome to the Poole Corporation third quarter 2023 conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

Good day and welcome to the Pool Corporation third quarter 2023 conference call.

All participants will be in listen only mode.

Do you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

Speaker 2: After today's presentation, there will be an opportunity to ask questions.

After todays presentation, there will be an opportunity to ask questions.

Speaker 2: To ask a question, you may press star, then 1 on your touchtone phone. To withdraw your question, please press star.

You ask a question you May press Star then one on your Touchtone phone.

To withdraw your question. Please press Star then two.

Speaker 2: Please note this event is being recorded. I would now like to turn the conference over to Melanie Hart, Vice President and Chief Financial Officer. Please go ahead.

Please note this event is being recorded.

And I'd like to turn the conference over to Melanie <unk>, Vice President Chief Financial Officer. Please go ahead.

Speaker 3: Thank you and welcome everyone to our third quarter 2023 earnings conference call. Our discussion, comments, and responses to questions today may include forward-looking statements including management's outlook for 2023 at future periods.

Thank you and welcome everyone to our third quarter 2023 earnings conference call, our discussion comments and responses to questions. Today may include forward looking statements, including management's outlook for 2023 and future periods actual results may differ materially from those discussed today.

Speaker 3: Actual results may differ materially from those discussed today. Information regarding the factors and variables that could cause actual results to differ from projected results are discussed in our 10K. In addition, we may make references to non-GAAP financial measures in our comments. A description and reconciliation of our non-GAAP financial measures is included in our press release and posted to our corporate website in the investor relations section.

Information regarding the factors and variables that could cause actual results to differ from projected results are discussed in our 10-K. In addition, we may make references to non-GAAP financial measures in our comments.

<unk> and reconciliation of our non-GAAP financial measures is included in our press release and posted to our corporate website.

In the Investor Relations section, we will begin today's call with comments from Peter Osborne, Our President and C E P.

Speaker 3: We will begin today's call with comments from Peter Arban, our president and CEO .

Pete.

Speaker 4: Thank you, Melanie. Good morning to everyone on the call. Her third quarter results came in largely as expected. As the 2023 swimming pool season winds down, we consider our results to be solid on a stand-alone basis.

Thank you Melanie and good morning to everyone on the call our third quarter results came in largely as expected as the 2023 24 season winds down we consider our results to be solid on a standalone basis.

Speaker 4: particularly when considering the dynamic conditions we have been operating.

Particularly when considering the dynamic conditions, we have been operating in the third quarter Kerry.

Speaker 4: The third quarter carried on with typical summer weather conditions overall, allowing us to evaluate our performance and the industry environment on a mostly weather neutral basis.

Typical summer weather conditions overall, allowing us to evaluate our performance and then the industry environment on a mostly weather neutral basis, our third quarter 2023 sales of $1 5 billion is a 9% decline compared to 2022 with one less selling day, but exceeded 2021 third quarter sales by 63.

Speaker 4: Our third quarter 2023 sales of 1.5 billion is a 9% decline compared to 2022 with one less selling day, but exceeded 2021 third quarter sales by 63 million or 4%.

$3 million or 4% as expected sales declines continue to moderate in the third quarter, showing sequential improvement versus the 10% and 15% declines we saw in the second and first quarter of 2023 in view of the neutral weather conditions during the third quarter, our sales trends across our major markets were rare.

Speaker 4: As expected, sales declines continue to moderate in the third quarter showing sequential improvement versus the 10% and 15% declines we saw in the second and first quarter of 2023.

Speaker 4: In view of the neutral weather conditions during the third quarter, our sales trends across our major markets were relatively consistent. Starting with year-round markets, sales declined 5% for the quarter in Florida compared to the third quarter last year, with Arizona finishing down 8%, California down 10%, and Texas down 11%.

Totally consistent starting with year round markets sales declined 5% for the quarter and fluor as compared to the third quarter last year, with Arizona, finishing down, 8%, California down, 10% and Texas down 11%.

Speaker 4: For context, last year in the same quarter, Florida sales were up 20%, Arizona was up 18%, California was up 16%, and Texas was up 10%, respectively, versus the third quarter of 2021.

For context last year in the same quarter, Florida sales were up 20%, Arizona was up 18%, California was up 16% in Texas was up 10%, respectively versus the third quarter up 2021.

Speaker 4: This simply highlights the difficult comps that we were up against this year. Year-round base business declined 8%, while seasonal-based business markets declined 10%, a slight sequential improvement from the 9% and 11% declines in the second quarter of 2023. Again, for comparison, last year in the same period, we saw growth in our year-round base business markets of 15% and 5% in our seasonal-based business market.

This simply highlights the difficult comps that we were up against this year year round base business declined 8%, while seasonal base business market declined 10%, a slight sequential improvement from the 9% and 11% decline in the second quarter of 2023.

Again for comparison last year in the same period, we saw growth in our year round base business markets up 15% and 5% in our seasonal based business markets.

Speaker 4: Moving on to product category results, chemical sales increased 5% in the third order, mostly driven by increased volume as chemical pricing came in relatively flat for our collective offer.

Moving on to product category results chemical sales increased 5% in the third quarter, mostly driven by increased volume as chemical pricing came in relatively flat for our collective offering.

Speaker 4: Our strong footprint, leading proprietary products and enhanced technology tools gives us an unmatched value proposition and contributed to our share growth.

Our strong footprint, leading proprietary products and enhanced technology tools gives us an unmatched value proposition and contributed to our share growth.

Speaker 4: Building material sales for the quarter were down 13%. This category includes products and necessary for both new pool construction and renovation and remodel projects.

Building material sales for the quarter were down 13%. This category includes products are necessary for both new pool, construction and renovation and remodel projects.

Speaker 4: The building material trend continues to suggest that renovation and remodel demand is stable and outperforming new pool construction, and our NPD footprint and product offering enables us to outperform the industry in this category.

Building materials continues to suggest that renovation and remodel demand is stable and outperforming new pool construction and our NPD footprint and product offering enables us to outperform the industry in this category.

Speaker 4: Equipment sales declined 9% in the quarter. As you can see, this implies solid demand for maintenance and repair, despite the softer demand for new pool construction and renovation and remodel.

Equipment sales declined 9% in the quarter as you can see the solid demand for maintenance and repair despite the softer demand for our new pool construction and renovation and remodel.

Speaker 4: Looking at end markets, commercial pool product demand remains strong in the third quarter with sales up 10%.

Looking at end markets commercial pool product demand remained strong in the third quarter with sales up 10%.

Speaker 4: Sales to our independent retail customers were down 8% for the third quarter and improvement from the 11% decline and 16% decline we saw in the second and first quarters of this year. Pinch if any franchise, these collectively reported sales growth of 1% for the quarter. The franchisees generated solid sales for their maintenance products, but weaker sales of discretionary items in line with what we are seeing across our distribution business.

Sales to our independent retail customers were down 8% for the third quarter, an improvement from the 11% decline in 16% decline we saw in the second and first quarters of this year.

Hence if any franchise.

Collectively reported sales growth of 1% for the quarter the franchisees generated solid sales for their maintenance products, but weaker sales of discretionary items in line with what we are seeing across our distribution business.

Speaker 4: Europe's third quarter sales showed a 2% decline in local currency, a notable improvement from the 7% and 22% decline in the second and first quarters of 2023. Europe has been challenging for the past 15 to 18 months and we are encouraged by this more favorable trend.

Europe third quarter sales showed a 2% decline in local currency a notable improvement from the 7% and 22% decline in the second and first quarters of 2023 Europe has been challenging for the past 15 to 18 months and we are encouraged by this more favorable trend.

Speaker 4: For horizon, sales declined 7% during the quarter. Consistent with prior quarters, sales activities for commercial projects remain stronger than residential.

For horizon sales declined 7% during the quarter consistent with prior quarters sales activities for commercial projects remained stronger than residential.

Speaker 4: Moving on to gross margins where we ended the third quarter at 29.1%, consistent with our past thinking, we believe gross margins for the full year will be a proximate, will be approximately our long-term guidance of the 30% range.

Moving onto gross margins, where we ended the third quarter at 29, 1% consistent with our past thinking we believe gross margins for the full year will be approximate.

It will be approximately our long term guidance of the 30% range.

Speaker 4: As is typical, Melanie will provide more details on what to expect in the fourth quarter gross margins in her comments.

As is typical Melanie will provide more details on what to expect in the fourth quarter gross margins in her comments, even while continuing to invest in new locations acquisitions and technology during the quarter, we reduced operating expenses by 2% compared to last year. The team did a good job managing expenses that typically ramp up during the season.

Speaker 4: Even while continuing to invest in new locations, acquisitions, and technology during the quarter, we reduced operating expenses by 2% compared to last year. The team did a good job managing expenses that typically ramp up during the season in light of the softer demand environment. Thankfully, the team has been focused on capacity creation for many years, and that helps us offset inflationary headwinds and leverages our fixed expenses, leading to a 15.9% operating expense percentage.

In light of the softer demand environment Thankfully. The team has been focused on capacity creation for many years and that helps us offset inflationary headwinds and leverages, our fixed expenses, leading to a 15, 9% operating expense percentage.

Speaker 4: Pool 360, our B2B tool, saw sales increase 5% over the prior year, a higher growth rate than our overall sales activity. The line volume growth for the same period was 3% and demonstrates the tool's contribution to our capacity creation effort, while also improving the customer experience and productivity and adding value to our business and our customers.

Full 360, <unk> sales increased 5% over the prior year, a higher growth rate than our overall sales activity. The wine volume growth for the same period was 3% and demonstrates the tools contribution to our capacity creation effort, while also improving the customer experience and productivity and adding value to.

Our business and our customers we view this tool as best in class, providing multiple benefits for both our customers and the local operating teams.

Speaker 4: We view this tool as best in class, providing multiple benefits for both our customers and the local operating team.

Speaker 4: Operating income for the third quarter of 2023 was $194 million, down 69 million compared to last year. This, however, represents an 85% improvement over 2019. Our reported third quarter operating margin of 13.2% is 160 basis point expansion from 2019 and a 20 basis point expansion from 2020 showing the sustainability of our fixed cost leverage initiative.

Operating income for the third quarter of 2023 was $194 million down $69 million compared to last year. This however represents an 85% improvement over 2019, our reported third quarter operating margin of 13, 2% is 160 basis point expansion.

<unk> from 2019, and a 20 basis point expansion from 2020, showing the sustainability of our fixed cost leverage initiatives.

Speaker 4: During the third quarter, we added two new Greenfield locations. This puts us at 10 new Greenfield locations for the 2023 season, a further testament to our strong bent and refined expansion process.

During the third quarter, we added two new Greenfield locations. This puts us the 10, new Greenfield locations for the 2023 seats are further testament.

Testament to our strong bent and refined expansion process.

Speaker 4: In addition to our organic openings, we added four new locations through acquisitions this year. Additionally, we expanded our Pinchipendi franchise network by adding two new franchise customers in the quarter, bringing the new franchise store count to 11 for this year. We continue to prioritize organic growth investments as the future of the business, which not only expands our customer reach, but also creates capacity for additional products and service offering at our existing location.

In addition to our organic openings, we added four new locations through acquisitions. This year. Additionally, we expanded our Pinchpenny franchise network by adding two new franchise customers in the quarter, bringing the new franchise store count to 11 for this year, we continue to prioritize organic growth investment as the future of the business.

Which not only expands our customer reach but also creates capacity for additional product and service offerings at our existing locations.

Speaker 4: Melanie will be commenting on most of the balance sheet items, but I would like to highlight one significant accomplishment that is the work that the team did on right sizing our inventory. Because of the tremendous effort of our team in conjunction with our vendor partners, the team surpassed our inventory reduction goal and delivered a reduction of over $216 million a year today. This was done while expanding our footprint, integrating acquisitions and maintaining best-in-class inventory availability.

Tony will be commenting on most of the balance sheet items, but I would like to highlight one significant accomplishment that is the work that is the work that the team did on right sizing our inventory because of the tremendous effort of our team in conjunction with our vendor partners. The team surpassed our inventory reduction goals and delivered a reduction of over $216 million year to date.

This was done while expanding our footprint integrating acquisitions and maintaining best in class inventory availability. This achievement helped us generate $750 million in operating cash flow through September 30th a company record and nearly two five times that of this time last year.

Speaker 4: This achievement helped us generate $750 million in operating cash flow through September 30th, a company record, and nearly two and a half times that of this time last year.

Speaker 4: As we move into the final quarter of the year, we have proven that even the most difficult operating conditions our experience team delivers an unmatched value proposition which enables us to outperform the industry and expand our share. We have built the largest fully integrated network of sales centers in the industry and we are adding new locations faster than anyone with a proven process that delivers a solid ROI.

As we move into the final quarter of the year, we have proven that even in the most difficult operating conditions, our experienced team delivers an unmatched value proposition, which enables us to outperform the industry and expand our share we have built the largest fully integrated network of sales centers in the industry and we are adding new locations faster than anyone with.

A proven process that delivers a solid ROI.

Speaker 4: We have a vertically integrated chemical packaging operation and a broadest selection of proprietary building material products from pool tile to finish over 135 NPT showrooms and design centers for centralized shipping locations for importing the validation, industry leading technology solutions for our customers and our own use and best in class retail franchise development and support operation.

We are a vertically integrated chemical packaging operation the broadest selection of proprietary building material products from pool tile just finish.

135, NPT showrooms and design centers for centralized shipping locations for importing consolidation industry, leading technology solutions for our customers and our own use and best in class retail franchise development and support operation.

Speaker 4: Perhaps most importantly, we have over 6,000 employees that operate in a performance-based culture that know how to compete and win.

Perhaps most importantly, we have over 6000 employees that operate in a performance based culture that know how to compete and win.

Speaker 4: Well, new pool construction is likely to finish down with units down 30% in 2023. We still expect about 70,000 additional pools will be.

While new pool construction is likely to finish down with it with units down 30% in 2023, we still expect about 70000 additional pools.

Okay.

Speaker 4: ever growing installed base of pools where we derive over 80% of our revenue.

We are expanding ever growing installed base of pools, where we derive over 80% of our revenue.

Speaker 4: No doubt, the current macro economic environment is tough, but the desirability of swimming pools and outdoor living has never been stronger, and we do not see that changing. We firmly believe that even with fewer pools being built, our share and the value of our products on a per-cool basis has grown. We know that renovation activity will continue as homeowners upgrade both services and pool technology to enhance their backyard oasis.

No doubt the current macro economic environment is tough, but the desirability of swimming pools and outdoor living has never been stronger and we do not see that changing we firmly believe that even with fewer pools being built our share and the value of our products on a per pool basis has grown we know that renovation activity will continue as homeowner.

Upgrade both services and pool technology to enhance their backyard oasis.

Speaker 4: We believe that our relentless focus on delivering a second to none customer experience positions us better than anyone in the industry to serve the pool professional and support the specialty retailers that cater to the DIY owner. In short, we believe in the long-term growth characteristics of the industry, the strength of our company, and we believe in our team.

We believe that our relentless focus on delivering a second to none customer experience positions us better than anyone in the industry to serve their pool professional and support the specialty retailers that cater to the DIY owner in short we believe in the long term growth characteristics of the industry the strength of our company and we believe in our team.

Speaker 4: As I look back on the pool season, I'm very proud of our team.

As I look back on the full season I'm very proud of our team.

Speaker 4: and that has remained focused on innovation, execution, and collaborative partnerships to deliver a customer experience that as I said is second to none.

And that has remained focused on innovation execution and collaborative partnerships to deliver a customer experience that as I said is second to none.

Speaker 4: Lastly, with over three quarters of the year behind us, we have narrowed our annual earnings guidance and now expect the looted earnings per share in the range of $13.15, the $13.65, including the impact of year-to-date tax benefits of $15.

Lastly, with over three quarters of the year behind US we have narrowed our annual earnings guidance and now expect diluted earnings per share in the range of $13 15, the $13 65, <unk>, including the impact of year to date tax benefits of <unk> 15.

Speaker 4: Melanie will now provide additional details in our financial commentary. Melanie? Thank you, Pete.

Melanie will now provide additional details on our financial commentary Melanie Thank you Pete.

Speaker 3: Net sales for the quarter finished at 1.5 billion, a 9% decrease from prior year record sales in the third quarter. We estimate a year-to-year quarterly sales decline in the range of 5% related to new pool construction, which is trending as expected, with units likely to show a 30% decline for the year.

Net sales for the quarter finished at $1 5, Billion% to 9% decrease from prior year and record sales in the third quarter, we estimate our year over year quarterly sales decline in the range of 5% related to new pool, construction, which is trending as expected with units likely to show a 30% decline for the year.

Speaker 3: Remodel activity with a roughly 3% year-over-year comparative decrease effect on our top line is outperforming new full construction, but still at lower levels from prior year and in the range of our previously estimated down 10 to 15%.

Remodel activity with a roughly 3% year every year comparative decrease the fact on our topline is outperforming new pool construction, but still at lower levels from prior year and in the range of our previously estimated down 10% to 15%.

Speaker 3: We also saw several other areas which each represented in approximately 1% decline in net sales. First, we had one less selling day in the quarter compared to last year. Secondly, selling prices on commodities, including tri-core. Pricing on tri-core is showing recent signs of stabilizing, but during the quarter selling prices were approximately 20% lower than third quarter of last year.

We also saw several other areas with each represented an approximately 1% decline in net sales first we had one less selling day in the quarter compared to last year.

Secondly, selling prices on commodities, including track bar.

Alright. Thank one tri color is showing recent signs of stabilizing but during the quarter selling prices were approximately 20% lower than third quarter of last year.

Speaker 3: Third, volumes on certain discretionary products, such as above-ground pools, heaters, and cleaners, reflected weakness, suggesting consumer hesitation on these more discretionary items.

Third volume uncertain discretionary products, such as above ground pool heater and clean Earth reflected weakness, suggesting consumer hesitation on these more discretionary items.

Speaker 3: Outside of these products, maintenance spend remains relatively stable. Inflation continued to provide an overall advantage, resulting in a benefit of approximately 2 to 3% for the quarter.

Outside of these product maintenance spend remains relatively stable inflation continued to provide an overall advantage, resulting in a benefit of approximately 2% to 3% for the quarter.

Speaker 3: That sales from acquisitions or new market openings contributed less than 1% in the quarter. And therefore, we have not broken out these activities from base business, separately in the press release, as they had an insignificant impact on the financial information for the quarter.

Net sales from acquisitions or new market openings contributed less than 1% in the quarter and therefore, we have not broken out these activities from base business separately in the press release that they had an insignificant impact on the financial information for the quarter.

Speaker 3: First margin was 29.1% in the third quarter, reflecting a typical sequential decrease from second quarter. First margin was 210 basis points less than prior year, resulting from the expected decrease in inventory gains realized in 2022, that benefits from investments in inventory ahead of the multiple inflationary price increase.

Gross margin was 29, 1% in the third quarter, reflecting a typical sequential decrease from second quarter.

Gross margin with 210 basis points less than prior year, resulting from the expected decrease in inventory gains realized in 2022 that benefited from investments in inventory ahead of the multiple inflationary price increases.

Speaker 3: Other items impacting margins in the quarter are product mix, including the lower selling prices on track, and new construction and remodel activity, which resulted in building materials seeing a higher year-over-year decrease than other products. Customer mix, such as a higher proportion of sales to larger customers, also had a negative impact on margins when comparing to 2022.

Other items impacting margins in the quarter, our product mix, including the lower selling prices on track core and new construction and remodel activity, which resulted in building materials seeing a higher year over year decrease.

Then other products customer mix, such as a higher proportion of sales to larger customers also had a negative impact on margin when comparing to 2022.

Speaker 3: Weaker industry demand and wrapping up of channel inventory rationalization contributed to a more competitive pricing environment causing some modest additional pressure on gross margins during the quarter.

Weaker industry demand and wrapping up a channel inventory rationalization contributed to a more competitive pricing environment, causing some modest additional pressure on gross margins during the quarter.

Speaker 3: We also sought lower partencing incentives than a normal year in conjunction with our inventory reduction plan.

We also saw lower purchasing incentives than a normal year in conjunction with our inventory reduction plan.

Speaker 3: As DNA expenses continue to be very well managed, reflecting a 2% decrease year-over-year after seeing a 3% decrease in the second quarter, as these two seasonally larger quarters have the most ability to benefit from reductions of volume-related expenses.

G&A expenses continued to be very well managed reflecting a 2% decrease year over year after seeing a 3% decrease in the second quarter. As these two seasonally larger quarters have the most ability to benefit from reduction of volume related expenses.

Speaker 3: Our operating expenses compared to prior year also includes the impact of four locations added from acquisitions and 14 New Sale Center opening since third quarter of last year. Additionally, expenses for the third quarter include a 550,000 goodwill impairment.

Operating expenses compared to prior here also includes the impact of foreign locations added from acquisitions and 14, New sales center openings since third quarter of last year. Additionally expenses for the third quarter include a 550000 goodwill impairment.

Speaker 3: Offerting margin of 13.2% was 300 points less than prior year, reflecting the 210 basis points impact from growth margin and effects of lower top line revenue.

Operating margin of 13, 2% with 300 basis points less than prior year, reflecting the 210 basis points impact from gross margin and effects of lower topline revenue.

Speaker 3: We reported 11.6% operating margin in third quarter, 2009.

We reported 11, 6% operating margin in third quarter 2019, So we have been able to maintain benefits in our operating margin.

Speaker 3: So we have been able to maintain benefits in our operating margins.

Speaker 3: Interest expense on that comparative basis for the third quarter resulted in a 1.9 million increase in expense as a result of higher rates offsetting a significant reduction in debt outstanding.

Interest expense on a comparative basis for the third quarter resulted in a $1 9 million increase in expense as a result of higher rates offsetting a significant reduction in debt outstanding.

Speaker 3: As is consistent with prior years, our third quarter tax rate is generally the lowest quarterly rate, with all other quarters being slightly higher and averaging to our full-year rate.

Is it consistent with prior years, our third quarter tax rate is generally the lowest quarterly rate with all other quarters being slightly higher and averaging two our full year rate.

Speaker 3: Third quarter, EPS, excluding ASU, of $3.50, compares to $4.78 in third quarter of 2022. Despite the decline from our record 2022 results, these earnings highlights our ability to retain the majority of the significant growth seen throughout the 2020 to 2022 period, as Q323 results are higher, 90% higher than the third quarter of 2019.

Third quarter EPS, excluding ASU, a $3 50.

Compares to $4.78 in third quarter of 2022, despite the decline from our record 2022 result, these earnings highlight our ability to retain the majority of the significant growth seen throughout the 2020 to 2022 period. As Q3 23 was itself are higher 90% higher.

Then the third quarter of 2019.

Speaker 3: Our credit and collections process and management of trade receivables remains a business advantage with DSO of 26.3 days at the end of the quarter, comparable to prior year.

Our credit and collections process and management of trade receivables remains a business advantage with DSO of $26 three days at the end of the quarter comparable to prior year.

Speaker 3: I was confident in our ability to execute when I stated our inventory reduction goal at the beginning of the year to bring down inventory by $260 million. In fact, we were able to reduce inventory $332 million from December 2022, even with acquisitions, new locations, and current year inflation, including our goals.

We're confident in our ability to execute when I stated our inventory reduction goals at the beginning of the year to bring down inventory by $260 million. In fact, we were able to reduce inventory $332 million from December 2022, even with acquisitions, new locations and current year inflation.

Exceeding our goal in.

Speaker 3: In the fourth quarter, we plan to selectively participate in vendor early buys that we determine makes strategic sense for us. As we look ahead to the 2024 season, we are expecting to see a range of price increases for next season of around 3 to 4%. Based on some equipment vendor pricing announcements to date.

In the fourth quarter, we plan to selectively participate in vendor early buys that we determined make strategic sense for us as we look ahead to 2024 season, we are expecting to see a range of price increases for next season of around 3% to 4% based on some equipment vendor pricing announcements to date.

Speaker 3: This will result in dollar growth in inventory from third to fourth quarter, as we would normally build inventory to be ready for next season.

This will result in dollar growth and inventory from third to fourth quarter as we would normally build inventory to be ready for next season.

Speaker 3: There will be no cash flow impact in 2023 from early by shipments we received before year end as these purchases will be done on deferred payment term.

There will be no cash flow impact in 2023 from early buy shipments we received before year end as these purchases will be done on deferred payment terms.

Speaker 3: We generated 750 million in cash flow from operating activities year to date. We have also completed 137 million of open market share recorders during the quarter, leaving 463 million available under our authorization.

We generated $750 million in cash flow from operating activities year to date, we have also completed $137 million.

Market share repurchases during the quarter, leaving $463 million available under our authorization. We have also reduced debt by 479 million from the same time last year and 353 million from year end 2022, our debt leverage ratio remains conservative at 148 and at the low.

Speaker 3: We have also reduced debt by $479 million from the same time last year and $353 million from year in 2022. Our debt leverage ratio remains conservative at 1.48 and at the low end of our stated target expectations of 1.5 to 2 times.

And at our stated target expectations of one and a half to two times.

Speaker 3: As we finish out the year, we are confirming that our failed expectations for 2023 is to be down in the range of negative 10%. For the fourth quarter, we would expect to see sales down made to high single digits, mostly dependent on the weather and how the level of new pool construction finishes out the year.

As we finish out the year, we are confirming that our sales expectations for 2023 is to be down in the range of negative 10% for the fourth quarter, we would expect to see sales down mid to high single digits, mostly dependent on the weather and how the level of new pool construction finishes out the year.

Unknown Executive: Today, and welcome to the Pool Corporation, 3rd quarter, 2023 conference call. All participants will be in list-amountly mode. Should you need assistance, please signal a conference specialist by touching the star key followed by zero.

Speaker 3: The one less selling day that we reported in the third quarter will not be made up in the fourth quarter and so we will have one less selling day for the full year.

The one less selling day that we reported in the third quarter will not be made up in the fourth quarter and so we will have one less selling day for the full year.

Speaker 3: Gross margins for the full year will approximate our long-term guidance of 30%. Fourth quarter is seasonally expected to be less than the full year rate. Our range for margins for fourth quarter is expected to be around 29%, but could vary in either direction.

Gross margin for the full year will approximate our long term guidance of 30% fourth quarter is seasonally expected to be less than the full year rate our range for margins for fourth quarter is expected to be around 29%. So it could vary in either direction margins.

Unknown Executive: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one, on your touch tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded.

Speaker 3: Marges in the fourth quarter will be reduced by the year over year increase in average costs. We have seen today as we compare against last year's fourth quarter that benefited from lower cost inventory.

Margins in the fourth quarter will be reduced by the year over year increase in average cost we have seen to date as we compare against last year's fourth quarter that benefited from lower cost inventory from.

Melanie Hart: I would now like to turn the conference over to Melanie Hart, Vice President and Chief Financial Officer. Please go ahead. Thank you, and welcome everyone to our 3rd quarter, 2023 earnings conference call. Our discussion, comments, and responses to questions today may include forward-looking statements, including management's outlook for 2023. Actual results may differ materially from those discussed today. Information regarding the factors and variables that could cause actual results to differ from projected results are discussed in our 10k. In addition, we may make references to non-gap financial measures in our comments.

Speaker 3: From a comparative view, this will primarily offset the 120 basis points negative impact recorded in fourth quarter 22 for the additional import tax expense.

On a comparative view this will primarily off that 120 basis point negative impact recorded in fourth quarter 'twenty two.

Additional import tax expense.

Speaker 3: Additionally, we would expect to see some continued pressures on margins from product mix similar to what we saw in the third quarter.

Additionally, we would expect to see some continued pressures on margins from product mix similar to what we saw in the third quarter.

Speaker 3: The other structural benefits we have discussed on growth margins all remain.

Other structural benefits, we have discussed on gross margin I'll remain.

Speaker 3: Our target for failure operating expense growth is still to limit base business expense growth to 1%.

Our target for full year operating expense growth is still to limit base business expense growth to 1%.

Speaker 3: fourth quarter will not see the year-over-year decrease in operating expenses we saw in second and third quarter due to the lower-value related expenses in the smaller quarter. But the year-over-year increase will not be as high as we saw in first quarter.

Melanie Hart: A description and reconciliation of our non-gap financial measures is included in our press release and posted to our corporate website in the Investor Relations section.

With quarter will not see the year over year decrease in operating expenses, we saw in second and third quarter due to the lower volume related expenses and a smaller quarter, but the year over year increase will not be as high as we saw in first quarter.

Peter Arvan: We will begin today's call with comments from Peter Arvand, our president and CEO. Thank you, Melanie. Good morning to everyone on the call. Our 3rd quarter results came in largely as expected. As the 2023 2020 pool season winds down, we consider our results to be solid on a stand-alone basis. Particularly when considering the dynamic conditions we have been operating in. The 3rd quarter carried down the typical summer weather conditions overall allowing us to evaluate our performance and in the industry environment on a mostly weathered neutral basis.

Speaker 3: Well, your interest expense is expected to be approximately 61 million.

Your interest expense is expected to be approximately $61 million.

Speaker 3: Our fourth quarter tax rate will be consistent with our rate in first and second quarter to result in our full year expected rate of between 25 to 25.2%. The expected annual rate is similar to our prior year rate excluding ASU.

Our fourth quarter tax rate will be consistent with our rate in first and second quarter to result in our full year expected rate of between 25% to 25, 2%.

The expected annual rate similar to our prior year rate excluding ASU.

Speaker 3: Our guidance on use of for capital allocation are the same as those discussed at the end of the second quarter, with a use of cash of approximately 25 million on acquisition, 60 million on capital expenditures, and 170 million on cash dividends, reflecting the 10% quarterly increase approved in the second quarter. We will continue to retire debt and repurchase stock opportunistically throughout the balance of the year with the remaining excess cash flow.

Our guidance on uses for capital allocation are the famous daves discussed at the end of the second quarter with a use of cash of approximately $25 million on acquisition 60 million on Capex in there.

Peter Arvan: Our 3rd quarter 2023 sales of 1.5 billion is a 9% decline compared to 2022 with one less selling day but exceeded 2021 third quarter sales by 63 million or 4%. As expected, sales declines continue to moderate in the third quarter showing sequential improvement versus the 10% and 15% declines we saw in the second and first quarter of 2023. In view of the neutral weather conditions during the 3rd quarter, our sales trends across our major markets were relatively consistent.

Sure and 170 million on cash dividends, reflecting the 10% quarterly increase approved in the second quarter.

We will continue to retire debt and repurchase stock opportunistically throughout the balance of the year with the remaining excess cash flow.

Speaker 3: We have completed 180 million of share-bought back-to-date, leaving our expected chair count for fourth quarter to be 39.3 million shares. And weighted average diluted chair that's standing for the full year will also be 39.3 million, down 700,000 from last year.

We have completed $180 million of share buybacks to date, leaving our expected share count for fourth quarter to be $39 3 million shares and weighted average diluted shares outstanding for the full year will also be $39 3 million down 700000 from last year.

Peter Arvan: Starting with the year round markets, sales declined 5% for the quarter in Florida compared to the 3rd quarter last year with Arizona finishing down 8% California down 10% and Texas down 11%. For context, last year in the same quarter, Florida sales were up 20% Arizona was up 18% California was up 16% and Texas was up 10% respectively versus the 3rd quarter of 2021. This simply highlights the difficult comps that we were up against this year year round based business declined 8% while seasonal based business markets declined 10% a slight sequential improvement from the 9% and 11% declines in the second quarter of 2023. Again, for comparison, last year in the same period we saw growth in our year round based business markets of 15% and 5% in our seasonal based business markets.

Speaker 3: We have narrowed our range for our EPS guidance for the full year, 2023, to $13.15 to $13.65, including the $15 ASU tax benefit realized today.

We have narrowed our range for our EPS guidance for the full year 2023 to $13 50 intent to $13 65, including the 15th at ASU tax benefit realized to date.

Speaker 3: providing a narrow range in the third quarter after completion of the pool season is consistent with our historical practice.

Providing a narrow range in the third quarter after completion of the pool season, it's consistent with our historical practice.

Speaker 3: The fourth quarter came in very much in alignment with our latest expectations. Our focus on operational improvements and customer experience will allow us to continue to support our customers and provide them the broadest product selection with continued opportunities to grow their business. We will now begin our key.

Quarter came in very much in alignment with our latest expectations.

Good on operational improvements and customer experience.

Allow us to continue to support our customers and provide them the broadest product selection with continued opportunities to grow their business.

We will now begin our Q&A session.

Thank you.

Speaker 2: To ask a question you may press star then one on your touchstone phone.

Two last quick question you May Press Star then one on your Touchtone phone.

Speaker 2: If you're using a speaker phone, please pick up your handset before pressing the keys.

If youre using a speakerphone please pick up your handset before pressing the keys.

Peter Arvan: Gates. Moving on to product category results, chemical sales increased 5% in the third order mostly driven by increased volume as chemical pricing came in relatively flat for our collective offering. Our strong footprint, leading proprietary products and enhanced technology tools gives us an unmatched value proposition and contributed to our share growth. Building material sales for the quarter were down 13%. This category includes products unnecessary for both new pool construction and renovation and remodel projects.

Speaker 2: to withdraw your question, please press star, then too.

To withdraw your question. Please press Star then two.

Speaker 2: Please limit yourselves to one question and one follow-up question.

Please limit yourself to one question and one follow up question.

Speaker 2: At this time, we will call it no materially to assemble our roster.

At this time, we will cause momentarily to assemble our roster.

Speaker 2: Our first question comes from Ryan Merkel with William Blair. Please go ahead. Thanks.

Our first question comes from Ryan Merkel with William Blair. Please go ahead.

Thanks, Good morning, and thanks for taking the questions.

Speaker 5: I wanted to start off with a big picture question. Pete, it seems that perhaps the worst might be over for the pool declines. Can you just walk us through the puts and takes as you think about 24, not looking for specific guidance, just the positive and negatives that you see heading into next year? Yeah.

Wanted to start off with a big picture question, Pete It seems that perhaps the worst might be over for the pool declines can you just walk us through the puts and takes as you think about 24 not looking for specific guidance, just the positives and negatives that you see heading into next year.

Peter Arvan: The building material trend continues to suggest that renovation and remodel demand is stable and outperforming new pool construction and our NPT footprint and product offering enables us to outperform the industry in this category. Equipment sales declined 9% in the quarter. As you can see, this applies solid demand for maintenance and repair despite the softer demand for a new pool construction and renovation and remodel. Looking at end markets, commercial pool product demand remained strong in the third quarter with sales up 10%.

Yes sure.

Yes.

No.

Speaker 4: 2023 was no doubt a kind of a crazy year, which followed a couple of years have crazy, but for different reasons. So it was...

2023 was no doubt a.

Kind of.

A crazy year, which followed a couple of years of crazy, but for different reasons.

Speaker 4: We had bad weather in the beginning of the year. We had interest rates that continued to rise. And that we think put a crimp on new pool construction, which was actually is turning out to be lower than what we thought it was when I was talking to you a year ago. And frankly, when we initiated guidance at the beginning of the year.

Had bad weather in the beginning of the year.

Peter Arvan: Sales to our independent retail customers were down 8% for the third quarter and improvement from the 11% decline in 16% decline we thought in the second and first quarters of this year. Pinch if any franchise these collectively reported sales growth of 1% for the quarter. The franchise these generated solid sales for their maintenance products but weaker sales of discretionary items in line with what we are seeing across our distribution business. Europe's third quarter sales showed a 2% decline in local currency, a notable improvement from the 7% and 22% decline in the second and first quarters of 2023.

And interest rates that continue to rise.

We think put a crimp on nuclear construction, which.

Was actually is turning out to be lower than what we thought it was.

When I was talking to you a year ago, and frankly, when we initiated guidance at the beginning of the year.

Speaker 4: You know, I think new pool construction this year, as I mentioned, is going to be down 30.

New pool construction this year as I mentioned theres going to be down 30.

Speaker 4: I think it depends on the, that's an average, right? So I think if you look at entry-level pools in some markets, it's actually down more and in some cases, significantly more. The flip side is that the higher end pools remain solid, the builders that build the higher end pools for the more affluent people that have less financing connected or no financing connected to it, that business is good.

I think it depends on the that's on average right. So I think if you look at entry level pools in some markets, it's actually down more and in some cases significantly more the flip side is that the higher end pools remain solid the builders that build the higher end pools for the more affluent people that have.

Peter Arvan: Europe has been challenging for the past 15 to 18 months and we are encouraged by this more favorable trend. For horizon sales decline 7% during the quarter consistent with prior quarters sales activities for commercial projects remain stronger than residential. Moving on to gross margins where we ended the third quarter at 29.1% consistent with our past thinking we believe gross margins for the full year will be approximately our long term guidance of the 30% range.

Less financing connected or no financing connected to that business is good.

Speaker 4: So when I look at the, the stats back and look at the macro economic environment based on what we see today.

So when I look at the.

Step back and look at the macro economic environment based on what we see today I would tell you that I don't think new pool construction is going to drop much more couldn't drop.

Speaker 4: I would tell you that I don't think new pool construction is going to drop much more. Could it drop a thousand, a couple of thousand? I could wait too soon to tell because the builders are frankly, just putting together their plans and pricing and starting their selling season for next year. But I've talked to many builders in the last couple of months and everybody is fairly optimistic that this year the new pool count is down.

1000 couple of thousand I could way too soon to tell because the builders are frankly.

Putting together their plans and pricing and starting their selling season for next year, but I've talked to many builders in the last in the last couple of months and everybody is fairly optimistic that.

Peter Arvan: As a typical Melanie will provide more details on what to expect in the fourth quarter gross margins in her comments. Even while continuing to invest in new locations, acquisitions and technology during the quarter we reduce operating expenses by 2% compared to last year. The team did a good job managing expenses that typically ramp up during the season in light of the softer demand environment. Thankfully the team has been focused on capacity creation for many years and that helps us offset inflationary headwind and leverages our fixed expenses leading to a 15.9% operating expense percentage.

This year.

The new pool count is down.

Speaker 4: They don't really expect the fall much more than where it is today.

They don't really expect it to fall much more than where it is today.

Speaker 4: The other comment I would make on the market is on renovation. renovation is again, that plays a little bit of that same pattern, right? The renovations that would require financing are going to be under the most pressure because of interest rates.

The other comment I would make on the market is on renovation renovation is again.

Plays a little bit of that same path.

Pattern right. The renovations that would require financing are going to be under the most pressure because of interest rates now I read the same things that you guys do on interest rates. If there is moderation in interest rates next year, then that will bode well for both new pool construction and for.

Peter Arvan: Cool 360 our B2B tool for sales increase 5% over the prior year a higher growth rate than our overall sales activity. The line volume growth for the same period was 3% and demonstrate the tools contribution to our capacity creation effort while also improving the customer experience and productivity and adding value to our business and our customers. We view this tool as best in class providing multiple benefits for both our customers and the local operating team.

Speaker 4: Now, I read the same things that you guys do on interest rates. If there is moderation and interest rates next year, then that will bode well for both nuclear construction. And for

Speaker 4: uh... rented large renovations smaller renovations most of those are paid for in cash uh... and it really doesn't have a big impact uh... on whether the jobs you know get done or not

Read it as large renovation smaller renovations most of those are paid for in cash.

And it really doesn't have a big impact.

On whether the jobs.

Don or not.

Speaker 4: you know, from a maintenance perspective, maintenance is maintenance, it has to happen. You know, the overall desirability of the pool outdoor living is still very high. People still want pools. There would be more pools being built if they were frankly more affordable.

From a from a maintenance perspective maintenance is maintenance as maintenance. It has to happen you know the overall desirability of the pool outdoor living.

Peter Arvan: Page. Operating income for the third quarter of 2023 was $194 million, down $69 million compared to last year. This however represents an 85% improvement over 2019. Our recorded third quarter operating margin of 13.2% is 160 basis point expansion from 2019 and a 20 basis point expansion from 2020 showing the sustainability of our fixed cost leverage initiatives. During the third quarter, we added two new Greenfield locations. This puts us at 10 new Greenfield locations for the 2023 season, a further testament to our strong bent and refined expansion process.

Still very high people still want pools, there would be more pools being built this they were frankly more affordable.

Speaker 4: So those that have a pool, like them, use them when the weather is good, then they're in them. If I look back at the beginning of the year, a couple of the head ones we had was very tough weather in the beginning of the year. And we also had some of the inventory hangover from the previous year that was in the channel. So as I look forward, and again,

So those that have a pool like them use them when the weather is good.

Then they are they are in a fight if.

If I look back at the beginning of the year a couple of the headwinds we had was very tough weather in the beginning of the year and we also had some of the of the inventory hangover from the previous year that was in the channel. So as I look forward and again too early to give to give you a guidance, but I'm more optimistic about next year than this year, but I also want to.

Speaker 4: too early to give you a guidance, but I'm more optimistic about next year than this year, but I also want to be clear with setting expectations. I'm not looking for a material, it's new pool construction is not gonna take off, it's not gonna grow, but I look at the headwinds that we face.

<unk> cleared with the setting expectations I'm not looking for a material.

Peter Arvan: In addition to our organic openings, we added four new locations through acquisitions this year. Additionally, we expanded our Pinchipendi franchise network by adding two new franchise customers in the quarter, bringing the new franchise store count to 11 for this year. We continue to prioritize organic growth investment as the future of the business, which not only expands our customer reach, but also creates capacity for additional products and service offering at our existing locations.

New pool construction is not going to take off it's not going to grow but I look at the headwinds that we faced.

Speaker 4: and the stability of the market and I remain confident that I think next year, next year will not be another year of, of, of down down.

And the stability of the market and I remain confident that I think next year next year will not be another year of.

<unk> down down down.

Speaker 5: Got it, that's helpful, appreciate that. And then it was good to hear that the inventory's right size. Can you just talk about the early buy, which we call that normal? Are you being aggressive? And how does that impact gross margins, the first half of next year?

Got it that's helpful. I appreciate that and then it was good to hear that the inventories right size can you just talk about the early buy would you call that normal are you being aggressive and how.

Peter Arvan: Melanie will be commenting on most of the balance sheet items, but I would like to highlight one significant accomplishment that is the work that the team did on right sizing our inventory. Because of the tremendous effort of our team in conjunction with our vendor partners, the team surpassed our inventory reduction goal and delivered a reduction of over $260 million a year today. This was done while expanding our footprint, integrating acquisitions and maintaining best-than-class inventory availability.

How does that impact gross margins the first half of next year.

Speaker 4: And we say that our early buys, Ryan, we're going to participate in early buys as is normal because now we've created the headroom in the inventory where we can participate. So that certainly helps. And as does the price increases, that will be rolling out effectively next month.

I would say that our early buys Ryan we're going to participate in early buys as is normal because now we've created the headroom in the inventory, where we can participate so that that certainly helps.

And as the price increases that will be rolling out effectively next month. So for the first half of the year I mean remember our gross margin and as Melanie said, our gross margins are not consistent quarter to quarter. They vary from quarter to quarter. So they're generally higher a peak in the towards the middle of the season and then they then they come.

Peter Arvan: This achievement helped us generate $750 million in operating cash flow through September 30th, a company record, and nearly two and a half times that of this time last year. As we move into the final quarter of the year, we have proven that even the most difficult operating conditions our experience team delivers an unmatched value proposition, which enables us to outperform the industry and expand our share. We have built the largest fully integrated network of sales centers in the industry, and we are adding new locations faster than anyone with a proven process that delivers a solid ROI.

Speaker 4: So for the first half of the year, I mean, remember our gross margin, as Melanie said, our gross margins are not consistent quarter to quarter. They vary from quarter to quarter. So they're generally higher. They peak in the, towards the middle of the season, and then they come down. What I would also say is, I would draw your attention to the comment Melanie made about gross margins and the inventory drawdown. When you draw down inventory like we did, and you're buying less product like we are, that's also going to impact volume related incentives.

Down what I would also say as I.

I would.

Draw your attention to the comment he made about gross margins and the inventory drawdown when you draw down inventory like we did and you're buying less product like we are that's also going to impact volume related incentives. So we don't anticipate inventories dropping significantly from where we are therefore, we would expect volume incentives.

Speaker 4: So we don't anticipate inventories dropping significantly from where we are. Therefore, we would expect volume incentives to be more in line with what we would see traditionally. But again,

Peter Arvan: We have a vertically integrated chemical packaging operation, and a broad selection of proprietary building material products from pool tile to finish, over 135 NPT showrooms and design centers for centralized shipping locations for importing the validation, industry-leading technology solutions for our customers and our own use and best-than-class retail franchise development and support operation. Perhaps most importantly, we have over 6,000 employees that operate in a performance-based culture that know how to compete and win.

Be more in line with with what.

What we would see traditionally but again very early.

Speaker 4: Very early. I can tell you from a macro perspective, we'll be participating in early buys, but we'll give you guidance on how that should flow through the P&L when we initiate guidance next year.

I can tell you from a macro perspective, we will be participating in early buys, but we'll give you guidance on how that should flow through the P&L when we initiate guidance next year.

Got it thanks, Pete I'll pass it on.

Yeah.

Speaker 2: Our next question comes from Susan, the Clary with Goldman Sachs. Please go ahead.

Our next question comes from Susan Mcclary with Goldman Sachs. Please go ahead.

Peter Arvan: A new pool construction is likely to finish down with units down 30% in 2023. We still expect about 70,000 additional pools will be ever-growing installed base of pools where we derive over 80% of our revenue. No doubt, the current macroeconomic environment is tough, but the desirability of swimming pools and outdoor living has never been stronger, and we do not see that changing. We firmly believe that even with fewer pools being built, our share and the value of our products on a per-pool basis has grown. We know that renovation activity will continue as homeowners upgrade both services and pool technology to enhance their backyard awareness.

Thank you good morning, everyone.

Speaker 6: My first question is, good morning. Can you talk a bit about the competitive landscape now that we're sort of through the bulk of the pool season? How you're thinking about the different dynamics on the ground, your ability to react to those and any thoughts on the setup as we think about next year?

My first question good morning, good morning good.

Good morning can you talk a bit about the competitive landscape now that we're sort of through the bulk of the pool season, how youre thinking about the different dynamics on the ground your ability to react to those and any thoughts on the setup as we think about next year.

Speaker 4: Yeah, thanks Susan. Good question. You know, the competitive environment today is really no different than it would have been in a similar year in the past.

Yeah. Thanks, Susan.

Good question.

The competitive environment today is.

It's really no different than it would have been in a similar unit here in the past, meaning that it is a <unk>.

Speaker 4: meaning that it is a, uh, volumes are down this year.

Volumes are down this year.

Peter Arvan: Justice. We believe that our relentless focus on delivering a second to none customer experience positions us better than anyone in the industry to serve the pool professional and support the specialty retailers that cater to the DIY owner. In short, we believe in the long term growth characteristics of the industry, the strength of our company, and we believe in our team. As I look back on the pool season, I'm very proud of our team. And that has remained focused on innovation, execution and collaborative partnerships to deliver our customer experience that, as I said, is second to none.

Speaker 4: So when we have competitors that, and we believe that we've taken share this year, so we have competitors that are probably in rougher shape than we are, but that's nothing new. We've taken share virtually every year that we have been in existence. We'll continue to do that going forward. Now, what does that mean for competitive actions? There's times when we have competitors that do some things that are pretty desperate.

So when we have we have competitors that are and we believe that we've taken share. This year. So we have competitors that are probably in rougher shape than we are but that's nothing new we've taken share virtually every year that we have been in existence.

We will continue to do that going forward now what does that mean for competitive actions. There are times. When we have competitors that do some things that are pretty desperate and when that happens you know we have to we have to react. The good news is is that none of those things have really any staying power. So might we have to react to a certain inventory.

Speaker 4: And when that happens, you know, we have to, we have to react. The good news is is that none of those things have really any staying power. So might we have to react to a, a, a certain inventory, um, position that somebody has that they're trying to look with. Yes. Is, is there any material amount that makes that sustainable? No.

Melanie Hart: Lastly, with over three quarters of the year behind us, we have narrowed our annual earnings guidance and now expect the looted earnings per share in the range of $13.15, the $13.65, including the impact of year-to-date tax benefits of 15 cents.

Position that somebody has that theyre trying to liquidate yes is there any material amount that makes that sustainable no. So it's the competitive dynamics today really are.

Speaker 4: So, you know, it's the competitive dynamics today really are, in terms of what competitors do in this environment are no different than they have been. I would tell you that we are stronger today than we have ever been. We have more locations. We're opening up more locations. We have more locations already. We're opening more locations than anybody else is to. And our really, it comes down to our relentless focus on the customer experience that I think allows us to win.

Melanie Hart: Melanie will now provide additional details in our financial commentary. Melanie? Thank you, Pete.

In terms of what competitors do in this environment are no different than they have been I would tell you that we are stronger today than we have ever been with more locations, we're opening up more locations.

Melanie Hart: Net sales for the quarter finished at $1.5 billion, and 9% decreased from prior year record sales in the third quarter. We estimate a year-to-year quarterly sales decline in the range of 5% related to new pool construction, which is trending as expected, with units likely to show a 30% decline for the year. Remodel activity with a roughly 3% year-to-year comparative decrease effect on our top line is outperforming new pool construction, but still at lower levels from prior year and in the range of our previously estimated down 10 to 15%.

We have more locations already we're opening more locations than anybody elses too and are really it comes down to our relentless focus on the customer experience that I think allows us to win.

Speaker 6: Okay, that's helpful. And then any thoughts on capital allocation? Perhaps you know, your willingness to step up on the buybacks just given the improvement you made and the inventories and the cash flows that we saw during the quarter and as we think about the full year here and any other sort of thoughts around some of the strategic initiatives and investments there.

Okay. That's helpful and then.

Any thoughts on capital allocation.

Perhaps you know your willingness to step up on the buybacks just given the improvement you've made in the inventories and the cash flows that we saw during the quarter and as we think about the full year here and any other sort of thoughts around some of the strategic initiatives and investments there.

Melanie Hart: We also saw several other areas which each represented and approximately 1% decline in net sales. First, we had one less selling day in the quarter compared to last year. Secondly, selling prices on commodities, including tri-core. Pricing on tri-core is showing recent signs of stabilizing, but during the quarter selling prices were approximately 20% lower than third quarter of last year. Third, volumes on certain discretionary products such as above ground pool, cheaters, and cleaners reflected weakness, suggesting consumer hesitation on these more discretionary items.

Speaker 3: So overall for for capital allocation, as we mentioned for the bulk of a year, you know, we would really be looking at.

Yeah. So overall for for capital allocation I'm, you know as we mentioned for the the bulk of the year. Yeah. We would really be looking at repurchases Opportunistically certainly are historically, we would expect that this year fourth quarter, we continued to be a positive cash flow quarter.

Speaker 3: and we're purchases opportunistically. Certainly, historically, we would expect that this year fourth quarter would continue to be a positive cash flow quarter. And so we would have even more cash to spend that we currently have. And when you look at just our total capacity and all of our debt arrangements, we have a significant amount of capacity. So really, we are very fortunate from a positioning standpoint.

Melanie Hart: Outside of these products, maintenance spend remains relatively stable. Inflation continued to provide an overall advantage, resulting in a benefit of approximately 2% to 3% for the quarter. Net sales from acquisitions or new market openings contributed less than 1% in the quarter, and therefore we have not broken out these activities from base business, separately in the press release, as they had an insignificant impact on the financial information for the quarter. First margin was 29.1% in the third quarter, reflecting a typical sequential decrease from second quarter.

And so we would either have even more cash to spend that we currently have and when you look at just our total capacity in all of our debt arrangements and we have a significant amount of capacity. So really a we are very fortunate from a positioning standpoint.

Speaker 3: You know, that we have the ability to make decisions throughout the quarter to invest in what makes sense, whether it be anything related to acquisitions, new self center openings or continue to buy back. Okay.

That we have the ability to make decisions throughout the quarter to invest in what makes sense, whether it would be any anything related to acquisitions and new sales center openings or a continued share buybacks.

Okay. Thank you for all the color and good luck.

Thank you.

Speaker 2: Next question comes from David Nancy with their please go ahead.

Our next question comes from David Manthey with Baird. Please go ahead.

Speaker 7: Hi, thank you. Good morning. Morning is it to say that you now left any.

Hi, Thank you good morning.

Melanie Hart: First margin was 210 basis points less than prior year, resulting from the expected decrease in inventory gains realized in 2022 that benefits from investments in inventory ahead of the multiple inflationary price increases. Other items impacting margins in the quarter are product mix, including the lower selling prices on tri-core and new construction and remodel activity, which resulted in building materials seeing a higher year-over-year decrease than other products. Customer mix, such as a higher proportion of sales to larger customers, also had a negative impact on margins when comparing to 2022.

Good morning.

Hey that you've now lapped any.

Speaker 7: braininess or variability in the minor repair in me.

Strangeness or variability in the minor repair and maintenance volume situation I think we had shortages we had told the pull forward.

Speaker 7: volume situation and we had short as is we had COVID-po forward Just trying to gauge if there's any puts or takes remaining that would lead you to believe that that that MR MR minor repair and maintenance business wouldn't return to a typical kind of low single-digit growth rate next year And I'm not asking for guidance of just things or anything in the past that would lead to variability as we

Trying to gauge if there's any puts or takes remaining that would lead you to believe that that that MRO.

<unk>.

Minor repair and maintenance business wouldn't return to typical kind of low single digit growth rate next year.

And I'm not asking for guidance I'm, just saying is there anything in the past.

That would lead to variability as we look forward.

Melanie Hart: Weaker Industry Demand and wrapping up a channel inventory rationalization contributed to a more competitive pricing environment, causing some modest additional pressure on gross margins during the quarter. We also sought lower purchasing incentives than a normal year in conjunction with our inventory reduction plans. As DNA expenses continued to be very well managed, reflecting a 2% decrease year over year after seeing a 3% decrease in the second quarter. As these two seasonally larger quarters have the most ability to benefit from reductions of volume related expenses.

Speaker 4: Yeah, no, I think that's a fair question, Dave. I think the maintenance business should be normal. The only thing that...

Yeah, No I think that's a fair question, Dave I think the the maintenance business should be normal the only thing that I would tell you impacted we started to see an impact in the fourth quarter that carried a little over into first quarter from a maintenance perspective as the storm in a in southwest Florida.

Speaker 4: I would tell you, we started to see an impact in the fourth quarter that carried a little over into first quarter from a maintenance perspective as the storm.

Speaker 4: in Southwest Florida, but relatively minor from the total company perspective, but when I look at normal demand patterns for everything, I would tell you that maintenance and repair business has the highest predictability and stability. Where it gets...

But relatively minor from a total company perspective, but when I look at normal demand patterns for everything I would tell you the maintenance and repair business has the is the highest predictability and stability where it gets.

Speaker 4: You know, where it gets a little bit subjective is when it comes down to a repair versus an upgrade.

Melanie Hart: Off-party expenses compared to prior year also include the impacts of four locations added from acquisitions and 14 New Sale Center openings since third quarter of last year. Additionally, expenses for the third quarter include a $550,000 goodwill impairment. Off-party margin of 13.2% was 300 basis points less than prior year, reflecting the 210 basis points impact from gross margin and effects of lower top line revenue. We reported 11.6% operating margin in third quarter 2019, so we have been able to maintain benefits in our operating margin.

Where it gets a.

A little bit subjective as when it comes down to a repair versus an upgrade so and again it really kind of depends on the.

Speaker 4: So, and again, it really kind of depends on the market that you're talking about. In some cases, repairs may be choice number one, in other cases, repair and replace, or replace would be choice number one. But by and large, I don't really see much different. In fact, I look at it and say that there's set, as I mentioned in my comments.

The market that Youre talking about in some cases repairs may be choice number one in other cases, you know repair and replace or replace would be would be choice number one but by and large I don't really see much different in fact, I look at it and say that there is as I mentioned in my comments, there's 70000 nukes.

Speaker 4: 70,000 new pools that are in the ground that have to be maintained next year that didn't exist.

Rules that are in the ground that have to be maintained next year that didn't exist. This year. There was likely some things that were put off this year that next year are going to have to be done. So the good news about our swimming pool in the market is there are certain things that I have to do every week as you know is a pool owner and Theres some things that I.

Speaker 4: this year. There was likely some things that were put off this year that next year are going to have to be done. So the good news about a swimming pool and the market is, there's certain things that I have to do every week, as you know, as a pool owner. And there's some things that I could defer, but you can only defer things for so long when they turn into a, I'd like to to a must-have. So that part of the market we remain confident.

Melanie Hart: Interest expense on that comparative basis for the third quarter resulted in a 1.9 million increase in expense as a result of higher rates offsetting a significant reduction in debt outstanding. As is consistent with prior years, our third quarter tax rate is generally the lowest quarterly rate, with all other quarters being slightly higher and averaging to our full year rate. Third quarter APS excluding ASU of $3.50 compared to $4.78 in third quarter of 2022.

Could differ but you can only defer things for so long when they turned into.

I'd like to to a must have so.

That part of the market.

We remain confident in.

Speaker 7: Right, okay, yeah, don't I know it. And then second Melanie, does the inventory reduction effort in the back half of this year have any implications at all for the pre-buy and therefore your gross margin in next year?

Right, Okay, Yes don't I know it.

Then second Melanie.

Does the inventory reduction efforts in the back half of this year have any implications at all for the pre buy and therefore your gross margin in the in next year.

Melanie Hart: Despite the decline from our record 2022 results, these earnings highlight our ability to retain the majority of the significant growth seen throughout the 2020 to 2022 period as key three 23 results are higher, 90% higher than the third quarter of 2019. Our credit and collections process and management of trade receivables remains a business advantage, with DSO of 26.3 days at the end of the quarter, comparable to prior year. I was confident in our ability to execute when I stated our inventory reduction goal at the beginning of the year to bring down inventory by $260 million.

Speaker 3: It was certainly was able to allow us to clear out physical space for a pre-vide.

Yeah, well it certainly was able to allow us to clear out physical space for a pre buys.

Speaker 3: and make the determination really on a vendor by vendor basis, depending upon what their individual incentives were, and what we want to participate in.

And make the determination it really on a vendor by vendor basis, depending upon what their individual incentives work of what we wanted to participate in and so you know I would say if you had to characterize it compared to 2019, we would say that early buy season was relatively normal.

Speaker 3: And so, you know, I would say if you had to characterize it compared to, you know, 2019, we would say that early by season was relatively normal.

Melanie Hart: In fact, we were able to reduce inventory $332 million from December 2022, even with acquisitions, new locations, and current new inflation, exceeding our goal. In the fourth quarter, we plan to selectively participate in vendor early buys that we determine makes strategic sense for us. As we look ahead to the 2024 season, we are expecting to see a range of price increases for next season of around three to four percent based on some equipment vendor pricing announcements to date.

So when you look at them you know what that benefit that might bring for margin for next year, certainly well have better color on that once we take a look at what we've received kind of first quarter. We typically will receive early buys either in fourth quarter or first quarter. So we'll have a better sense for that when we talk again in February .

Speaker 8: in February . So the one thing that we did mention that will be slightly ahead of where it has been historically is typically we would be looking at those kind of one to two pricing increases in the pre-2019 period. And so for next year we are looking at those being slightly higher at kind of a two to three range. Got it. Thank you very much. Next question comes from Scott. She will be there with Oppenheimer. Please go ahead. Thank you very much.

The one thing that you know we did mentioned that will be slightly ahead of where it has been historically.

Typically we would be looking at that kind of blended two price increases in the pre 2019 period and so for next year. We are looking at that as being slightly higher at kind of a two to three range.

Melanie Hart: This will result in dollar growth in inventory from third to fourth quarter as we would normally build inventory to be ready for next season. There will be no cash flow impact in 2023 from early buy shipments we received before year end as these purchases will be done on deferred payment terms. We generated $750 million in cash flow from operating activities year to date. We have also completed $137 million of open market share purchases during the quarter, leaving $463 million available under our authorization.

Speaker 9: Got it. Thank you very much.

Got it thank you very much.

Yeah.

Our next question comes from Scott.

Schneberger with Oppenheimer. Please go ahead.

Speaker 7: Thanks very much Peter you've spoken in the past about you know maybe a handoff from new pool construction where there was a back log and then folks moving to remodel and we've heard your guidance on it but I'm curious just to

Thanks very much.

Peter you've spoken in the past about our about me.

Maybe a handoff from new pool construction, where there was a backlog and then folks moving to remodel and we've heard your guidance on it but I'm curious just to get an updated commentary from you or do you see that trend occurring.

Melanie Hart: We have also reduced debt by $479 million from the same time last year, and $353 million from year end 2022. Our debt leverage ratio remains conservative at 1.48, and at the low end of our stated target expectations of one and a half to two times.

Speaker 7: Get an update and comment here from you. Do you see that trend occurring and likely persisting? Could there be upside as you enter 2020 in the remodel category? And in that question, just what you're seeing with higher tech offerings and discretionary purchases there and propensity to pursue those items. Thanks.

Occurring and likely persisting could there be upside as you enter 2020 in the remodel category and in that question, just what you're seeing with.

Melanie Hart: As we finish out the year, we are confirming that our failed expectations for 2023 is to be down in the range of negative 10%. For the fourth quarter, we would expect to see sales down mid to high single digits, mostly dependent on the weather and how the level of new pull construction finishes out the year. The one less selling day that we reported in the third quarter will not be made up in the fourth quarter and so we will have one less selling day for the full year.

Higher tech offerings, and discretionary purchases, there and propensity to pursue those items. Thanks.

Speaker 4: Sure. You know, as I mentioned, we believe that the renovation remodel business is holding up better than new cool construction. And that's for a couple of reasons. People with pools tend to be more affluent in general than people that are deciding whether they want a pool or not certainly at the entry level. So.

Sure.

As I mentioned, we believe that the renovation and remodel business is holding up better than.

Nuclear construction and that's for a couple of reasons people with pools tend to be more affluent in general.

Melanie Hart: Gross margin for the full year. The year will approximate our long-term guidance of 30%. Fourth quarter is seasonally expected to be less than the full year rate. Our range for margins for fourth quarter is expected to be around 29%, but could vary in either direction. Marges in the fourth quarter will be reduced by the year over year increase and average costs we have seen today as we compare against last year's fourth quarter that benefited from lower cost inventory.

People that are deciding whether they want a pool or not certainly at the entry level. So.

Speaker 4: You know, our survey of the builder community would say build a remodel community because most people do both, right? Most of our customers that are builders are also doing remodel. And I

Our survey of the builder community would say build a remodel community because most people do both right. Most of our customers that are builders are also doing remodel and I think there's probably very few exceptions are builders would tell you that their remodel business is better than the new construction business I think there was a bigger backlog.

Speaker 4: there's probably very few exceptions. Our builders would tell you that their remodel business is better than the new construction business.

Speaker 4: I think there was a bigger backlog in renovation remodel, you know, a year ago, 18 months ago, because of people that were focused on building new, new, new. I think with new pool construction being down 30%, I think the...

Melanie Hart: From the comparative view, this will primarily offset the 120 basis points negative impact recorded in fourth quarter 22 for the additional import tax expense. Additionally, we would expect to see some continued pressures on margins from product mix similar to what we saw in the third quarter. The other structural benefits we have discussed on gross margins all remain. Our target for full year operating expense growth is still to limit based business expense growth to 1%.

Log in renovation and remodel a year ago 18 months ago because of people that were focused on building new new new.

I think with new pool construction being down 30% I think the the.

Speaker 4: the backlog of renovation and remodel has been worked down.

The backlog of new pool of renovation and remodel has been worked down but also remember we the industry kind of views renovation remodel is about 10% of the industry right. So if you have $5 4 million in ground pools, there might have been a little more than 10%.

Speaker 4: but also remember, you know, we, the industry kind of views renovation and remodel is about 10% of the industry, right? So if you have...

Speaker 4: You know, 5.4 million in-ground pools there might have been

Melanie Hart: Fourth quarter will not see the year over year decrease in operating expenses we saw in second and third quarter due to the lower volume related expenses in the smaller quarter, but the year over year increase will not be as high as we saw in first quarter. Full year interest expense is expected to be approximately 61 million. Our fourth quarter tax rate will be consistent with our rate in first and second quarter to result in our full year expected rate of between 25 to 25.2%.

Speaker 4: A little more than 10% in Pencept Demand and Backlog.

And pent up demand and backlog that today may be back down in the in the 10% range. So that business is good.

Speaker 4: that today may be back down in the 10% range. So that business is good. It was probably a little bit ahead of itself, addressing the backlog. Now I would tell you that it's probably back down to more normal. a more proposed access into a financial development system on an even data.

It was probably a little bit ahead of itself addressing the backlog now I would tell you that it's probably back down to <unk>.

More normal.

Speaker 4: And I think that's good and that's healthy for the industry.

And I think that's good and that's healthy for the industry.

Speaker 4: Your question on, you know, the technology adoption, again, it comes down to, I guess during the height of COVID when people were home and they said, hey, I'm spending a lot of time. I'm staring at it.

Your question on the technology adoption again it comes down to.

Melanie Hart: The expected annual rate is similar to our prior year rate excluding ASU. Our guidance on uses for capital allocations are the same as those discussed at the end of the second quarter with a use of cash of approximately 25 million on acquisition. 60 million on capital expenditures and 170 million on cash dividends reflecting the 10% quarterly increase approved in the second quarter. We will continue to retire debt and repurchase stock opportunistically throughout the balance of the year with the remaining excess cash flow.

I guess during the height of Covid when people were home and they said hey, I'm spending a lot of time I'm staring at a swimming pool with no technology, how do I want I want I want we saw big request for I want technology I want technology.

Speaker 4: Swimming pool with no technology. I want, I want, I want, we saw big, you know, requests for, I want technology, I want technology.

Speaker 4: We see with new pool construction, the trend towards higher ticket items and technology is still continuing. People are still, the pools that are being built today still have the new features and the new technology on it.

We see with new pool construction, the the trend towards higher ticket items and technology is still continuing right people are still the pools that they are that are being built today still have the new features in the new technology on it oftentimes when there's a when there's a replacement necessary again.

Melanie Hart: We have completed 180 million of share by back to date, leaving our expected chair count for fourth quarter to be 39.3 million shares and weighted average diluted share that standing for the full year will also be 39.3 million down 700,000 from last year. We have narrowed our range for our EPS guidance for the full year 2023 to $13.15 to $13.65 including the 15 cent ASU tax benefit realized today providing a narrow range in the third quarter after completion of the pool season is consistent with our historical process. The quarter came in very much in alignment with our latest expectations.

Speaker 4: Oftentimes when there's a replacement necessary, again, it is an opportunity for an upgrade. So maybe during COVID, some of the upgrades were pulled forward, meaning the time clock still works, but I'd actually like to do this from my phone versus going out to the pad.

It is an opportunity for an upgrade so maybe during COVID-19. Some of the upgrades were pulled forward, meaning the time clock still works, but I'd actually like to do this from my phone versus going out to the pad. So now when there is failures of equipment, we still see adoption of the of the higher tech product because frankly, it's just it's.

Speaker 4: So now, you know, when there are failures of equipment, we still see adoption.

Speaker 4: of the higher tech product because frankly

Speaker 4: It's just, it's a better experience for the consumer. You know, when pumps fail and they're putting in a variable speed pump, there's still a lot of single speed pumps in the industry that we're working and people weren't going to change them, but when they do change them, because of the DOE regulations, they're going to variable speed and they're recognizing a significant benefit in their energy costs.

A better experience for the consumer.

When when pumps fail and they are putting in a variable speed pump theres still a lot of single speed pumps in the industry that we're working and people weren't going to change them, but when they do change them because of the regulations are going to variable speed and they're recognizing as significant benefit in their energy costs. The same opportunity exists when it comes to the heaters.

Melanie Hart: Our focus on operational improvements and customer experience will allow us to continue to support our customers and provide them the broadest product selection with continued opportunities to grow their business.

Speaker 4: The same opportunity exists when it comes to the heaters, you know, high efficiency heaters versus standard efficiency heaters.

High efficiency heaters versus standard efficiency heaters.

Joseph Ahlersmeyer: Joseph. We will now begin our Q&A session. Thank you. To ask a question, you may press star then one on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Please call us momentarily to assemble our roster.

Speaker 4: and cleaners, there's, you know, types of cleaners that are far more efficient. And again,

And cleaners theirs.

Types of cleaners that are for far more efficient and again the consumer trends for those products continue there when people are spending money.

Speaker 4: The consumer trends for those products continue. They are, when people are spending money, those that are replacing, most often are replacing for the newer product versus looking at old technology.

Those that are replacing.

Most often are replacing for the for the <unk>.

<unk> product versus looking at old technology.

Speaker 8: Great, thanks for that. And then only really nice S-G-N-A, efficiency in second and third quarter, heard the guidance on fourth quarter that less leverage in the less seasonal activity. But looking ahead the next year, how are you feeling about margin? I know it's very dependent on what you see on revenue. But how are you feeling on margin on some of these efficiencies you've gained? How sustainable will they be into next year?

Great Thanks for that and not only.

Really nice SG&A efficiencies in second and third quarter are.

I heard the guidance on fourth quarter that you know west leverage.

And then a less seasonal activity, but looking ahead to next year. How are you feeling about margin I know, it's very dependent on what you see on revenue, but you know how.

Ryan Merkel: Our first question comes from Ryan Merkel with William Blair. Please go ahead. Thanks. Good morning. Thanks for taking the questions.

How are you feeling a margin on some of these efficiencies you gain how sustainable will they be into into next year. Thanks.

Peter Arvan: I wanted to start off with a big picture question. Pete, it seems that perhaps the worst might be over for the pool declines. Can you just walk us through the puts and takes as you think about 24, not looking for specific guidance, just the positive and negatives that you see heading into next year? Yeah, sure. So 2023 was no doubt a kind of a crazy year, which followed a couple of years have crazy, but for different reasons.

Speaker 3: Yeah, you know, we are very proud of what we've been able to do on the expense side, and it's a really good indicator of the quality of management and their ability at each individual sales center level to adjust expenses according to the volumes at each location. So, as we look forward for next year, we would certainly continue to do that.

Yeah. You know we are very proud of what we've been able to do on the expense side and it is a really good indicator.

The quality of management.

And then their ability at each individual sales center level to adjust expenses. According to the volumes at each location.

So you know as we look forward for next year, we would certainly continue to do that.

Speaker 3: You know, regardless of whether or not is a significant upsling or just kind of a continued moderating of where we are from a sales standpoint.

Regardless of whether or not it's a you know a significant upswing or just kind of a continued moderating of where we are from a sales standpoint.

Peter Arvan: So we had bad weather in the beginning of the year. We had interest rates that continued to rise. And that we think put a crimp on new pool construction, which was actually is turning out to be lower than what we thought it was when I was talking to you a year ago. And frankly, when we initiated guidance at the beginning of the year, you know, I think new pool construction this year, as I mentioned, is going to be down 30.

Speaker 3: And so, you know, we continue to have worked throughout the season and one of the things that we said earlier on, you know, that we weren't cutting the base of our expenses because we wanted to take the opportunity from a volume standpoint and reinvest in our employees in our operational initiatives and our training. And we have been very successful in those things that we wanted to do for this year. And so our expectation would be that that would be a benefit for us as we move forward.

And so yeah, we continue to have worked throughout the season.

One of the things that we are we said earlier on that we werent cutting the base of our expenses because we wanted to take the opportunity from a volume standpoint, and reinvest in our employees.

In our operational initiatives and our training.

And we have been very successful in those things that we wanted to do for this year.

Peter Arvan: I think it depends on that's an average, right? So I think if you look at entry level pools in some markets, it's actually down more and in some cases, you know, significantly more. The flip side is that the higher end pools remain solid, the builders that build the higher end pools for the more affluent people that have less financing connected or no financing connected to it, that business is good. So when I look at the stats back and look at the macro economic environment based on what we see today, I would tell you that I don't think new pool construction is going to drop much more.

Our expectation would be that that would be a benefit for us as we move forward.

Thanks.

Speaker 2: Our next question comes from Noah Marcusco with evens. Please go ahead.

Our next question comes from Zillow microscopic Stevens. Please go ahead.

Good morning, and thanks for taking my questions.

Speaker 10: Warnow first that morning. I know there's been a lot of discussion about gross margin already, but hopefully I can squeeze one more in here. I think the longer term you've talked about 30% gross margins. And so I guess as we sit here today, is that still the right way to think about it?

Good morning first thought.

Good morning, I know theres been a lot of discussion about gross margins are already but hopefully I can squeeze one more in here.

I think longer term you you've talked about a 30% gross margins and so I guess so as we sit here today is that is that still the right way to think about it.

Peter Arvan: Could it drop a thousand, a couple of thousand? I could way too soon to tell because the builders are frankly, you know, just putting together their plans and pricing and starting their selling season for next year. But I talked to many builders in the last couple of months and everybody is fairly optimistic that, you know, this year, the new pool count is down. They don't really expected the fall much more than where it is today.

Speaker 10: And you're now, you know, as we look at the medium term, you're benefiting from early buy from manufacturers plus higher than normal inflation for next year. So could that potentially influence gross margin a little bit higher than that 30% target in the medium term?

And you're now you know as we look at the medium term you're benefiting from our early buy for manufacturers plus higher than normal inflation for next year or so could that potentially influence gross margins, a little bit higher than that 30% target in the medium term.

Speaker 3: So thank you for acknowledging that we are still consistently stating that our long-term margins will approximate 30%.

Yeah. So thank you for FERC managing that you know we are at.

Still consistently stating that our long term margins will be will approximate 30%.

Peter Arvan: The other comment I would make on the market is on renovation. Renovation is, again, that plays a little bit of that same pattern, right? The renovations that would require financing are going to be under the most pressure because of interest rates. Now, I read the same things that you guys do on interest rates. If there is moderation and interest rates next year, then that will build well for both new pool construction and for a large renovation.

Speaker 3: When we look at kind of the structural things that made up those margins, we are continuing to benefit from the acquisition-related margins that we did from the Pinchapenny and Corpus Activision. And if Pete mentioned in his comments, they are trending overall very well as it relates to kind of compared to the traditional retail market within our industry.

When we look at kind of the structural things that made up those margins.

We're continuing to benefit from the acquisition related margins that we did from the Pinchpenny in Corpus acquisition and.

And as Pete mentioned in his comments they are trending overall very well as it relates to kind of compare it to the traditional retail market within our industry. We've also seen some benefits from a private label product that is an area, where we would expect to continue to expand as we move forward, we're continuing to add capacity.

Speaker 3: We've also seen some benefits from our private label product.

Speaker 3: That is an area where we would expect to continue to expand as we move forward. We're continuing to add capacity there to serve more of our locations.

Peter Arvan: Smaller renovations, most of those are paid for in cash, and it really doesn't have a big impact on whether the jobs get done or not. You know, from a maintenance perspective, maintenance is maintenance. It has to happen. You know, the overall desirability of the pool outdoor living is still very high. People still want pools. There would be more pools being built if they were, frankly, more affordable. So those that have a pool like them use them when the weather is good, then they're in them.

They are to serve more of our locations.

Speaker 3: We've been had made great strides in what we've done on our procurement and our logistics end. So that continues to provide benefits.

Ben had made great strides in what we've done on our procurement and logistics and so that continues to provide benefits.

Speaker 3: As well as pricing. We would say that we're definitely not done from the pricing area. We have some new things that we'll talk about when we talk again in February and what we're doing as it relates to pricing. And so really the only thing this year that is we'll be a little bit out of what we've seen historically is kind of that product mix particularly as it relates to the building materials. So we are seeing a little bit more of a drag on the new construction, on the sale through some of those products which we did talk about.

As well as pricing, we would say that we're definitely not done from the pricing area. We have some new things that we'll talk about when we talk again in February on what we're doing as it relates to pricing.

So really the only thing this year that it will be a little bit out of what we've seen historically, it's kind of that product mix, particularly as it relates to the.

Peter Arvan: You know, if I look back at the beginning of the year, a couple of headwinds we had was very tough weather in the beginning of the year, and we also had some of the inventory hangover from the previous year that was in the channel.

The building materials. So we are seeing a little bit more of a drag on the new construction on the sell through of some of those products, which we did talk about them. You know that has been a significant growth opportunity for us and so as that normalizes, we would see that that normalizes as part of our overall longer term margins.

Peter Arvan: So as I look forward, and again, too early to give you a guidance, but I'm more optimistic about next year than this year, but I also want to be clear with setting expectations. I'm not looking for a material. It's new pool construction. It's not going to take off. It's not going to grow, but I look at the headwinds that we faced and the stability of the market. And I remain confident that I think next year, next year will not be another year of, of down, down, down. Got it. That's helpful. Appreciate that.

Speaker 3: You know, that has been a significant growth opportunity for us. So as that normalizes, we would see that that normalizes as part of our overall longer term margin.

Speaker 3: And then again, we did also mention the vendor incentives for this year will be left and what they would be a normalized year.

And then again, we did also mentioned the vendor incentives for this year will be less than what they would be a normalized year.

Speaker 4: No doubt margin is a very important focus area for us. It can be hard to predict when you have a dynamic market.

No doubt margin is a very important focus area for us.

It can be hard to predict when you have when you have a dynamic market.

Speaker 4: that you're playing in, right, with mix, you know, customer mix, new cool construction, whether all of those things factor into the overall product mix and the overall customer mix, but rest assured that drivers behind that, which is a very effective supply chain, a customer product offering that is very desirable. Focus on...

That youre, playing in right with mix customer mix.

Peter Arvan: And then it was good to hear that the inventory is right size. Can you just talk about the early buy which we call that normal? Are you being aggressive? And, you know, how does that impact gross margins the first half of the next year? We say that our early buys, Ryan, we're going to participate in early buys as is normal because now we, you know, we've created the headroom in the inventory where we can participate.

<unk> construction, whether all of those things factor into the overall product mix in the overall customer mix, but rest assure that the drivers behind that which is a very effective supply chain a customer.

Product offering that is very desirable focus on the our private label and exclusive brands.

Speaker 4: The our private label and exclusive brand.

Speaker 4: a dynamic pricing environment, you know, leaning very heavily into our vertically integrated, you know, chemical packaging facility, all of those things, all of those things help.

Dynamic pricing environment.

Peter Arvan: So that that certainly helps. And as does the price increases that will be rolling out effectively next month. So for the first half of the year, I mean, remember our gross margin as Melanie said our gross margins are not consistent quarter to quarter. They vary from quarter to quarter. So they're generally higher, they peak in the towards the middle of the season and then they then they come down. What I would also say is I would draw your attention to the comment Melanie made about gross margins and the inventory drawdown.

Leaning very heavily into our vertically integrated chemical packaging facility all of those things all those things help.

Speaker 4: and they're all factored into our long-term plan and our long-term guide. Certainly, as we mentioned, the vendor incentives this year is different this year in a year where you're drawing down inventory than a year when you are increasing inventory. So a lot of factors going to gross margin can tell you that it is a big focus area for the entire business, and we believe that it will continue to pay dividends.

And they are all factored into our into our long term plan and our long term guide certainly as we mentioned the vendor incentives. This year is a it is different this year than a year, where you're drawing down inventory than a year. When you are increasing inventory so.

A lot of factors go into gross margin can tell you that it is a.

A big focus area for the for the entire business and we believe that it will continue to pay dividends for us.

Peter Arvan: When you draw down inventory like we did and you're buying less product like we are that's also going to impact volume related incentives. So we don't anticipate inventories dropping significantly from where we are. Therefore, we would expect volume incentives to be more in line with with what we would see traditionally. But again, very early. I can tell you from a macro perspective will be participating in early buys, but we'll give you guidance on how that should flow through the PNL when we initiate guidance next year. Got it. Thanks, Pete.

Speaker 10: Got it, that's helpful. And then for my follow on just a clarifying question, the language in the press release noted the low end of the revised EPS guidance range at $13.15 would be a solid result. Should we read into that to mean that you're pointing to the low end of the guidance?

Got it that's helpful.

And then for my follow on just a clarifying question.

The language in the press release noted the low end of the revised EPS guidance range of $13.15 would be a solid result should we read into that to mean that you're pointing to the low end of the guidance.

Speaker 3: Yeah, that really wasn't intended to guide one way or the other. I think it was more of just taking a big step back and acknowledging where we're ending up for this year. So again, as we sit here today, we don't want to be telling you that failed it down 10%.

Yeah, no that really wasn't intended to guide one way or the other I think it was more of just taking a big step back and acknowledging where we're ending up for this year. So you know again as we sit here today, we don't want to be telling you that sales are down 10%, but it's really just putting it in <unk>.

Ryan Merkel: I'll pass it on.

Susan Maklari: Next question comes from Susan, the Clary with Goldman Sachs. Please go ahead. Thank you.

Speaker 3: But it's really just putting in context of taking out the last two years of extraordinary growth and seeing that from an incremental standpoint, we have certainly accomplished a lot from where we were when we reported 2019 results.

<unk> of you know taking out the last two years of extraordinary growth.

Peter Arvan: Good morning, everyone. My first question. Good morning. Can you talk a bit about the competitive landscape now that we're sort of through the bulk of the pool season? How you're thinking about the different dynamics on the ground, your ability to react to those and any thoughts on the setup as we think about next year. Yeah, thanks, Susan. Good question. You know, the competitive environment today is is really no different than it would have been in a similar year in the past, meaning that it is a volumes are down this year.

Seeing that from a you know incremental standpoint, we have certainly accomplished a lot from us from where we were when we reported 2019 results.

Speaker 3: And so, you know, we are proud of the results that we will be presenting to you for this year.

And so you know we are proud of the results that we will be presenting to you for this year yes.

Yeah, the fourth quarter.

Speaker 4: Fourth quarters are seasonally least significant quarter. It also is the quarter that is affected the most in terms of a percentage of the quarter by things like weather. So if the season shuts down early and construction drops off sooner because it gets cold, it magnifies itself because of the size of the quarter. So I think all we were pointing to is the potential variability.

Yes fourth quarters are seasonally at least significant quarter. It also is the quarter that has affected the most in terms of a percentage of the quarter by things like weather. So if the season shutdown early.

Construction drops off sooner because it gets cold it magnifies itself because of the size of the quarter.

So I think all we were pointing to is the potential variability.

Peter Arvan: So when we have we have competitors that and we believe that we've taken share this year, so we have competitors that are probably in rougher shape than we are. But that's nothing new. We've taken share virtually every year that that we have been in existence will continue to do that going forward. Now, what does that mean for competitive actions? There's times when we have competitors that do some things that are pretty desperate.

Speaker 10: Yep, yep. Okay, that all makes sense. And if I can just squeeze on one other quick one. What was the expected inflation next year from price increases? Was it three to four or two to three?

Yep Yep, Okay that all makes sense and if I can just squeeze in one other quick one what was the expected inflation next year from price increases was it three to four or two to three.

Speaker 3: So we have three to four from a from a equipment vendor standpoint.

So we have three to four from a from a equipment vendor standpoint.

Speaker 3: You know, we are expecting on the, based on the current run rate on tri-core. We still will have a first and second quarter that will be laughing some, you know, year-to-year pricing. So, you know, it could blend kind of within that. We're also still waiting to get kind of final pricing on horizon. So current look is that that'll probably be something less than what we're seeing on the blue side only equipment. So, you know, we'll have a better definitive answer for that when we talk to get it February .

We are expecting on the based on the current run rate on track or are we still will have a first and second quarter that we'll be lapping some you know year over year pricing.

Peter Arvan: And when that happens, you know, we have to we have to react. The good news is that none of those things have really any staying power. So might we have to react to a certain inventory position that somebody has that they're trying to look with a yes, is there any material amount that makes that sustainable? No. So, you know, it's the competitive dynamics today really are in terms of what competitors do in this environment are no different than they have been.

So you know and it could blend kind of within that we're also still waiting.

You got to get kind of final pricing on horizon.

Current look is that that will probably be something less than what we're saying on the blue side on the equipment. So yeah, well have a better a definitive answer for that when we talk again in February .

Speaker 10: Got it, that makes sense. Well, thanks for taking my questions and good luck going forward.

Got it that makes sense well, thanks for taking my questions and good luck going forward.

Thank you.

Peter Arvan: I would tell you that we are stronger today than we have ever been. We have more locations. We're opening up more locations. We have more locations already. We're opening more locations than anybody else is to and our really it comes down to our relentless focus on the customer experience that I think allows us to win.

Speaker 2: The next question comes from Andrew Carter with Steeple. Please go ahead.

Our next question comes from Andrew Carter with Stifel. Please go ahead.

Speaker 11: yeah hey thanks good morning i think you said this is more of a weather neutral quarter but i kind of want to understand the jump in chemicals because that i would assume had to be volume related because i think the pricing was steady so was there any weather impact in that and then regarding i know that you called out product mix as a headwind but it would chemicals be a creative or delutive to gross margin overall so i'll stop there

Yeah, Hey, Thanks. Good morning, I think you said this this is more of a weather neutral quarter, but I kind of wanted to understand the jump in chemicals, because that I would assume had to be volume related because I think the pricing was steady. So was there any weather impact in that and then regarding I know that you called out product mix was a headwind, but it would chemicals.

Susan Maklari: Okay, that's helpful.

Peter Arvan: And then any thoughts on capital allocation? Perhaps, you know, your willingness to step up on the buybacks just given the improvement you made and the inventories and the cash flows that we saw during the quarter and as we think about the full year here and any other sort of thoughts around some of the strategic initiatives and investments there? Yeah, so overall for capital allocation. As we mentioned, for the bulk of a year, you know, we would really be looking at our purchases opportunistically.

Be accretive or dilutive to gross margin overall, so I'll stop there.

Okay.

Speaker 4: Yeah, so the chemical sales growth that we saw in Andrews, as I mentioned, is a result of a couple things. So it was a weather neutral quarter, which it's been a long time since we've been able to say that it did say weather neutral quarter, and we weren't saying that it was extraordinary. Now, was it hot in Texas? Yes, it was hot in Texas, but frankly, I've lived in Texas and in Texas, it's hot every summer.

Yeah, so the the.

<unk> sales growth that we saw Andrew.

As I mentioned as a result of a couple of things. So it was a weather neutral quarter, which it's been a long time since we've been able to say that it's a weather neutral quarter and we weren't saying that it was extraordinary now was at heart in was as hot in Texas, Yes. It was hot in Texas, but frankly I've lived in Texas, and Texas is hot every summer.

Peter Arvan: Certainly, historically, you know, we would expect that this year or fourth quarter would continue to be a positive cash flow quarter. And so we would, you know, have even more cash to spend that we currently have. And when you look at just our total capacity and all of our debt arrangements, we have a significant amount of capacity. So really, we are very fortunate from a position standpoint, you know, that we have the ability to make decisions throughout the quarter to invest in what makes sense, whether it be anything related to acquisitions, new cells that are opening or continue to buybacks.

Speaker 4: So, from a wider perspective, we would say neutral. I would tell you that we have been focused on our chemical business, and we've been focused on providing our customers with a product offering that is second to none, and with technology tools that allows them to frankly sell more chemicals. And I think that bodes well for us, and we are participating.

So from a weather perspective, we would say neutral I would tell you that we have been focused on our chemical business and we've been focused on providing our customers with a product offering that is second to none and with technology tools that allows them to be.

Frankly sell more chemicals, and I think that bodes well for us and we are participating and so I think our ability to take share on the chemical basis.

Speaker 4: And so I think our ability to take share on the chemical basis is evident within the core. And that, as you know, is a focus area for us.

It is evident within the quarter and that as you know is a focus area for us.

Speaker 4: So from a margin perspective, you know, when you're talking about our private label and exclusive brands, remember on the chemical side, there's three different parts of chemicals, right? You have the trichlor part of the business. Remember, we've always said it's about a third, a third, a third. You have specialty, you have balancers, and then you have trichlor.

So from a margin perspective, when you are talking about our private label and exclusive brands remember on the chemical side Theres three different parts of chemicals right you have the tricolore.

Susan Maklari: Okay, thank you for all the color and good luck. Thank you.

David Manthey: Our next question comes from David Nancy with there. Please go ahead. Hi, thank you. Good morning. Morning, is it to say that you've now left any. Rangeness or variability in the minor repair and maintenance volume. Situation, I mean, we had short as it is, we had COVID pull forward just trying to gauge if there's any puts or takes remaining that would lead you to believe that that that MRM are minor repair and maintenance business wouldn't return to a typical kind of low single digit growth rate next year.

Part of the business remember, we've always said, it's about a third a third a third specialty you have bouncers and then you have you have.

<unk>.

Speaker 4: On the trichlor, as Melanie mentioned, we did see some deflation on trichlor, but there was offset by some inflation on the other two areas. So in general, it is margin accretive for us, but it really depends on the chemical trail that you're talking about.

Tricolore as Melanie mentioned, we did see some deflation on tricolore, but there was offset by some inflation on the other two areas. So in general.

It is margin accretive for us, but it really depends on the chemical.

Rail that Youre talking about.

Speaker 11: Got it. Thank you. Switching gears a little bit, I know you kind of talked a little bit in sales and not

Got it. Thank you switching gears, a little bit I know, you've kind of talked a talked a little bit in sales and not not kind of putting a firm line in the sand, but as far as like EPS goes next year do you have other drivers to grow EPS and a more tepid environment. I know this year has been a story about maintaining SG&A investment.

Speaker 11: kind of putting a firm line in the sand, but as far as like EPS goes next year, do you have other drivers to grow EPS in a more, you know, type of environment? I know this year's been a story about maintaining S-GNA investment. Do you see a world where you can get more flex on S-GNA? Do you see perhaps more meaningful growth, growth margin increases anything, anything along those lines? Thank you.

David Manthey: And I'm not asking for guidance of just things or anything in the past that would lead to variability as we look forward. Yeah, no, I think that's a fair question, Dave. I think the maintenance business should be normal. The only thing that I would tell you impacted that we started to see an impact in the fourth quarter that carried a little over into first quarter from a maintenance perspective is the storm in Southwest Florida.

Do you see a world where you can get more flex on SG&A do you see perhaps more meaningful gross gross margin increases anything or anything along those lines. Thank you.

Speaker 4: Yeah, again, too early to put together an outlook for next year. But if you think about the themes that we've consistently discussed.

Yeah.

Again too early to put together an outlook for next year, but if you think back about the themes that we've consistently discussed.

David Manthey: But you know, relatively minor from the total company perspective, but when I look at normal demand patterns for everything, I would tell you that maintenance and repair business has the highest, you know, predictability and stability where it gets, you know, where it gets a little bit subjective is when it comes down to, you know, a repair versus an upgrade. So, and again, it really kind of depends on the market that you're talking about.

Speaker 4: that are going to have an impact on our EPS, right? One is we have a relentless focus on growth. Sometimes the market helps you in that area with from a demand perspective, but this year for instance, with new cool construction, it certainly was of no help.

That are going to have an impact on our EPS right. One is we have a relentless focus on growth sometimes a market helps you in that area with from a demand perspective, but this year for instance, with nuclear construction. It certainly was of no help in times like that we lean into other areas like our capacity creation, which is something again, we didn't.

Speaker 4: And times like that, we lean into other areas like our capacity creation, which is something, again, we didn't just start this year, we didn't start it last year, frankly, you know, it was something that was started free COVID and it's a good thing we did because that allowed us to ramp up very quickly and handle the surge in business and the increase in activity without adding, you know, significant amounts of cost.

David Manthey: In some cases repairs may be choice number one and other cases, you know, repair and replace or replace would be would be choice number one, but by and large, I don't really see much different. In fact, I look at it and say that there's set, as I mentioned in my comments, there's 70,000 new pools that are in the ground that have to be maintained next year that didn't exist this year. There was likely some things that were put off this year that next year are going to have to be done.

Just start this year, we didn't started last year frankly.

That was started pre COVID-19 and it is a good thing we did because that allowed us to ramp up very quickly and handle the the.

The surge in business and the increase in activity without adding.

Significant amounts of cost so from a EPS leverage perspective, obviously in a business like ours. Your biggest leverage points are going to be volume. So we have if we grow more than that certainly helps margin is an area too as we mentioned.

Speaker 4: So from an EPS leverage perspective, obviously in a business like ours, your biggest leverage points are going to be volume. So if we grow more, then that certainly helps.

Speaker 4: Margin is an area to, as we mentioned, gross margin is something that is a focus area for us. It's an area that we still see opportunity in. And of course, as I mentioned, capacity creation and SGNA leverage is something that we always work on. But at the same time too, in order for us to provide a best in class customer experience, in order to provide the best technology tools, that requires some investment too.

David Manthey: So the good news about a swimming pool and the market is, you know, there's certain things that I have to do, you know, every week, as you know, as a pool owner. And there's some things that I could defer, but you can only defer things for so long when they turn into a, you know, I'd like to to a must have. So, you know, that part of the market, we remain confident, in.

Gross margin is something that is a focus area for us it's an area that we still see opportunity in and of course as I mentioned.

Past the creation and SG&A leverage is something that we always work on but at the same time too in order for us to provide a best in class customer experience in order to provide the best technology tools that require some investment too. So we tend to be very long term focused on our on.

David Manthey: Right. Okay. Yeah. Don't I know it. And then second, Melanie, does the Infantory Reduction Efforts in the back half of this year have any implications at all for the the prebi and therefore your gross margin in in next year? Yeah. Well, certainly was able to allow us to clear out physical space for a prebi and make the determination really on a vendor by vendor basis, depending upon what their individual incentives were, what we wanted to participate in.

Speaker 4: So we tend to be very long-term focused on our investments.

Our investments.

Speaker 4: and deliver it with where we're investing capital on recognizing that sometimes you spend money this year to reap rewards next year or the year after or the year after. But I think if you look back historically on the investments that Poo Corp has made, that's one of the things that has allowed us to continue to grow and to continue to expand the operating level.

And deliberate with where we're investing capital on recognizing that sometimes you spend money this year to reap rewards next year or the year. After the year after but I think if you look back historically on the investments that pool Corp has made that's one of the things that has allowed us to continue to grow into continued to expand.

The operating leverage.

Speaker 11: And finally, just real quickly, you said something about increased competitive activity during the script. Was that isolated to chemicals or were there any other significant pockets out there beyond just normal course of business that you kind of talked about?

And final just real quickly you said something about increased competitive activity. During the script was that isolated to chemicals or were there any other significant pockets out there beyond just normal course of business that you've kind of talked about.

David Manthey: And so, you know, I would say if you had to characterize it compared to, you know, 2019, we would say that early by season was relatively normal. And so when you look at, you know, what that benefit that might bring for margins for next year, you know, certainly will have better color on that. Once we take a look at what we've received kind of first quarter, we typically will receive early buys either in fourth quarter or first quarter.

Speaker 4: Yeah, Andrew, I think it's really in a lot of areas, right? When you have a demand environment that is markedly different year over year, you have competitors.

Yes, Andrew I think it's really in a lot of areas right. When you have when you have a demand environment that is markedly different year over year. You have competitors that are going to do things they are going to react because they need cash and they need to liquidate inventory. So I can't tell you that it was the owner.

Speaker 4: that are going to do things, they're going to react because they need cash and they need to liquidate inventory. So, you know, I can't tell you that it was the only place we saw competitive pressure was in chemicals. We saw in chemicals. We saw it in equipment. We've seen it in building materials. And again, the good news is that none of those are sustainable. Do they cause us to react?

David Manthey: So we'll have a better sense for that when we talk again in February. So the one thing that, you know, we did mention that will be slightly ahead of where it has been historically is, you know, typically we would be looking at those kind of one to two pricing prices, you know, in the pre-2019 period. And so for next year, we are looking at those being, you know, slightly higher at kind of a two to three range. Got it. Thank you very much.

The place we saw competitive pressure was in chemicals, we saw in chemicals, we saw it in equipment, we've seen it in building materials and again. The good news is is that those none of those are sustainable do they caused us to react yes is there a short term impact when we have to react on that yes is anybody better positioned.

Speaker 4: Is there a short-term impact when we have to react on that? Yes. Is anybody better positioned to withstand that? Yes. And frankly,

<unk> two to withstand that yes, and frankly.

Speaker 4: What we really focus most of our attention on is providing the best customer experience.

What we really focused most of our attention on is providing the best customer experience. So that it doesn't come down to having to having to match.

Peter Arvan: Our next question comes from Scott Cheney River with Oppenheimer. Please go ahead. Thanks very much. Peter, you've spoken in the past about, you know, maybe a handoff from new pool construction where there was a backlog and then folks moving to remodel. And we've heard your guidance on it, but I'm curious just to get an updated commentary from you of, do you see that trend occurring and likely persisting? Could there be upside as you enter 2020 in the remodel category? And in that question, just what you're seeing with higher tech offerings and discretionary purchases there in propensity to pursue those items. Thanks.

Speaker 4: so that it doesn't come down to having to match a desperate price in the market.

A desperate price in the market.

That's all I got thank you guys I'll pass it on.

Thank you.

Okay.

Speaker 2: The next question comes from Joe, Aller's Miller with, Georgia Bank, please go ahead.

Our next question comes from Joe Oh, there's more with Deutsche Bank. Please go ahead.

Speaker 12: Hey everybody, good morning, hope you're well. Hey, good morning.

Hi, everybody.

Good morning, Hey, Joe Good morning.

Speaker 12: Yeah, forgive me. I just, I'll need to follow up a little bit on the prior question about the competitive environment. Maybe first, if I'm looking at the comment from early around the typical sequential decline in gross margin, I think it's a little larger than the typical sequential decline. And of course, you listed out some unique items. I'm just wondering if-

Okay.

Yeah forgive me I, just how you'll need to follow up a little bit on the prior question about the competitive environment, maybe first if I'm looking at the comment from earlier around the typical sequential decline in gross margin.

I think it's a little larger than the typical sequential decline and of course, you listed out some unique items I'm just wondering if.

Peter Arvan: Sure. You know, as I mentioned, we believe that the renovation and remodel business is holding up better than new pool construction. And that's for a couple of reasons. People with pools tend to be more affluent in general than people that are deciding whether they want a pool or not certainly at the entry level. So, you know, our survey of the builder community would say, build a remodel community, because most people do both, right?

Speaker 12: X- those items you were down sequentially maybe in the like 50 to 70 bit range and the rest of it would be sort of the implied quantification of all those other things.

Ex those items you were down sequentially, maybe in the like 50 to 70 bps range and the rest of it would be sort of the implied quantification of all that all those other things.

Speaker 3: Are you looking at kind of a typical change from second to third quarter and then suggesting that the individual items that we list out accounted for about 70 basis points.

So are you looking at kind of a typical change from second to third quarter, and then suggesting that the individual items that we listed out accounted for about 70 basis points.

Peter Arvan: Most of our customers that are builders are also doing remodel. And I think there's with probably very few exceptions, our builders would tell you that their remodel business is better than the new construction business. I think there was a bigger backlog in renovation remodel, you know, a year ago, 18 months ago, because of people that were focused on building new, new, new. I think with new pool construction being down 30%, I think the backlog of renovation and remodel has been worked down.

Speaker 12: Is that what your question is? That's right. Yep, because 150 basis points sequentially, I think the last time you did that was in 2007, and the average had kind of been around the 50 to 70 basis.

Is that what your question is that's right, yes, because 150 basis points sequentially I think the last time you did that was in 2007 and the average had kind of been around the 50 to 70 basis points.

Speaker 3: Yeah, I would say that, you know, we don't quantify each of the individual items, specifically, you know, once we get to the end of the year, we'll be better able to quantify kind of the full impact of, you know, specifically as it relates to the building materials on the margins. The customer makes, you know, that does vary quarter over quarter because you will see from, you know, depending on the first or second quarter of some of those early buy purchases and the shift.

Yeah, I would say that you know, we don't quantify each of the individual items and specifically you know once we get to the end of the year will be better able to quantify kind of the full impact of specifically as it relates to the building materials on the margins the customer mix you know that does vary quarter over quarter, because you will see from.

Peter Arvan: But also, remember, you know, we, the industry kind of views renovation and remodel is about 10% of the industry, right? So, if you have, you know, 5.4 million in-ground pools, there might have been a little more than 10% in pent-up demand and backlog that today may be back down in the 10% range. So that business is good. It was probably a little bit ahead of itself, you know, addressing the backlog. Now I would tell you that it's probably back down to more normal, and I think that's good and that's healthy for the industry.

Depending upon the first and second quarter of some of the early buy purchases and the shift from a timing on that so I think that that definitely impacts the comparison quarter over quarter. So yeah. Those types of things are you know.

Speaker 3: from a timing from that. So I think that that definitely impacts the comparison quarter over quarter. So then types of things are very hard to individually at that detail level assess. When we actually, we go through the list of things that we talked about today, when we look at margins entirely, there's probably 20 things that we're seeing.

Very hard to individually at that detailed level.

Yes, yes.

We actually when we go through the list of things that we talked about today you know when we look at margins entirely Theres, probably 20 things that were thinking that fluctuate quarter to quarter and year over year and so we're really just trying to kind of narrow it down to the things that are more impactful to be able to give you a better picture of what's going on with the business.

Speaker 3: that fluctuate, quarter to quarter year of a year. And so we're really just trying to kind of narrow it down to the things that are more impactful, to be able to give you a better picture of what's going on with this.

Peter Arvan: Your question on, you know, the technology adoption. Again, it comes down to, I guess, during the height of COVID when people were home and they said, hey, I'm spending a lot of time, I'm staring at a swimming pool with no technology out of it, I want, I want, I want, we saw big, you know, requests for, I want technology, I want technology. We see with new pool construction, the trend towards, you know, higher ticket items and technology is still continuing, right?

Speaker 12: Yep, that makes sense. I guess I just am curious.

Yep.

Peter Arvan: People are still the pools that they are that are being built today still have the new features and the new technology on it. Oftentimes, when there's a, when there's a replacement necessary, again, it is an opportunity for an upgrade. So maybe during COVID, some of the upgrades were pulled forward, meaning the time clock still works, but I'd actually like to do this from my phone versus going out to the pad. So now, you know, when there are failures of equipment, we still see adoption of the, of the higher tech product, because frankly, it's just, it's a better experience for the consumer, you know, when, when pumps fail and they're putting in a variable speed pump, there's still a lot of single speed pumps in the industry that we're working and people weren't going to change them, but when they do change them because of the DOE regulations, they're going to variable speed and they're recognizing a significant benefit in their energy costs.

That makes sense I guess I, just I'm curious the <unk>.

Speaker 12: the call out of it being typical. Maybe that was a directional comment and not...

The callout of it being typical maybe that was a directional comment and not so much on the magnitude, but we can take that one offline as well.

Speaker 12: on the magnitude, but we can take that one offline as well. The other question I have was related to the first answer. There was a particularly poignant comment there that new pools, more would be built if frankly, they were more affordable. I think it's...

The other question I had was related to the first answer there was a particularly poignant comment there that new pools more would be built if frankly, they were more affordable I think to paraphrase.

Speaker 12: paraphrase. Interest rates seem to be what you're calling out as the main bad guy there, but if I'm thinking about the other side, certainly there's just the price and cost of the pool. And I'm just wondering, you know, what is sort of the probability you would assess?

Interest rates seem to be what you're calling out is the main.

That guy there, but if I'm thinking about the other side.

Certainly theres, just the pricing and cost of the pool and I'm just wondering.

What what.

What is sort of the probability you would assess to the chance that we just have gone too far on pricing and you know 10 years from now when we say that the pool industry typically gets 1% to 2% pricing you except for 2024 when the industry did have to experience. The reset is there a probability you would assess that.

Speaker 12: the chance that we just have gone too far on pricing. And 10 years from now when we say that the pool industry typically gets one to two percent pricing here except for 2024, when the industry did have to experience a reset, is there a probability you would have?

Speaker 4: Yeah, I would tell you the probability that is really low. Let me expand a little upon my comment about the affordability. As I mentioned, I believe on the second quarter call, where we are seeing the biggest headwind on swimming school construction in terms of units.

Yeah.

I would tell you the probability of that is really low let me, let me expand a little upon my comment about the.

Affordability as I mentioned I believe on the second quarter call. What we are seeing the biggest headwind on swimming pool construction in terms of units.

Speaker 4: is in the entry-level pools, right? The smaller pools, the cheaper pools, which the builders will tell you that the conversation takes place at the kitchen table to close that deal.

Peter Arvan: The same opportunity exists when it comes to the heaters, you know, high efficiency heaters versus standard efficiency heaters. And cleaners, there's, you know, types of cleaners that are far more efficient. And again, the consumer trends for those products continue. They are, when people are spending money, those that are replacing most often are replacing for the, for the newer product versus looking at old technology.

Is in the entry level pools, right the smaller pools, the cheaper pools, which the builders will tell you that the conversation takes place at the kitchen table to close that.

To close that deal.

Speaker 4: Prior to the run up in interest rates, so for the previous couple of years when interest rates were very low, a pool could be had for, you know, $700, $50, $800 a month. And homeowners were signing deals based on that as their monthly payment.

Prior to the run up in interest rates. So for the previous couple of years when interest rates were very low.

Who could be had for 750 to $800 a month and homeowners, we're signing deals based on that as their monthly payments, but with a significant increase in interest rates and frankly less lending in that area in the last 12 to 18 months it has driven.

Peter Arvan: Great, thanks for that. And, and then we, really nice SG&A efficiencies in second and third quarter, heard the guidance on fourth quarter that, you know, less leverage in the less seasonal activity, but looking ahead the next year, how are you feeling about margin? I know it's very dependent on what you see on revenue, but, you know, how are you feeling on margin on some of these efficiencies you gained, how sustainable will they be into into next year?

Speaker 4: But with a significant increase in interest rates and frankly less lending in that area in the last 12 to 18 months, it has driven up the cost of borrowing costs and availability of that of those funds to build a swimming pool.

And up the cost of borrowing cost and availability of that of those funds to build a swimming pool. So that has really taken a chunk out of the lower end pools.

Speaker 4: So that has really taken a chunk out of the lower end pool.

Speaker 4: is it relates to the higher end pools, which are paid for as we have mentioned many times in cash, those demand for those pools is good. Now it was good before and the builders are telling me that the outlook for that is still strong. So that really is the comment as it relates to affordability of new pools now.

As it relates to the higher end pools, which are paid for as we have mentioned many times in cash, but those tend those the demand for those tools is good.

Peter Arvan: Thanks. Yeah, you know, we are very proud of what we've been able to do on the expense side, and it's a really good indicator, you know, the quality of management, and, you know, their ability at each individual cell center level to adjust expenses according to the volumes at each location. So, you know, as we look forward for next year, you know, we would certainly continue to do that, you know, regardless of whether or not it's a, you know, significant upswing, or just kind of a continued moderating of where we are from a sales standpoint.

Now it was good before and the builders are telling me that the outlook for that is is still strong. So that that really is the is the comment.

As it relates to affordability of new pools now.

Speaker 4: Remember, the inflation that we're seeing, so Melanie is talking about, she mentioned that prices could be up three to four percent this year. So three to four percent on the rest of the industry, on something that is non-desgressionary in nature, doesn't really change the demand curve. So if, and frankly, if the price of a swimming pool, if you said that an equipment set for a swimming pool is in the $15,000 range,

Remember the inflation that we're seeing so Melanie is talking about she had mentioned that prices could be up 3% to 4% this year.

So 3% to 4% on the rest of the industry on something that is non discretionary in nature doesn't really change the demand curve.

Peter Arvan: And so, you know, we continue to have worked throughout the season, and one of the things that we said earlier on, you know, that we weren't cutting the base of our expenses, because we wanted to take the opportunity from a volume standpoint and reinvest in our employees in our operational initiatives and our training, and we have been very successful in those things that we wanted to do for this year. And so our expectation would be that that would be a benefit for us as we move forward.

If if and frankly, if the price of a swimming pool. If you said that an equipment set for swimming pool is in the $15000 range now if the equipments that came down 5%, which we are not suggesting and I don't think that is I don't think that's going to happen at all in fact, I think there is virtually zero chance of that.

Speaker 4: If the equipment that came down 5%, which we are not suggesting, and I don't think that has, I don't think that's going to happen at all. In fact, I think there's virtually zero chances that in my opinion. But if it were, that really isn't going to change the homeowner's decision on whether they should start.

Peter Arvan: Thank you.

My opinion, but if it were that really isn't going to change the homeowner's decision on whether they should.

Noah Merkousko: Our next question comes from Noah Merkousko with Stephen, please go ahead. Good morning, and thanks for taking my questions. First that morning, I know there's been a lot of discussion about gross margin already, but hopefully I can squeeze one more in here.

Start.

Speaker 4: and pool because in the grand scheme of things, material makes up 25% of the project.

Pool, because in the Grand scheme of things.

Material makes up 25% of the project. So it just isn't enough to move the needle, it's really everything else that factors in and on non discretionary items it doesn't really.

Speaker 4: So it just isn't enough to move the needle. It's really everything else that factors in. And on nondiscretionary items, it doesn't really, if there was a decline from the manufacturers, which we've had zero indication of, if there were, it wouldn't change the demand curve for the nondiscretionary purchases because nobody buys any of those items until such time as they need to.

Melanie Hart: I think the longer term, you've talked about 30% gross margins, and so I guess as we sit here today, is that still the right way to think about it? And you're now, as we look at the medium term, you're benefiting from early buy from manufacturers plus higher than normal inflation for next year. So could that potentially influence gross margins a little bit higher than that 30% target in the medium term? Yeah, so thank you for acknowledging that we are still consistently stating that our long term margins will be approximately 30%.

If there was a decline from the manufacturers, which we've had zero indication of if there were it wouldn't change the demand curve for the non discretionary repurchases because nobody buys any of those items until such time as they need them.

Speaker 3: Understood. If I could just squeeze in one more follow up. Yeah, I think I'm sorry about that. You think that we're over our time for the call. Do you want to just follow back up with me?

Understood.

I could just squeeze in one more follow up.

Yeah, there are kind of sorry about that.

Wherever our time for the call.

I can follow back up with me.

Sure sounds good.

Okay. Thank you.

Speaker 4: Did you want to close this up? Yep. Um, I want to thank you all for joining us today. We look forward to discussing our fourth quarter and full year results on February 22nd of 2024. If we don't talk to you before then, have a very happy and safe holiday season. Thanks.

Okay did you Wanna causes that yep.

Melanie Hart: When we look at kind of the structural things that made up those margins, we are continuing to benefit from the acquisition related margins that we did from the pinch of penny and corpus acquisition. And if you mentioned in his comments, they are trending overall very well as it relates to kind of compared to the traditional retail market within our industry. We've also seen some benefits from our private label products. That is an area where we would expect to continue to expand as we move forward, we're continuing to add capacity there to serve more of our locations.

I want to thank you all for joining US today, we look forward to discussing our fourth quarter and full year results.

On February 22nd of 2024, if we don't talk to you before then have a very happy and safe holiday season. Thank you.

Thanks, everyone.

Speaker 2: The conference is now completed. Thank you for attending today's presentation. You may now disconnect.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Melanie Hart: We've been, had made great strides in what we've done on our procurement and our logistics and so that continues to provide benefits as well as pricing. We would say that, you know, we're definitely not done from the pricing area. We have some new things that we'll talk about when we talk again in February and what we're doing as it relates to pricing. And so really the only thing this year that is will be a little bit out of what we've seen historically is kind of that product mix, particularly as it relates to the building materials.

Melanie Hart: So we are seeing a little bit more of a drag on the new construction on the sale through some of those products, which we did talk about, you know, that has been a significant growth opportunity for us. So as that normalizes, we would see that that normalizes as part of our overall longer term margins. And then again, we did also mention the vendor incentives for this year will be less than what they would be a normalized year.

Melanie Hart: No doubt margin is a very important focus area for us. It can be hard to predict when you have when you have a dynamic market that you're playing in, right, with mix, you know, customer mix, new new construction, whether all of those things factor into the overall product mix and the overall customer mix. But rest assured that drivers behind that, which is a very effective supply chain, a customer product offering that is very desirable focus on the our private label and exclusive brands, a dynamic pricing environment, you know, leaning very heavily into our vertically integrated, you know, chemical packaging facility, all of those things, all those things help.

Melanie Hart: And they're all factored into our into our long term plan and our long term guide. You know, certainly as we mentioned the vendor incentives this year is a it's different this year in a year where you're drawing down inventory, then a year when you are increasing inventory. So a lot of factors going to gross margin can tell you that it is a big focus area for the for the entire business and we believe that it will continue to pay dividends for us.

Melanie Hart: Got it, that's helpful. And then for my follow on just a clarifying question, the language in the press release noted the low end of the revised EPS guidance range at $13.15 would be a solid result. Should we read into that to mean that you're pointing to the low end of the guidance? Yeah, that really wasn't intended to guide one way or the other. I think it was more of just taking a big step back.

Melanie Hart: And acknowledging, you know, where we're ending up for this year. So, you know, again, as we sit here today, you know, we don't want to be telling you that failed to down 10%. But it's really just putting in context of, you know, taking out the last two years of, you know, extraordinary growth. And seeing that from a, you know, incremental standpoint, we have certainly accomplished a lot from, from where we were when we reported 2019 results. And so, you know, we are proud of the results that we will be presenting to you for this year.

Melanie Hart: Yeah, the fourth quarter is our season, yeah, fourth quarters are seasonally least significant quarter. It also is the quarter that is affected the most in terms of a percentage of the quarter by things like weather. So if the season shuts down early and construction drops off sooner because it gets cold. It's magnifies itself because of the size of the quarter. So I think all we were pointing to is the potential variability. Yep. Yeah. Okay. That all makes sense.

Melanie Hart: And if I could just squeeze on one other quick one. What, what was the expected inflation next year from price increases? Was it three to four or two to three. So, so we have three to four from a, from a equipment vendor standpoint. You know, we are expecting on the, based on the current run rate on track for. We still will have a first and second quarter that will be laughing some, you know, year by year pricing.

Melanie Hart: So, you know, it could blend kind of within that. We're also still waiting to get kind of final price and horizon. So current look is that that'll probably be something less than what we're seeing on the blue side on the equipment. So, you know, we'll have a better definitive answer for that when we talk to get it February.

Andrew Carter: [inaudible] The next question comes from Andrew Carter with steeple, please go ahead. Yeah. Hey, thanks. Good morning. I think you said this is more of a weather neutral quarter, but I kind of wanted to understand the jump in chemicals, because I would assume had to be volume related because I think the pricing was steady. So was there any weather impact in that. And then regarding. I know that you called out product mix as a headwind. But it would chemicals be a creative or delutive. To gross margin over all.

Peter Arvan: So I'll stop there. Yeah, so the chemical sales growth that we saw, Andrews, as I mentioned, is a result of a couple things. So it was a weather neutral quarter, which has been a long time since we've been able to say that it did say weather neutral quarter. And we weren't saying that it was extraordinary. Now was it hot in was it hot in Texas. Yes, it was hot in Texas, but frankly, I've lived in Texas and in Texas.

Peter Arvan: It's hot every summer. So, you know, from a weather perspective, we would say neutral. I would tell you that we have been focused on our chemical business. And we've been focused on providing our customers with a product offering that is second to none and with technology tools that allows them to be. To frankly sell more chemicals. And I think that bodes well for us and we are participating. And so I think our ability to take share on the chemical basis is evident within the quarter.

Peter Arvan: And that, as you know, is a focus area for us. So, from a margin perspective, you know, when you're talking about our private label and exclusive brands, remember on the chemical side there's three different parts of chemicals, right? You have a triclor port of the business, remember what we said it's about a third to third to third. You have specialty you have balancers and then you have you have triclor. I'm a triclor, as Melanie mentioned, we did see some deflation on triclor, but there was offset by some inflation on the other two areas. So in general, it is a margin accreted for us, but it really depends on the chemical trail that you're talking about.

Peter Arvan: Got it. Thank you.

Peter Arvan: Switching gears a little bit. I know you kind of talked a little bit in sales and not kind of putting a firm line in the sand, but as far as like EPS goes next year, do you have other drivers to grow EPS in a more tepid environment? I know this year's been a story about maintaining SGA investment. Do you see a world where you can get more flex on SGA? Do you see perhaps more meaningful growth growth margin increases?

Peter Arvan: Anything along those lines? Thank you. Yeah, again, too early to put together an outlook for next year, but if you think about the themes that we've consistently discussed that are going to have an impact on our EPS, right? One is we have a relentless focus on growth. Sometimes the market helps you in that area with from a demand perspective, but this year, for instance, with nuclear construction, it certainly was of no help.

Peter Arvan: And times like that, we lean into other areas like our capacity creation, which is something, again, we didn't just start this year. We didn't start it last year. Frankly, it was something that was started free COVID and it's a good thing we did because that allowed us to ramp up very quickly and handle the surge in business and the increase in activity without adding significant amounts of cost. So from an EPS leverage perspective, obviously in a business like ours, your biggest leverage points are going to be volume.

Peter Arvan: So if we grow more than that certainly helps. Margin is an area to, you know, as we mentioned, you know, gross margin is something that is a focus area for us. It's an area that we still see opportunity in. And of course, as I mentioned, you know, capacity creation and SGNA leverage is something that we always work on. But at the same time too, in order for us to provide a best in class customer experience in order to provide the best technology tools, that requires some investment too.

Peter Arvan: So we tend to be very long term focused on our investments and deliver it with where we're investing capital on recognizing that sometimes you spend money this year to reap rewards next year or the year after or the year after. But I think if you look back historically on the investments that pool corp is made, that's one of the things that has allowed us to continue to grow and to continue to expand the operating leverage.

Peter Arvan: And final just real quickly, you said something about increased competitive activity during the script. Was that isolated to chemicals or were there any other significant pockets out there beyond just normal course of business that you kind of talked about? Yeah, Andrew, I think it's really in a lot of areas, right? When you have a, when you have a demand environment that is markedly different year over year, you have competitors that are going to do things, they're going to react because they need cash and they need to liquidate inventory.

Peter Arvan: So, you know, I can't tell you that it was the only place we saw competitive pressure was in chemicals. We saw in chemicals. We saw it in equipment. We've seen it in building materials. And again, the good news is that none of those are sustainable. Did they cause us to react? Yes. Is there a short-term impact when we have to react on that? Yes. Is anybody better positioned to withstand that? Yes. And frankly, what we really focus most of our attention on is providing the best customer experience so that it doesn't come down to having to match a desperate price in the market.

Peter Arvan: That's all I got. Thank you guys.

Joe Ahlersmeyer: I'll pass it on. Thank you.

Joe Ahlersmeyer: Next question comes from Joe Ahlersmeyer with Deutsche Bank. Please go ahead. Hey, everybody. Good morning. Hope you're well. Morning. Yeah, forgive me. I just I'll need to follow up a little bit on the prior question about the competitive environment. Maybe first, if I'm looking at the comment from earlier around the typical sequential decline in gross margin, I think it's a little larger than the typical sequential decline. And of course, you listed out some unique items.

Joe Ahlersmeyer: I'm just wondering if X those items you were down sequentially, maybe in the like 50 to 70 bit range and the rest of it would be sort of the implied quantification of all those other things. Are you looking at kind of a typical train from second to third quarter and then suggesting that the individual items that we list out accounted for about 70 basis points. Is that what your question is? That's right.

Joe Ahlersmeyer: Yep, because 150 basis points sequentially. I think the last time you did that was in 2007 and the average had kind of been around the 50 to 70 basis points. Yeah, I would say that, you know, we don't quantify each of the individual items specifically, you know, once we get to the end of the year, we'll be better able to quantify kind of the full impact of, you know, specifically as it relates to the building materials on the margins.

Joe Ahlersmeyer: The customer makes, you know, that does very quarter over quarter because you will see from, you know, depending on the first or second quarter, some of those early by purchases and the shifts from a timing from that. So I think that that definitely impacts the comparison quarter over quarter. So, you know, then types of things are, you know, very hard to individually at that detail level. Assess, you know, when we actually, you know, we go through the list of things that we talked about today, you know, when we look at margins entirely, there's probably 20 things that we're seeing that fluctuate quarter to quarter year of a year.

Joe Ahlersmeyer: And so we're really just trying to kind of narrow it down to the things that are more impactful to be able to give you a better picture of what's going on with the business. Yep, that makes sense. I guess I just am curious the call out of it being typical. Maybe that was a directional comment and not so much on the magnitude.

Melanie Hart: But we can take that one offline as well.

Peter Arvan: The other question I have was related to the first answer. There was a particularly poignant comment there that new pools more would be built if frankly they were more affordable, I think is to paraphrase. Interest rates seem to be what you're calling out as the main bad guy there. But if I'm thinking about the other side, certainly there's just the price and cost of the pool. And I'm just wondering, you know, what, what is sort of the probability you would assess to the chance that we just have gone too far on pricing.

Peter Arvan: And, you know, 10 years from now, when we say that the pool industry typically gets one to 2% pricing here, except for, you know, 2024 when the industry did have to experience a reset. Is there a probability you would. Yeah, I would tell you the probability of that is really low. Let me expand a little upon my comment about the affordability. As I mentioned, I believe on the second quarter call, where we are seeing the biggest headwind on swimming school construction in terms of units is in the entry level pools, right, the smaller pools, the cheaper pools, which the builders will tell you that the conversation takes place at the kitchen table to close that deal.

Peter Arvan: Prior to the run-up in interest rates, so for the previous couple of years when interest rates were very low, a pool could be had for, you know, $750 to $800 a month, and homeowners were signing deals based on that as their monthly payment, but with a significant increase in interest rates and, frankly, less lending in that area. In the last 12 to 18 months, it has driven up the cost of borrowing costs and availability of that of those funds to build a swimming pool.

Peter Arvan: So that has really taken a chunk out of the lower end pools, is it relates to the higher end pools, which are paid for as we have mentioned many times in cash, those 10 those demand for those pools is good. Now it was good before and the builders are telling me that the outlook for that is still strong. So that really is the comment as it relates to affordability of new pools.

Peter Arvan: Now, remember, you know, the inflation that we're seeing, so Melanie is talking about, you know, she's mentioned that prices could be up three to four percent this year. So three to four percent on the rest of the industry on something that is non discretionary in nature doesn't really change the demand curve. So if, frankly, if the price of a swimming pool, if you said that an equipment set for swimming pool is in the $15,000 range now, if the equipment set came down 5%, which we are not suggesting, and I don't think that has, I don't think that's going to happen at all.

Peter Arvan: There's virtually zero chances at my opinion, but if it were that really isn't going to change the homeowner's decision on whether they should start pool because in the grand scheme of things, material makes up 25% of the project. So it just isn't enough to move the needle. It's really everything else that factors in and on non discretionary items, it doesn't really, if there was a decline from the manufacturers, which we have zero indication of, if there were, it wouldn't change the demand curve for the non discretionary purchases because nobody buys any of those items until such time as they need them. Understood.

Joe Ahlersmeyer: If I could just squeeze in one more follow up.

Unknown Executive: Yeah, I think we're over our time for the call. Do you want to follow back up with me? Sure. Sounds good. Okay, thank you.

Unknown Executive: Did you want to close this up? Yep. I want to thank you all for joining us today.

Unknown Executive: We look forward to discussing our fourth quarter and full year results on February 22nd of 2024.

Unknown Executive: If we don't talk to you before then, have a very happy and safe holiday season. Thank you. Thanks everyone. The conference is now completed. Thank you for attending today. Thank you for today's presentation. You may now disconnect. Thank you for joining us.