Q4 2023 Pool Corp Earnings Call

Operator: The Bulletproof Executive 2013 Good day, and welcome to the Pool Corporation 4th Quarter 2023 conference call. All participants will be in a listen-only mode.

Okay.

Speaker Change: Good day and welcome to the poll Corporation fourth quarter 2023 conference call. All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.

Operator: Should you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on a touch-tone phone.

Speaker Change: After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on the Touchtone phone.

Operator: To withdraw your question, please press star then 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.

To withdraw your question. Please press Star then two.

Speaker Change: Please note this event is being recorded.

Speaker Change: I would now like to turn the conference over to Melanie Hart, Vice President and Chief Financial Officer. Please go ahead.

Melanie Hart: Welcome to our fourth quarter and year end 2023 earnings conference call discussion comments and responses to questions. Today may include forward looking statements, including management's outlook for 2024 and future periods.

Melanie Hart: Welcome to our fourth quarter and year-end 2023 earnings conference call. Discussion, comments, and responses to questions today may include forward-looking statements, including management's outlook for 2024 and future periods. However, actual results may differ materially from those discussed today.

Melanie Hart: Results may differ materially from those discussed today information regarding the factors and variables that could cause actual results to differ from protective results are discussed in our 10-K. In addition, we may make references to non-GAAP financial measures in our comments a description and reconciliation of any of them.

Melanie Hart: Information regarding the factors and variables that could cause actual results to differ from projected results is discussed in the R10K. In addition, we may make references to non-GAAP financial measures in our comments. A description and reconciliation of any of our non-GAAP financial measures included in our press release are posted on our corporate website in the Investor Relations section. President and CEO Peter Arvan will begin our call today. Mm-hmm. Thank you, Melanie.

Melanie Hart: non-GAAP financial measures included in our press release are posted to our corporate website in the Investor Relations section.

Melanie Hart: I didn't and CEO, Peter our van will begin our call today.

Melanie Hart: Eat.

Peter: Thank you Melanie and good morning to everyone on the call.

Peter Arvan: Good morning to everyone on the call. For the full year of 2023, we generated over $5.5 billion in revenue, the second largest in company history, and over $2 billion higher than 2019, a year with a similar number of new pools constructed and the last year before the pandemic. We generated $747 million in operating income, more than double our operating income in 2019, and an operating margin of 13.5%, a 280 basis point expansion above our 2019 operating margin. These results highlight the larger installed base available for us to serve post-pandemic and our ability to fulfill our customers' maintenance, remodel, and renovation and new construction product needs. Even in a challenging environment, our customer service outshines our competitors through our powerful distribution network, the largest and most integrated in the pool industry, and we continue to make wise investments to promote our future growth.

Peter: For the full year of 2023, we generated over $5 $5 billion in revenue the second largest in company history and over $2 billion higher than 2019, a year with a similar number of new pools constructed in the last year before the pandemic, we generated $747 million and operating income more than doubled our operating income.

Peter: In 2019, and operating margin of 13, 5%, a 280 basis point expansion above 2019 operating margin. These results highlight the larger installed base available for us to serve post pandemic and our ability to fulfill our customers' maintenance remodel and renovation and new business production.

Peter: Product needs.

Peter: Even in a challenging environment, our customer service outshined, our competitors through our powerful distribution network, the largest and most integrated in the pool industry and we continue to make wise investments to moat to promote our future growth we were up against tremendous comps throughout most of the year yet the team at all levels worked extremely hard to deliver very solid.

Peter Arvan: We were up against tremendous comps throughout most of the year, yet the team at all levels worked extremely hard to deliver very solid results. The year began with us lapping 33% sales growth in the first quarter of 2022 over 2021. However, sales declined 15% in the first quarter of 2023 compared to 2022 amidst unusually poor weather conditions in key year-round markets.

Peter: Results.

Peter: The year began but that's lapping 33% sales growth in the first quarter of 2022 over 2021 sales declined 15% in the first quarter of 2023 compared to 2022 amidst unusually poor weather conditions in key year round markets delayed pool openings in many of our seasonal markets, followed and higher than normal image.

Peter Arvan: Delayed pool openings in many of our seasonal markets followed, and higher-than-normal inventory levels across the industry contributed to an abnormal selling environment during the first half of the year. Macroeconomic constraints and uncertainties, primarily in the form of elevated and escalating interest rates and recent inflation, resulted in new pool units declining from 98,000 units in 2022 to an estimated 70,000 to 75,000 units in 2023, or a 25 to 30 percent decline These evolving external factors made it extremely difficult to forecast underlying demand at the start of the year.

Peter: Tori levels across the industry contributed to an abnormal selling environment during the first half of the year.

Peter: Macro economic constraints and uncertainties, primarily in the form of elevated and escalating interest rates and recent inflation resulted in nuclear units declining from 98000 units in 2022 to an estimated 70 to 75000 units in 2023 or 25% to 30% decline.

Peter: These evolving external factors made it extremely difficult to forecast underlying demand at the start of the year as 2023 progressed clarity around the market improved and we adapted accordingly.

Peter Arvan: As 2023 progressed, clarity around the market improved, and we adapted accordingly. We focused on specific customer needs and opportunities, particularly those related to maintaining the ever-growing 5.4 million swimming pools in the installed base. Given our broad reach and unmatched capabilities, it is in situations like this that our team shines.

Peter: We focused on specific customer needs and opportunities, particularly those related to maintaining the ever growing five 4 million swimming pools in the installed base given our broad reach unmatched capabilities.

Peter: Is in situations like this that our team shines, we continued to invest in expanding our footprint and in technology tools that improve our customers' ability to grow their business and be more productive. We continued our focus on customer experience and being the best channel to market for our suppliers. These efforts combined allowed us to continue growing our share and outperforming the industry.

Peter Arvan: We continue to invest in expanding our footprint and in technology tools that improve our customers' ability to grow their business and be more productive. We continue to focus on the customer experience and being the best channel to market for our suppliers. These efforts together allowed us to continue growing our share and outperforming the industry. Our disciplined execution enabled us to generate $888 million in operating cash flow in 2023, a company record. This result positively demonstrates our working capital management capabilities, capital capacity, and insightful and opportune investments in inventory. Now, I'd like to recap our full year and fourth quarter results.

Peter: Our disciplined execution enabled us to generate $888 million in operating cash flow in 2023, a company record. This result positively demonstrates our working capital management capabilities capital capacity and insightful and opportune investments in inventory.

Peter: Now I'd like to recap, our full year and fourth quarter results total year. Our total sales for the year came in at $5 5 billion, which was down 10% from the record of 2022 and in line with our third quarter guidance for the fourth quarter of 2023 sales total sales came in at $1 billion compared to $1 1 billion in the fourth quarter of.

Peter Arvan: Total sales for the year came in at $5.5 billion, which was down 10% from the record for 2022 and in line with our third quarter guidance. For the fourth quarter of 2023, total sales came in at $1 billion, compared to $1.1 billion in the fourth quarter of 2022, or down 8%. Geographically, the sales declines were fairly consistent in three of our major markets and improved sequentially as the year progressed. For the full year and the fourth quarter, we saw sales in California come in at minus 12 percent and 8 percent, respectively. In Texas, sales were consistent and down 10 percent in both periods.

Peter: <unk> 2022 or down 8%.

Peter: Geographically the sales declines were fairly consistent in three of our major markets and improved sequentially as the year progressed for the full year in the fourth quarter. We saw sales in California came in at minus 12% and 8% respectively in Texas sales were consistent and down 10% in both periods Arizona.

Peter Arvan: Arizona experienced similar results as we recorded sales down 9 percent for the full year and down 8 percent for the quarter. Florida performed a bit better for the full year at down minus 5 percent but declined 12 percent in the fourth quarter of 2023 against very strong comps of 20-22% growth in the fourth quarter of 2022. For the full year and the fourth quarter, our sales declined 9% and 10% in our year-round markets and 13% and 7% in our seasonal markets, showing improvement in the season and most of our year-round markets as the year progressed. For perspective, in 2022, our seasonal markets were up 8% for the year and up 15% in our year-round markets. I will now provide some color on our key product category sales compared to the full year and fourth quarter of last year. Chemical sales were down 1.5% for the year but up 1% for the fourth quarter.

Peter: Similar results as we recorded sales down 9% for the full year and 8% down 8% for the quarter, Florida performed a bit better for the full year at down minus 5%, but declined 12% in the fourth quarter of.

Peter: 2023 against very strong comps of 2022% growth in the fourth quarter of 2022 for the full year in the fourth quarter, our sales declined 9% and 10% in our year round markets and 13% and 7% in our seasonal markets showing improvement in the season in most of our Euro <unk>.

Peter: Markets as the year progressed for perspective in 2022, our seasonal markets were up 8% for the year and up 15% and our year round markets.

Peter: I will now provide some color on our key product categories sales compared to the full year and fourth quarter of last year.

Peter: Chemical sales were down one 5% for the year, but up 1% for the fourth quarter, considering the significant treichler deflation that hit during the 2023 pool season, and the softer start to the year in the first quarter driven by excess inventory in the channel and the challenging weather pattern. We considered the full year result of down only <unk>.

Peter Arvan: Considering the significant trichloride deflation that hit during the 2023 pool season and the softer start to the year in the first quarter driven by excess inventory in the channel and the challenging weather pattern, we considered the full-year result of down only 1.5%, a clear indication of us further expanding our share in this critical maintenance category. We believe the significant price volatility exhibited from 2021 to 2023 will be behind us after we pass the first quarter of 2024 and that excess channel inventory has normalized. As it relates to our chemical supply initiatives, we made great progress on expanding our usage of the Suncoast Chemical Packaging Facility that we acquired as part of the Porpoise acquisition. In 2023, our teams more than tripled the amount of chemicals produced and sourced from this strategic and very capable facility compared to 2022. These actions not only improve our certainty of supply but also improve our profitability. Building materials sales declined 9% for the full year and 8% in the fourth quarter.

Peter: One, 5% a clear indication of us further expanding our share in this critical maintenance category. We believe the significant price volatility exhibited from 2021 to 2023 will be behind us. After we pass the first quarter of 2024 and that excess channel inventory has normalized.

Peter: As it relates to our chemical supply initiatives, we made great progress on expanding our usage of Suncoast chemical packaging facility that we acquired as part of the <unk> acquisition in 2023, our teams more than tripled the amount of chemicals produced in sourced from this strategic and very capable facility compared to 'twenty to 'twenty. Two these actions not only improve our.

Peter: <unk> supply, but also improve our profitability.

Peter: Building materials sales declined 9% for the full year and 8% in the fourth quarter, considering that new pool construction was down an estimated 25% to 30% and that renovation and remodel was down around 12%. We are quite pleased with how the team performed in this highly profitable product group.

Peter Arvan: Considering that new pool construction was down an estimated 25 to 30% and that renovation and remodel was down around 12%, we are quite pleased with how the team performed in this highly profitable product group. Our proprietary NPT-branded products, expanded building material offering, and convenient nationwide sales center and design center network remain the go-to source for discerning pool owners and our outstanding dealer base. No one has a more complete product offering or a more capable team that caters to the best builders and remodelers in the industry. We look forward to the equipment pad.

Peter: Our proprietary M. P T branded products expanded building material offering and convenient nationwide sales Center and design Center network remain the go to source, we're just starting with owners and our outstanding dealer base. No. One has a more complete product offering or more capable team that caters to the best builders and remodelers in the industry.

Peter: And we look towards the equipment pad equipment sales decreased 9% for both the year and for the fourth quarter, demonstrating the resilience of the maintenance related equipment demand and our best in class customer service. Despite.

Peter Arvan: Equipment sales decreased 9% for both the year and for the fourth quarter, demonstrating the resilience of maintenance-related equipment demand and our best-in-class customer service despite lower new pool construction activity in 2023. Demand for heaters and cleaners, the most discretionary products within the equipment category, saw continued headwinds as we cycled through the demand that was pulled forward during the pandemic and cautious consumer spending on more discretionary pool item purchases. We remain confident that the ever-increasing installed base of pools and the need to modernize the older equipment pads and the desire to move towards the connected backyard will present many years of incremental growth opportunities going forward. Turning to end markets, our commercial business continued to grow at 9% for the full year and 5% for the fourth quarter.

Peter: Lower new pool construction activity in 2023 demand for heaters and cleaners. The most discretionary product within the equipment category saw continued headwinds as we cycled through the demand that was pulled forward during the pandemic and cautious consumer spending on more discretionary pool item purchases, we remain confident that the ever increasing <unk>.

Peter: Stall base of pools, and the need to modernize the older equipment pads and a desire to move towards the connected backyard will prevent many years of incremental growth opportunities going forward.

Peter: Turning to end markets, our commercial business continued to grow at 9% for the full year and 5% for the fourth quarter. The growth in 2023 is on top of 27% growth for both the full year in the fourth quarter of 2020.

Peter Arvan: The growth in 2023 is on top of 27% growth for both the full year and the fourth quarter of 2020. We continue to invest in resources to expand our reach in the commercial pool market. In 2023, this investment included acquiring a commercial products wholesale distribution company, furthering our competitive efforts to serve the commercial pool market's new construction and installation base equipment needs and utilize our expansive distribution infrastructure to service commercial pool operators. We continue gaining wholesale distribution market share in this growing specialty area of the pool industry. However, sales to our independent retail customers declined 11% for the full year and 8% in the fourth quarter.

Peter: We continue to invest in resources to expand our reach and the commercial pool market. In 2023. This investment included acquiring a commercial products wholesale distribution company.

Peter: Furthering our competitive efforts to serve the commercial pool markets, new construction and installed base equipment needs and utilize our expansive distribution and infrastructure to service commercial pool operators, we continue gaining wholesale distribution market share in this growing specialty area of the pool industry.

Peter: Sales to our independent retail customers declined 11% for the full year and 8% in the fourth quarter unfavorable weather, resulting in less chemical and maintenance needs and supply normalization affected our sales to independent retailers in the first half of 2023.

Peter Arvan: Unfavorable weather resulting in less chemical and maintenance needs and supply normalization affected our sales to independent retailers in the first half of 2023. We have a high concentration of retailers that operate in seasonal markets that were adversely impacted by the late start to the year. Additionally, this category is heavily impacted by products like cleaners and above-ground pools and spas, which are all returning to pre-pandemic levels. Keep in mind, this represents the sale to the retail channel. Retail sales by our independent pinch-a-penny retail stores, which are highly concentrated in Florida and Texas and represent sales through the retail channel, increased 3% for the full year in 2023 compared to 2022 and declined 4% in the fourth quarter. We are pleased with this result given the dynamic market and the tough comps we had.

Peter: We have a high concentration of retailers that operate in seasonal markets that were adversely impacted by the late start to the year. Additionally, this category is heavily impacted by products like cleaners, and above ground pools, and spas, which are all returning to pre pandemic levels keep in mind. This represents the cell to the retail channel retail.

Peter: <unk> by our independent Pinchpenny retail stores, which are highly concentrated in Florida, and Texas and represent sell through the retail channel increased 3% for the full year in 2023 compared to 2022 and declined 4% in the fourth quarter.

Peter: We are pleased with this result, given the dynamic market and the tough comps we had for reference Pinchpenny grew 17% in both the fourth quarter and the full year of 2022.

Peter Arvan: For reference, Pincher Penny grew 17% in both the fourth quarter and the full year of 2022. Turning to Europe, as we previously reported, following record results in 2021, European sales declined 15% in 2022 under the backdrop of the war affecting Eastern Europe, resulting in rapidly escalating energy costs and an economic slowdown due to customer or consumer caution. In 2023, European sales declined 11% in local currency for the full year and 7% in the fourth quarter.

Peter: Turning to Europe as we May have had as we previously reported following record results in 2021, Europe sales declined 15% in 2022 under the backdrop of the war affecting eastern Europe, resulting in rapidly escalating energy costs, and an economic slowdown in customer or consumer caution in 2023 European sales decline.

Peter: 11% in local currency for the full year and 7% in the fourth quarter, we began to see some signs of inflection towards the end of the swimming pool season, and believe our long term growth opportunity in Europe remained strong keep in mind. This market makes up about 4% of our total revenue.

Peter Arvan: We began to see some signs of inflection towards the end of the swimming pool season and believe our long-term growth opportunity in Europe remains strong. However, keep in mind this market makes up about 4% of our total revenue. For Horizon, net sales declined 4% for both the full year and the fourth quarter.

Peter: For Horizon net sales declined 4% for both the full year in the fourth quarter throughout 2023 stronger sales from commercial irrigation projects buffered weaker residential market sales, we continue to focus on expanding our reach primarily through the sun belt and through Greenfield expansion in growing markets and on leveraging our distribution opera.

Peter Arvan: Throughout 2023, stronger sales from commercial irrigation projects buffered weaker residential market sales. We continue to focus on expanding our reach, primarily through the Sunbelt and through Greenfield expansion and growing markets, and on leveraging our distribution operating model to support the long-term growth opportunities within the irrigation landscape and equipment needs. Now, let me talk a little about GrossMart.

Peter: Sitting model to support the long term growth opportunities within the irrigation.

Peter: The landscape and equipment needs.

Speaker Change: Now, let me talk a little about gross margins are.

Peter Arvan: Our gross margins finished at 30% for the full year, consistent with our recent guidance and long-term expectations. We are proud of this accomplishment, which highlights our capabilities in supply chain optimization, our growing portfolio of private label products, and value-added pricing initiatives. For the fourth quarter of 2023, our gross margins improved 50 basis points to 29.3% compared to the fourth quarter of 2022. Melanie will provide more details on gross margins in her prepared remarks.

Speaker Change: Our gross margins finished at 30% for the full year consistent with our recent guidance and long term expectations. We are proud of this accomplishment, which highlights our capabilities on supply chain optimization, our growing portfolio of private label products and value added pricing initiatives for the fourth quarter of 2023, our gross margins improved 50 basis.

Speaker Change: Points to 29, 3% compared to the fourth quarter of 2022, Melanie will provide more details on gross margins in her prepared remarks.

Peter Arvan: Operating expenses reflected a 0.6% increase in 2023, in line with our previous guidance. Despite the cyclical sales trends, we continued investing in our talent and in our employer of choice initiatives to make sure that we retained the best team in the industry and continued to separate ourselves from the competition. Additionally, we continued opening new locations, conducting customer-facing events and training, and expanding capacity at our chemical packaging facility. In 2023, we opened 14 new locations and added five locations through acquisition, bringing our total count to almost 440 sales centers. We also expanded our pinch-a-penny distribution capabilities. Our pinch-a-penny franchise network added 15 new stores, over two times the number of stores added to the franchise network last year, which is the most stores that the franchise has ever added in a year.

Speaker Change: Operating expenses reflected a 6% increase in 2023 in line with our previous guidance. Despite the cyclical sales trends, we continued investing in our talent and our employer of choice initiatives to make sure that we retained the best and the best team in the industry and continue to separate ourselves from the competition.

Speaker Change: Additionally, we continue opening new locations conducting customer facing events and training and expanded capacity at our chemical packaging facility.

Speaker Change: In 2023, we opened 14, new locations and added five locations through acquisition, bringing our total count to almost 440 sales centers.

Speaker Change: We also expanded our pinch of any distribution capabilities are Pinchpenny franchise network added 15, new stores over two times the number of stores added to the franchise network last year, which is the most stores that the franchise has ever added in a year taking advantage of our synergies. We now serve the pinch if any texas stores through our localized.

Peter Arvan: Taking advantage of our synergies, we now serve the pinch-a-penny Texas stores through our localized distribution network. Our wide footprint and integrated distribution network opened the door for us to expand quickly throughout the Sun Belt. While we continue to invest in growth-driven initiatives, we applied intense focus to controllable and variable expenses without compromising customer experience or service. Borders processed through our B2B Pool 360 platform continue to grow in total lines, increasing 3% in 2023, growing from 11% of total lines in 2022 to 14% of total lines in 2023, or a nearly 30% increase in total lines. We also increased total revenue dollars through the tool by 1% in 2023, showing sales through our digital tool growing at a rate faster than our overall net sales. These results demonstrate significant progress, particularly in this year's environment and the customer benefit it provides. We have put significant time and effort into improving this critical user feature like product search, product information, and the overall user experience.

Speaker Change: Distribution network, our wide footprint and integrated distribution network opened the door for us to expand quickly throughout the Sun belt, while we continue to invest in growth driven initiatives, we applied intense focus to controllable and variable expenses without compromising customer experience or service.

Speaker Change: Orders processed through our BTB pool 360 platform continued to grow in total lines, increasing 3% in 2023 growing from 11% of total lines in 2022% to 14% of total lines in 2023 or nearly 30% increase in total lines.

Speaker Change: We also increased total revenue dollars through the tool by 1% in 2023, showing sales through our digital tool growing faster alright, growing fast growing at a rate faster than our overall net sales. These results demonstrate significant progress, particularly in this year's environment and the customers benefit. It provides we have put significant time and effort.

Speaker Change: <unk> into improving this critical user feature like.

Speaker Change: Product search.

Speaker Change: Product information and the overall user experience.

Speaker Change: With a renewed innovative approach to our customer facing solutions, we march towards transforming pool $3 60 from our BTB tool to complete customer facing digital ecosystem.

Peter Arvan: With a renewed, innovative approach to our customer-facing solutions, we are marching towards transforming Pool 360 from a B2B tool to a complete customer-facing digital ecosystem. Last year, we revamped the Pool360 ordering platform. In 2023, building on our next-generation Pool360 application, we launched our Pool360 water solution software, and just last week, we launched our Pool360 service platform. These are all incredible tools for our customers that will continue to gain traction for years to come. Pool 360 Water provides best-in-class in-store and mobile water analysis and offers solutions that help us grow our private-label chemical products and improve brand awareness. Water testing from a variety of methods, from liquid titration to digital, is all fed into the tool, delivering a proprietary diagnosis and chemical dosage recommendation that will ensure a safe and healthy swimming pool.

Speaker Change: Last year, we revamped the full 360 ordering platforms in 2023 building on our next generation 360 application, we launched our pool $3 60 water solution software and just last week launched our full 360 service platform. These are all incredible tools, where our customers that will continue to gain traction for years to come.

Speaker Change: Oh 60 water provides best in class in store and mobile water analysis and offer solutions that help us grow our private label chemical products and improve brand awareness water testing from a variety of methods from liquid titration to digital are all fed into the tool delivering a proprietary diagnosis and chemical dosage recommendation.

Speaker Change: <unk> that will ensure a safe and healthy swimming pool.

Speaker Change: 360 water allows all of our dealers to offer consistent accurate advice to owners and operators, while creating demand for our tremendous chemical offering. This tool also has embedded in it a CRM that will help the stores provide an unparalleled customer experience.

Speaker Change: 360 service designed for our service customers large and small includes a CRM and applications to better manage their business through facilitating daily routes quoting and securing onetime service request automating invoicing and collections enhancing electronic ordering and integrating procurement, where they're already established full 360 account.

Peter Arvan: Pool 360 Water allows all of our dealers to offer consistent, accurate advice to pool owners and operators while creating demand for our tremendous chemical offer. This tool also has a CRM embedded in it that will help the stores provide an unparalleled customer experience. Pool 360, designed for our service customers, large and small, includes a CRM and applications to better manage their business through facilitating daily routes, quoting and securing one-time service requests, automating invoicing and collections, enhancing electronic ordering, and integrating procurement with our already established Pool 360 account. Over the next few years, we plan to add more phases to this digital ecosystem to further add productivity and help our customers grow their business more quickly. For all three platforms, customers can leverage our proprietary, best-in-class digital marketing resources that will help them drive profitable growth for their business.

Speaker Change: Over the next few years, we plan to add more phases to this digital ecosystem to further add productivity and help our customers grow their business more quickly where all three platforms customers can leverage our proprietary best in class digital marketing resources that will help them drive profitable growth for their business.

Speaker Change: Recognize we are in the early stages of customer adoption, but we see tremendous opportunity to help our retail and service customers expand their offering provide unique professional services and connect directly and easily to our products.

Speaker Change: Moving on let me comment on our operating income performance.

Speaker Change: We recorded $747 million in operating income in 2023 down from a record $1 billion in 2022, but up $405 million from 2019.

Peter Arvan: I recognize we are in the early stages of customer adoption, but we see tremendous opportunity to help our retail and service customers expand their offering, provide unique professional services, and connect directly and easily to our products. Moving on, let me comment on our operating income performance. We recorded $747 million in operating income in 2023, down from a record $1 billion in 2022 but up $405 million from 2019. For the quarter, we recorded $79 million in operating income, a 26 percent decline from 2022 but over three times the operating income of the fourth quarter of 2019. Operating margins for the full year of 2023 were 13.5 percent, compared to a record 16.6 percent in 2022, and expanded 280 basis points from 2019, demonstrating our ability to leverage fixed costs and effectively manage variable expenses, generating enhanced operating margins while making growth-oriented investments in our economy. With 2023 behind us, let me comment on the future.

Speaker Change: For the quarter, we recorded $79 million in operating income a 26% decline from 2022, but over three times the operating income of the fourth quarter of 2019.

Speaker Change: Operating margins for the full year of 2023 was 13, 5% compared to a record 16, 6% in 2022 and expanded 280 basis points from 2019, demonstrating our ability to leverage fixed costs and effectively manage variable expenses generating enhanced operating margins, while making growth.

Speaker Change: Oriented investments in our business.

Speaker Change: With 2023 behind US, let me comment on the future I remain excited and very confident in our long term growth potential for our industry and specifically pool Corp.

Speaker Change: Rowing in aging installed base drives 85% of our revenue through continual maintenance and periodic renovation and upgrading needs. We will continue to do what we do best and serving the non discretionary maintenance needs, which made up over 60% of our business in 2023, we expect slight growth from our maintenance product components in 2024 assume.

Speaker Change: Normal weather conditions further and no one is better positioned to serve the pool professional considering our scale industry, leading talent and digital platform and tools.

Speaker Change: Where the DIY market, we have added considerable capabilities to enhance our independent retail products and service offering and will continue to expand Pinchpenny network to grow share in this important aftermarket and maintenance and repair category.

Peter Arvan: I remain excited and very confident in the long-term growth potential for our industry and specifically Pool Corp. The growing and aging installed base drives 85% of our revenue through continual maintenance and periodic renovation and upgrading needs. We will continue to do what we do best in serving the non-discretionary maintenance needs, which made up over 60% of our business in 2023. We expect slight growth from our maintenance product components in 2024, assuming normal weather conditions. Further, no one is better positioned to serve the pool professional considering our scale, industry-leading talent, and digital platform and tools.

Speaker Change: We expect inflationary increases to benefit our consolidated business again in 2024 with an estimated 2% to 3% added to our overall overall topline we believe chemical pricing to have largely stabilized equipment pricing remains solid as expected and that we will see some fluctuations on commodities that make up a very small portion.

Speaker Change: One of our sales.

Speaker Change: New pool construction represented just under 15% of our business in 2023 currently we expect that new pool construction in units could be flat to down 10%, although likely to reflect higher pool values.

Peter Arvan: For the DIY market, we have added considerable capabilities to enhance our independent retail products and service offering and will continue to expand the Pinch of Penny network to grow share in this important aftermarket and maintenance and repair category. We expect inflationary increases to benefit our consolidated business again in 2024, with an estimated 2-3% added to our overall top line. We believe chemical pricing has largely stabilized, equipment pricing remains solid, as expected, and that we will see some fluctuations on commodities that make up a very small portion of our sales. New pool construction represented just under 15% of our business in 2023. Currently, we expect that new pool construction in units could be flattened down 10%, although likely to reflect higher pool values.

Speaker Change: That number could vary broadly by market and geography, while the full impact of the interest rate hikes over the past couple of years and timing of future interest rate cuts remain uncertain. The long term outlook for outdoor living products growth remains strong as higher borrowing rates in recent inflation that increase the cost of building a swimming pool to approximately 80000.

Speaker Change: We expect budget conscious consumers will likely stay on the sidelines and more affluent consumers seeking pools with enhanced features and products.

Speaker Change: Content will drive the mix of new pools towards the higher end again in 2024 millennials are outpacing other generation seeking homes and with the slowdown of existing home sales new construction is making up for the housing shortage, creating new available backyard swimming pools in the future, but at a slower rate.

Peter Arvan: The number could vary broadly by market and geography. While the full impact of the interest rate hikes over the past couple of years and the timing of future interest rate cuts remain uncertain, the long-term outlook for outdoor living product growth remains strong. As higher borrowing rates and recent inflation have increased the cost of building a swimming pool to approximately $80,000, we expect budget-conscious consumers will likely stay on the sidelines, and more affluent consumers seeking pools with enhanced features and products will drive the mix of new pools towards the higher end again in 2024.

Speaker Change: And we have seen for the last several years, we carefully watch this trend and considered as part of our expansion strategy to ensure that we are located to effectively serve where the new pools will be automation and connected products remain a high priority for all and particularly for this generation driving how we work with our vendor partners to provide.

Speaker Change: The most efficient channel to market for introducing new technology enabled products.

Speaker Change: Renovation and remodel activity should be stable in most markets with about 10% of the installed base contemplating a renovation on an annual basis.

Peter Arvan: Millennials are outpacing other generations seeking homes, and with the slowdown in existing home sales, new construction is making up for the housing shortage, creating new available backyards or swimming pools in the future, but at a slower rate than we have seen for the last several years. We carefully watch this trend and consider it as part of our expansion strategy to ensure that we are located to effectively serve where the new pools will be. Automation and connected products remain a high priority for all, and particularly for this generation, driving how we work with our vendor partners to provide the most efficient channels to market for introducing new technology-enabled products. Renovation and remodel activity should be stable in most markets, with about 10% of the installed base contemplating a renovation on an annual basis. Surfaces wear out or are in need of a more modern look.

Speaker Change: Surfaces wear out or in need of a more modern look equipment gets outdated and becomes uneconomic uneconomic to operate maintain or repair as we have discussed we consider this market to be semi discretionary so larger R&R sales could potentially be flat to down 10% if higher interest rates persist, but this too will cycle with the <unk>.

Speaker Change: Condoms and borrowing costs, we consider this not and if market, but a win market as all pools will need renovation periodically during their normal lifecycle.

Speaker Change: Considering these sales variables, we are estimating an EPS range for 2020 for it to be $13 10 to $14 10.

Speaker Change: On a per share basis, including an estimated 10 cent benefit from ASU.

Peter Arvan: Equipment gets outdated and becomes uneconomical to operate, maintain, or repair. As we have discussed, we consider this market to be semi-discretionary, so larger R&R sales could potentially be flat to down 10% if higher interest rates persist, but this, too, will cycle with the economy and borrowing costs. We consider this not an if market but a when market, as all pools will need renovation periodically during their normal life cycle. Considering these sales variables, we are estimating an EPS range for 2024 to be $13.10 to $14.10 on a per share basis, including an estimated $0.10 benefit from ASU. Melanie will provide additional comments on gross margin and expenses in her comments that will help you understand our view. We expect that cash flow from operating activities will be in line with net income, and our capital allocation priorities remain unchanged.

Speaker Change: Melanie will provide additional comments on gross margin and expenses in your comments that will help you understand our view.

Melanie Hart: We expect that cash flow from operating activities will be in line with net income in our capital allocation priorities remain unchanged.

Melanie Hart: We will use our robust cash flow to invest in our operations growth and expansion, we will fund strategic acquisitions and with the approval of our board continue to pay dividends and consider share repurchases, while maintaining a prudent debt structure ultimately providing exceptional returns to our shareholders.

Melanie Hart: Our competitive position has never been stronger we remain approximately five times larger than our nearest competitor and have a history of being relentlessly focused on execution.

Melanie Hart: This execution focus is further enhanced by a new spirit of innovation that will allow us to provide unmatched customer value and support which will enable us to continue gaining share no doubt the rate of new pool construction has slowed consumers are more cautious today than in the last few years, but there is a desirability of pool ownership at outdoor living.

Peter Arvan: We will use our robust cash flow to invest in our operations, growth, and expansion. We will fund strategic acquisitions, and with the approval of our board, continue to pay dividends and consider share repurchases while maintaining a prudent debt structure, ultimately providing exceptional returns to our shareholders. Our competitive position has never been stronger.

Melanie Hart: Is strong and we will get even stronger.

Melanie Hart: It is imperative that we continue investing that we continue our focus on the customer and on investments in the future to ensure we get stronger.

Melanie Hart: The demand environment will change as the economy changes in monetary policy evolves, but that impacts only the smaller portion of our business, which is one of the most unique things about the industry.

Peter Arvan: We remain approximately five times larger than our nearest competitor and have a history of being relentlessly focused on execution. This execution focus is further enhanced by a new spirit of innovation that will allow us to provide unmatched customer value and support, which will enable us to continue gaining share. No doubt the rate of new pool construction has slowed.

Melanie Hart: Don't lose sight of the fact that this industry continuously grows upon itself and no. Other company is better positioned to weather the cycles and continuously improve like pool Corp.

Melanie Hart: I am proud of the continued progress.

Melanie Hart: I am proud of our continued progress as the clear leader of our industry and confident in our superior value proposition of which each of our 6000 plus employees work hard to improve each and every day.

Peter Arvan: Consumers are more cautious today than in the last few years, but there is a desire for pool ownership, and outdoor living is strong and will get even stronger. It is imperative that we continue investing, that we continue our focus on the customer, and on investments in the future to ensure that we get stronger. The demand environment will change as the economy changes and monetary policy evolves, but that impacts only a smaller portion of our business, which is one of the most unique things about the industry. Don't lose sight of the fact that this industry continuously grows upon itself, and no other company is better positioned to weather the cycles and continuously improve like Pool Corp. I am proud of the continued progress.

Speaker Change: In closing I want to say, thank you to the <unk> team as I reflect on this year. It has been a tough one but because of you we are a better and stronger company than ever I also want to thank our supplier partners and most importantly, our customers for helping millions of people enjoy the benefits of healthy outdoor living and making the memories of a lifetime.

Melanie Hart: I will now turn the call over to Melanie Heart, our Vice President of Finance and Chief Financial Officer for her detailed commentary.

Melanie Heart: Pete Good morning, everyone I'll begin our fourth quarter results move into how we finished out 2023, and then cover what we are seeing as we start 2024.

Peter Arvan: I am proud of our continued progress as the clear leader of our industry and confident in our superior value proposition, which each of our 6,000 plus employees work hard to improve each and every day. In closing, I want to say thank you to the Pool Corp team. As I reflect on this year, it has been a tough one, but because of you, we are a better and stronger company than ever. I also want to thank our supplier partners and, most importantly, our customers for helping millions of people enjoy the benefits of healthy outdoor living and making the memories of life. I will now turn the call over to Melanie Hart, our Vice President of Finance and Chief Financial Officer, for her detailed commentary. Thank you, Pete. Good morning, everyone.

Melanie Heart: Net sales for fourth quarter showed a modestly improved trend down eight 4% versus negative eight 7% for the third quarter 2023, when compared to the prior year inflation moderated as expected and was an approximate 1% benefit for the quarter.

Melanie Hart: We realized a 29, 3% gross margin during the quarter, an improvement of 20 basis points.

Melanie Hart: Third quarter, 2023, and a 50 basis point improvement over fourth quarter 2022.

Melanie Hart: The year over year change includes a margin decrease from the prior year inventory gain benefit.

Melanie Hart: I'll begin with our fourth quarter results, move into how we finished out 2023, and then cover what we are seeing as we start 2024. Net sales for the fourth quarter showed a modestly improved trend, down 8.4% versus negative 8.7% for the third quarter 2023 when compared to the prior year. Inflation moderated as expected and was an approximate 1% benefit for the quarter.

Melanie Hart: That by the additional 120 basis points for import taxes recorded in the fourth quarter of 2022 during.

Melanie Hart: During the fourth quarter operating expenses increased 3% over last year's fourth quarter cost inflation and occupancy wages and insurance expenses continued to be largely mitigated by sales center operating efficiency improvement and cost management.

Melanie Hart: Operating income of $79 million for the quarter represents a decrease of 26% from prior year operating income of $107 million.

Melanie Hart: We realized a 29.3% gross margin during the quarter, an improvement of 20 basis points from third quarter 2023 and a 50 basis point improvement over fourth quarter 2022. The year-over-year change includes a margin decrease from the prior year inventory gain benefits offset by the additional 120 basis points for import taxes recorded in the fourth quarter 2022. During the fourth quarter, operating expenses increased 3% over last year's fourth quarter. However, costs of inflation in occupancy, wages, and insurance expenses continue to be largely mitigated by sales center operating efficiency improvements and cost management. Operating income of $79 million for the quarter represents a decrease of 26% from prior year operating income of $107 million.

Melanie Hart: Margin was seven 9% in the quarter compared to nine 8% in Q4 2022.

Melanie Hart: Earnings per share for the fourth quarter was $1 32 compared to $1 82 in the fourth quarter of 2022, reflecting lower operating income slightly offset by less interest expense.

Speaker Change: Now I'll move on to a review of our full year 2023 was all other than comparing to a record 2022.

Melanie Hart: Full year 2023 represented a very strong performance.

Melanie Hart: As our industry transitioned from heightened demand at the pandemic period, and the effects of inflation and supply chain disruptions, we successfully right sized our inventory position invested for future growth with 14, Greenfield sales centers and five acquired sale centers covering all parts of our business and opening 15, new pinch.

Melanie Hart: Penni franchise stores introduced new customer, enabling technology held our operating expenses approximately flat generated over $820 million in free cash flow.

Melanie Hart: <unk> outstanding borrowings by over $330 million and returned almost $475 million to shareholders through dividends and share repurchases.

Melanie Hart: The operating margin was 7.9% in the quarter compared to 9.8% in Q4 2022; diluted earnings per share for the fourth quarter was $1.32 compared to $1.82 in the fourth quarter of 2022, reflecting lower operating income slightly offset by less interest expense. Now I'll move on to a review of our full year 2023 results. Other than comparing to a record 2022, full year 2023 represented a very strong performance.

Melanie Hart: All in all we're proud of our performance in 2023.

Melanie Hart: We demonstrated the resilience in our operating model and positioned ourselves for a successful future.

Melanie Hart: We finished 2023 with net sales of $5 5 million a decrease of 10, 3% from prior year record sales within net sales, we realized approximately 3% of product cost inflation benefit.

Melanie Hart: Our level of net sales were driven principally by reduced new pool construction activities expected to be down around 25% in units belt and.

Melanie Hart: As our industry transitioned from heightened demand during the pandemic period and the effects of inflation and supply chain disruptions, we successfully right-sized our inventory position, invested for future growth with 14 Greenfields sales centers and five acquired sales centers, covering all parts of our business, and opened 15 new pinch-a-penny franchise stores. We introduced new customer-enabling technology, held our operating expenses approximately flat, generated over $820 million in free cash flow, reduced All in all, we're proud of our performance in 2023 as we demonstrated the resilience of our operating model and positioned ourselves for successful future growth. We finished 2023 with net sales of $5.5 billion, a decrease of 10.3% from prior year record sales.

Melanie Hart: And lower pool renovation and remodel activity, which combined represent approximately seven percentage points of the reduced total sales during the year unfavorable.

Melanie Hart: Unfavorable weather during the first half of the year resulted in 2% lower net sales.

Melanie Hart: Lower customer early buy it's primarily due to higher customer inventory at the start of the year and chemical and commodity pricing are estimated to have contributed an additional two percentage points of the negative impact on sales and the maintenance portion of the business.

Melanie Hart: Additional impact representing the remaining two percentage points are attributable to declines in sales of certain discretionary products, such as heaters, and clean Earth and lower horizon and Europe sales activity during the year.

Melanie Hart: Lower levels of new pool construction in 2023 slightly changed our estimate of the composition of our North American net sales are.

Melanie Hart: For 2022, we estimated sales of new construction related products or approximately 17% renovation and we are not a product sales comprised roughly 22% and maintenance product sales represented the remaining approximately 61%.

Melanie Hart: 2023, the lower level of new construction products.

Melanie Hart: Within net sales, we realized approximately 3% of product cost inflation benefits. Lower levels of net sales were driven principally by reduced new pool construction activities, expected to be down around 25% in units built, and lower pool renovation and remodel activity, which combined represents approximately 7 percentage points of the reduced total sales during the year. Unfavorable weather during the first half of the year resulted in 2% lower net sales.

Melanie Hart: That portion of our base, that's closer to 14% with renovation and remodel products sales estimated at 24% and the remaining 62% coming from maintenance.

Melanie Hart: Based on our sales activity of certain products, specifically <unk> and Newport construction, we appear to have outperformed the market as our decreases for these products were less severe than the total market as indicated by reported Newport permit decreases and preliminary estimates of total new pool, you know that's constructed in 2023.

Melanie Hart: Well, that's smart and finished the full year in line with our long term target of 30%.

Melanie Hart: Lower customer early buys, primarily due to higher customer inventory at the start of the year and chemical and commodity pricing, are estimated to have contributed an additional two percentage points of the negative impact on sales in the maintenance portion of the business. Additional impacts representing the remaining two percentage points were attributable to declines in sales of certain discretionary products, such as heaters and cleaners, and lower Horizon and Europe sales activity during the year. Lower levels of new pool construction in 2023 have slightly changed our estimate of the composition of our North American net sales. For 2022, we estimated sales of new construction-related products at approximately 17 percent. Renovation and remodel product sales comprised roughly 22 percent, and maintenance product sales represented the remaining approximately 61 percent.

Melanie Hart: Let me see in a typical year, we expect pluses and minuses each quarter due to seasonality and product sales mix variation.

Melanie Hart: During the year each of our quarters saw varying fluctuations from normal seasonal pattern as we realize the remaining benefit of lower cost inventory impacts from the slow start to the season product mix changes and lower vendor incentives, resulting from lower purchase level.

Melanie Hart: Operating expenses increased 6 million to $913 million only a 6% increase over 2022, including $12 million related to Greenfield sales center opened and locations acquired during the year.

Melanie Hart: Wage inflation occupancy cost and continued investments in digital transformation and technology were partially offset by lower incentive based compensation and volume related selling expenses. The investments in new sales Center development and digital transformation are expected to generate additional sales growth and capacity as mark.

Melanie Hart: Conditions stabilize and industry growth returns to normalized level.

Melanie Hart: Operating margin of 13, 5% decreased 310 basis points compared to the prior year record operating margin of 16, 6%, which represents a significant expansion compared to pre pandemic operating margin level as we have leveraged scale benefit even when revenue dollars have normalized over prior year.

Melanie Hart: In 2023, the lower level of new construction product sales is projected to move that portion of our business closer to 14 percent, with renovation and remodel product sales estimated at 24 percent and the remaining 62 percent coming from maintenance. Based on our sales activity for certain products specifically used in new pool construction, we appear to have outperformed the market as our decreases for these products were less severe than the total market, as indicated by reported new pool permit decreases and preliminary estimates of total new pool units constructed in 2023. Gross Margin finished the full year in line with our long-term target of 30%.

Melanie Hart: Gross margin rate came in consistent with our long term target.

Melanie Hart: We received an ASU benefit of $7 million or 17 cents per diluted share for the full year of which two thirds was added in the fourth quarter and not included in our prior guidance.

Melanie Hart: Well your tax rate, excluding the ASU with 25% alright.

Melanie Hart: Alrighty firsthand for 'twenty, 'twenty, three or $13 35.

Melanie Hart: Decreased 29% when compared to the record $18.70. We earned in 2022.

Melanie Hart: As we see in a typical year, we expect pluses and minuses each quarter due to seasonality and product sales mix variation. During the year, each of our quarters saw varying fluctuations from normal seasonal patterns as we realized remaining benefits of lower-cost inventory, impacts from the slow start to the season, product mix changes, and lower vendor incentives resulting from lower purchase levels. Operating expenses increased $6 million to $913 million, only a 0.6% increase over 2022, including $12 million related to Greenfield sales centers opened and locations acquired during the year.

Melanie Hart: Without the impact of the ASU in both periods, our EPS of $13 eight <unk> compared to $18 43 that was a decrease of 28%.

Melanie Hart: Cash flow from operating activities increased to a record $888 million an improvement of $403 million over 2022.

Melanie Hart: This includes cash benefit from our strong operating results and a net benefit from a working capital management, including inventory reduction effort that contributed $230 million.

Melanie Hart: Moving to comments on our balance sheet. We ended the year with accounts receivable totaling $343 million down 9 million from year end 2022 and days sales outstanding of 26, eight days comparable to prior year.

Melanie Hart: Increased wage inflation, occupancy costs, and continued investments in digital transformation and technology were partially offset by lower incentive-based compensation and volume-related sales expenses. The investments in new sales center development and digital transformation are expected to generate additional sales growth and capacity as market conditions stabilize and industry growth returns to normalized levels. Operating margin of 13.5% decreased 310 basis points compared to the prior year record operating margin of 16.6%, which represented a significant expansion compared to pre-pandemic operating margin levels as we have leveraged scale benefits even when revenue dollars have normalized over prior years and our growth margin rate came in consistent with our long-term target. We received an ASU benefit of $7 million, or $0.17 per diluted share, for the full year, of which $0.02 was Well, your tax rate, excluding the ASU, was 25%.

Speaker Change: Great job by the team working to meet our customer needs, especially during a tough demand environment.

Speaker Change: During the third quarter, we reported on our inventory reduction goals and accomplishments.

Speaker Change: Even with higher early buy inventory receipt activity during the fourth quarter, we executed almost $230 million reduction in inventory balances year over year, including the impact of higher than normal number of new locations opened acquisitions and current year inflation.

Speaker Change: We expect to see a seasonal increase in first quarter ahead of the 2024 season, but plan to maintain inventory balances throughout 2024 that are lower than 2023.

Speaker Change: We reduced total debt outstanding by $330 million to $1 5 billion compared to year end 2022.

Speaker Change: Borrowing levels remain below our target leverage ratio of one and a half to two times, finishing the year with a leverage ratio of one four.

Speaker Change: We also repurchased $306 million of our stock, including 119 million in the fourth quarter, reducing our fully diluted weighted average shares outstanding by 800000.

Speaker Change: Compared to the full year 2020 threat and definitely in May 2023, we increased our quarterly dividend per share by 10% to $1 10, when compared with share repurchases. We returned almost 475 million to our shareholders. The second highest year in our history.

Melanie Hart: Earnings per share for 2023 of $13.35 decreased 29% when compared to the record $18.70 we earned in 2022. Without the impact of the ASU in both periods, our EPS of $13.18 compared to $18.43 was a decrease of 28%. Cash flows from operating activities increased to a record $888 million, an improvement of $403 million over 2022. This includes cash benefits from our strong operating results and a net benefit from our working capital management, including inventory reduction efforts that contributed $230 million. Moving on, to comments on our ballot.

Speaker Change: Next I'll comment that our outlook for 2024 P has included in his comments our expectations regarding the market in 2024, and the timing of net sales growth recovery with that as a backdrop, we expect to continue to outperform the market. In 2024. We are currently expecting flat to low single digit sales increases in 2024.

Speaker Change: With a 2% to 3% pricing benefit on a blended product line basis.

Speaker Change: Could potentially see a one to two per cent benefit from normalized weather, primarily a trip to the pharmacy.

Speaker Change: And it's our expectation that maintenance will rise slightly with the increase in installed base of pools and discretionary product sales, we will still see some pressure until economic conditions stabilize our guidance consider volume expectations on renovation and remodel and new construction markets continuing at similar levels to 2023.

Melanie Hart: We ended the year with accounts receivable totaling $343 million, down $9 million from year-end 2022, and day sales outstanding of 26.8 days, comparable to the prior year. A great job by the team, working to meet our customer needs, especially during a tough demand environment. During the third quarter, we reported on our inventory reduction goals and accomplishments. Even with higher early-buy inventory receipt activity during the fourth quarter, we executed almost $230 million in inventory balances year over year, including the impact of a higher-than-normal number of new locations opened, acquisitions, and current-year inflation. We expect to see a seasonal increase in the first quarter ahead of the 2024 season but plan to maintain inventory balances throughout 2024 that are lower than 2023. We reduced total debt outstanding by $330 million to $1.05 billion compared to year-end 2022.

Speaker Change: At the high end and the potential for a decrease of up to 10% at the low end horizon in Europe could also see modest pressure up to a 5% decline epilepsy.

Speaker Change: Gary 'twenty 'twenty four we will see an increase of two selling days with one in the third quarter and one in the fourth quarter. However, given the timing of extra days, we expect the impact to be less than 1%.

Speaker Change: Gross margin for the full year is expected to be near our long term guidance target of 30% margin will vary seasonally over the quarters as it has historically with second quarter typically reflecting the highest gross margin for the year, we expect that the carryover from the remainder of the lower cost inventory sell through in first quarter of 2023.

Speaker Change: Be substantially similar to the benefits we will get in 2024 from the normalized vendor early buys that took place at the end of 2020.

Speaker Change: However, the lower level of customer early buys in first quarter 2023 was also a benefit to margin in prior year for which we are not expecting a corresponding impact in 2024, we will see the remaining effect on margins from the lower selling prices of chemicals that come out of it. He is also in the first quarter and at current pricing there should be minimal.

Melanie Hart: Total borrowing levels remain below our target leverage ratio of one and a half to two times, finishing the year with a leverage ratio of 1.4. We also repurchased $306 million of our stock, including $119 million in the fourth quarter, reducing our fully diluted weighted average sales outstanding by $800,000 compared to the full year 2023. Additionally, in May 2023, we increased our quarterly dividend per share by 10% to $1.10. When compared with share repurchases, we returned almost $475 million to our shareholders, the second highest year in our history.

Speaker Change: Packed on second quarter.

Speaker Change: Wages rent and other operating costs are still a headwind, resulting in modest expense increase because in 2024 and our ongoing capacity creation project throughout the company will drive improved productivity. We plan to continue accelerating our technology initiatives that will exert pressure on the short term operating margin.

Speaker Change: Improvement. However, these additive investments are intended to drive long term strategic growth.

Speaker Change: <unk> increased capacity to grow and drive continued future operating efficiency.

Speaker Change: Typically we have considered in our SG&A cost guidance incremental expense of $15 million for normalized performance based compensation $12 million for new Greenfield locations. We've opened in 2024, and a $20 million incremental investment in our technology initiatives.

Melanie Hart: Next are comments in our outlook for 2024. Pete has included in his comments our expectations regarding the market in 2024 and the timing of net sales growth recovery. With that as a backdrop, we expect to continue to outperform the market in 2024. We are currently expecting flat to low single-digit sales increases in 2024, with a 2 to 3 percent pricing benefit on a blended product line basis and could potentially see a 1-2% benefit from normalized weather, primarily attributable to the first few days. This considers our expectation that maintenance will rise slightly with the increase in the installed base of pools, and discretionary product sales will still see some pressures until economic conditions stabilize. Our guidance considers volume expectations for renovation and remodel and new construction markets continuing at similar levels to 2023 at the high end, and the potential for a decrease of up to 10 percent at the low end. Horizon and Europe could also see modest pressure, up to a 5 percent decline at the low end. During 2024, we will see an increase of two selling days, with one in the third quarter and one in the fourth quarter. However, given the timing of the extra days, we expect the impact to be less than one percent.

Speaker Change: We expect 2024 operating margin to be approximately 13%.

Speaker Change: Interest expense should be between 50 and $53 million based on current rates and excluding any share repurchases.

Speaker Change: <unk> amortization for 'twenty 'twenty four is anticipated to be in the range of $44 million.

Speaker Change: We are estimating a 10 cent benefit from ASU in the first quarter for the expected impact of restricted shares vesting and stock options expiring in 2024, our annual tax rate is projected to be approximately 25, 3% excluding ASU.

Speaker Change: Weighted average shares outstanding that will be applied to the net income attributable to common shareholders. We expect approximately $38 7 million shares at the end of Q1 and $38 8 million shares for the remaining quarters with no additional share buybacks.

Speaker Change: This results in guidance for 2024 diluted EPS of $13 10 to $14 intends that including the 10th at ASU benefit the midpoint of our guidance represents a two 4% improvement excluding the ASU.

Melanie Hart: Gross margin for the full year is expected to be near a long-term guidance target of 30 percent. Margin will vary seasonally over the quarters as it has historically, with the second quarter typically reflecting the highest gross margin for the year. We expect that the carryover from the remainder of the lower cost inventory sold through in the first quarter of 2023 will be substantially similar to the benefits we will get in 2024 from the normalized vendor early buys that took place at the end of 2023. However, the lower level of customer early buys in the first quarter of 2023 was also a benefit to margins in the prior year from which we are not expecting a corresponding impact in 2024. We will see the remaining effect on margins from the lower selling prices of chemicals and commodities also in the first quarter, and at current pricing, there should be minimal impact on the second quarter. Wages, rent, and other operating costs are still a headwind, resulting in modest expense increases in 2024.

Speaker Change: After a record cash flows in 2023, we would expect to see 2024. It returned to normalized levels of around 100% of net income our consistent capital allocation priorities include uses of cash of around one to one 5% of net sales organic growth such as ongoing capital expenditures and our center expansion.

Speaker Change: We also plan to continue strategic acquisition authorized dividends and share buybacks. We ended the year with $344 million available under our current share repurchase authorization in.

Speaker Change: In 2023, 58% or the majority of our cash flow from operating activities was generated in the second half of the year as is typical from a seasonal standpoint.

Speaker Change: Since 2019, we have reported increased sales of 73% came from inflation and market share over the 2020 to 2022 higher growth period, coupled with acquisitions and relative stability of higher levels of inflation in product costs remain. We also continued to realize higher margin from acquired sales and supply chain and <unk>.

Speaker Change: Reising initiatives versus our 2019 level our decision to continue to invest in 2023 and ethylene. These four to 'twenty 'twenty four and areas that have proven can position us for long term growth, while improving our operations and strengthening our leading position in the market will allow us to continue long term shareholder value.

Melanie Hart: But our ongoing capacity creation project throughout the company will drive improved productivity. We plan to continue accelerating our technology initiatives, which will exert pressure on short-term operating margin improvement. However, these additive investments are intended to drive long-term strategic growth, provide increased capacity to grow, and drive continued future operating efficiency. Specifically, we have considered in our SG&A cost guidance an incremental expense of $15 million for normalized performance-based compensation, $12 million for new Greenfield locations we will open in 2024, and a $20 million incremental investment in our technology initiative. Overall, we expect 2024 operating margin to be approximately 13%, and interest expense should be between $50 and $53 million based on current rates and excluding any share or purchase.

Speaker Change: Thank you for joining today's call. We are now ready to open the line for questions.

Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

Speaker Change: If you are using a speakerphone please pick up your handset before pressing the keys.

Speaker Change: To withdraw your question. Please press Star then two.

Speaker Change: Please limit yourself to one question and one follow up if you have further questions you may reenter the question queue.

Speaker Change: The first question comes from Ryan Merkel of William Blair. Please go ahead.

Ryan Merkel: Hey, everyone. Thanks for taking the questions.

Ryan Merkel: Good morning.

Ryan Merkel: Thanks for all the details on the guidance.

Ryan Merkel: I think we don't want to do is just talk about the first quarter, because there's a few moving pieces.

Ryan Merkel: For gross margin.

Melanie Hart: Depreciation and amortization for 2024 is anticipated to be in the range of 44 million. We are estimating a $0.10 benefit from the ASU in the first quarter for the expected impact of restricted shares vesting and stock options expiring in 2024. Our annual tax rate is projected to be approximately 25.3%, excluding the ASU.

Speaker Change: Should we expect down something in the 50 basis points 60 basis points neighborhood year over year.

Speaker Change: Yeah, we would expect that margins in the first quarter would be much more seasonally compared to what we saw in 2023. So I would expect it would be down in the range of that for after first quarter.

Speaker Change: Okay, Great and then I.

Speaker Change: I think youre going to return to pre Covid seasonality. So should we think about EPS in <unk> kind of 12, 13% of sales for the year.

Melanie Hart: For a weighted average share of that standing that will be applied to the net income attributable to common shareholders, we expect approximately 38.7 million shares at the end of Q1 and 38.8 million shares for the remaining quarters with no additional share buyback. This results in guidance for 2024 diluted EPS of $13.10 to $14.10, including the $0.10 ASU benefit. The midpoint of our guidance represents a 2.4% improvement excluding the ASU.

Speaker Change: I'm sorry of EPS.

Speaker Change: Yeah. So you know.

Speaker Change: Typically we would we would expect that the topline would return more to like historical seasonal levels and not compared to what we've seen in the last couple of years, but generally kind of that fourth first quarter, and then that 18% to 20% range and then with them you know slightly less less overall on margins and well controlled operating expenses.

Speaker Change: Yeah, I think it'll be a REIT.

Speaker Change: Reasonable consistent contribution to overall EPS for the year.

Melanie Hart: After our record cash flows in 2023, we would expect to see 2024 return to normalized levels of around 100% of net income. Our consistent capital allocation priorities include uses of cash of around 1 to 1.5% of net sales or organic growth, such as ongoing capital expenditures and sales center expansion. We also plan to continue strategic acquisitions, authorized dividends, and share buybacks. We ended the year with $344 million available under our current share repurchase authorization.

Speaker Change: Okay, and maybe just one more for Pete how did you think about guidance sincere it feels conservative which I expected.

Speaker Change: It seems like Youre investing in a lot of new tools and things. So you know just how did you think about the guidance and then maybe high level. What are you assuming for the discretionary products versus non discretionary products I think that's maybe an easier way for us to think about it.

Speaker Change: Yes, thanks for the question Ryan.

Speaker Change: As we were trying to.

Speaker Change: Together our guidance for the year obviously.

Operator: In 2023, 58 percent, or the majority of our cash flow from operating activities, was generated in the second half of the year, as is typical from a seasonal standpoint. Since 2019, we have reported increased sales of 73 percent. Gains from inflation and market share over the 2020 to 2022 higher growth period, coupled with acquisitions and relative stability of higher levels of inflation and product costs, remain. We also continue to realize higher margins from acquired sales and supply chain and pricing initiatives versus our 2019 levels. Our decision to continue to invest in 2023 and as we move forward to 2024 in areas that have proven to position us for long-term growth while improving our operations and strengthening our leading position in the market will allow us to continue to deliver long-term shareholder value. Thank you for joining today's call. We are now ready to open the line for questions. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone.

Speaker Change: At the beginning of last year, we came out of it stronger because we didn't contemplate the number of interest rate increases that we're going to see in the size of those rates and the impact that that was going to have on construction.

Speaker Change: As we looked at guidance for this year, if I step back and I <unk>.

Speaker Change: The business down into the 60% of our business kind of the maintenance and repair that's going to go we get a little better at that business every year, we provide better service, we take a little bit of share the biggest impact that's going to be felt in that area is the is what the weather can do to US right. So if the weather is better pools open sooner that business will that be.

Speaker Change: This will will shine for us.

Speaker Change: It's a slower for the year or if the weather turns less favorable.

Speaker Change: Then that's going to have a negative impact as we look through the first six weeks of the year I guess, we're seven weeks of the year. So far it's really kind of the inverse of what we saw last year. So last year's first quarter weather was better in the beginning and then March was.

Speaker Change: Was very tough I mean, California already this year has had over 12 inches of rain. So I think where we wanted to make sure that we were.

Ryan Merkel: If you are using a speakerphone, please pick up your handset before pressing the. To withdraw your question, please press star then 2. Please limit yourself to one question and one follow-up. If you have further questions, you may re-enter the question. The first question comes from Ryan Merkel of William Blair. Please go ahead.

Speaker Change: Appropriately conservative with our with our outlook given the uncertainties on weather and as I look at and any impacts on the maintenance and repair business and I would also tell you as I look at the two semi discretionary and discretionary parts of the business with new pool construction being the topic that most people want to talk about it.

Melanie Hart: Hey everyone, thanks for taking the questions. Good morning. Thanks for all the details on the guidance. I think what I want to do is just talk about the first quarter because there are a few moving pieces. For gross margin, should we expect it to be down something in the 50 basis points, 60 basis points neighborhood year over year? Yeah, we would expect that margins in the first quarter would be much more seasonal compared to what we saw in 2023. So I would expect it to be down in the range of that for the first quarter. Okay, great.

Speaker Change: As you know.

Speaker Change: Don't think the economic conditions are really going to change all that much until probably we get through this year and get through the election cycle. So I can't really say that I believe that if the fed cuts interest rates in the third quarter of the year by a quarter of a point that the.

Speaker Change: The HELOC rate, which is approximately 12% now that.

Speaker Change: Somebody that needed financing for new pool that 5% or 40% rate reduction that so 11, and three quarters or 11, and a half would say, okay, I'm totally and now I'm going to build that pool. So I think we are just looking for the demand environment as it relates to the new pool construction to be fairly consistent the more affluent buyers that are less subject to.

Melanie Hart: And then, I think you're going to return to pre-COVID seasonality. So should we think about EPS and 1Q at kind of 12, 13 percent of sales for the year? I'm sorry, EPS.

Melanie Hart: Yeah, typically, we would typically expect that the top line would return more to historical seasonal levels and not compared to what we've seen in the last couple of years. But generally, kind of that first quarter is within that 18 to 20% range. And then, with, you know, slightly lower overall margins and, you know, well-controlled operating expenses, I think it will be a reasonable consistent contribution to overall EPS for the year. Okay. And maybe just one more for Pete.

Speaker Change: Financing that business will be good we think the average price of the pool is going to increase because of the slanting of the business that way and on the renovation and remodel the phenomenon. That's going on there is as I mentioned in my comments every year.

Speaker Change: <unk>.

Speaker Change: About 10% of the homeowners pool owners decide to think about hey should I be doing a renovation.

Speaker Change: Innovations now could be in the 20 to $30000 range, depending on what Youre doing so I think what we're seeing is some of our builders, saying remodel they're saying, okay. Maybe we can do this in stages because there is still a big.

Peter Arvan: How did you think about guidance this year? It feels conservative, which I expected. It seems like you're investing in a lot of new tools and things. So, you know, just how did you think about the guidance? And then, maybe, at a high level, what are you assuming for the discretionary products versus non-discretionary products? I think that's maybe an easier way for us to think about it. Yeah, thanks for the

Speaker Change: Impact of borrowing costs on those larger renovation products. So I think normal maintenance products pumps filters cartridges chemicals that business is good we are investing in improving our value proposition, making it easier for customers to do business with us and providing an exceptional focus on <unk>.

Speaker Change: Customer experience I think that's good if I look at our portfolio of products on building material for the renovation and remodel and I look at our expansive network of design centers.

Peter Arvan: You know, as we were trying to put together our guidance for the year, obviously, at the beginning of last year, we came out a bit stronger because we hadn't contemplated the number of interest rate increases that we were going to see and the size of those rates and the impact that that was going to have on construction. So as we looked at guidance for this year, you know, if I step back and I break the business down into the, you know, 60% of our business, kind of maintenance and repair, that's going to go. We get a little better at that business every year, we provide better service, we take a little bit of share. The biggest impact that's going to be felt in that area is what the weather can do to us, right?

Speaker Change: Building materials, I think that's going to be good, but we will have to play the cards. We're dealt in terms of what the demand environment is going to be for new pools. So overall I think we viewed the year in context of what we got for the first six weeks of.

Speaker Change: Whether and what the ongoing economic environment looks like.

Speaker Change: Yep makes sense alright best of luck.

Speaker Change: Thank you.

Speaker Change: The next question comes from Susan Mcclary of Goldman Sachs. Please go ahead.

Peter Arvan: So if the weather is better, and pools open sooner, that business will shine for us. If it's slower for the year, or if the weather turns less favorable, then that's going to have a negative impact. You know, as we look through the first six weeks of the year, I guess we're at seven weeks of the year so far, it's really kind of the inverse of what we saw last year. So last year's first quarter weather was better in the beginning, and then March was very tough. I mean, California already has had over 12 inches of rain this year.

Susan Marie Maklari: Good morning, everyone.

Susan Marie Maklari: Hey, good morning.

Susan Marie Maklari: My first question Peter is I'd like to talk a little bit about the operating environment as you're coming into this year can you talk a bit to just the competitive dynamics and how youre thinking that may come through for 24, and then I guess relative to that.

Susan Marie Maklari: Dates on the ability to hold the share gains that you've realized in the last couple of years and perhaps to continue to even gain some share as we move through 'twenty four.

Peter Arvan: So I think we wanted to make sure that we were appropriately conservative with our outlook given the uncertainties about the weather. And as I look at any impacts on the maintenance and repair business, And I would also tell you, as I look at the two, you know, semi-discretionary and discretionary parts of the business, with new pool construction, you know, being the topic that most people want to talk about, I don't think the economic conditions are really going to change all that much until, probably, we get through this year and get through the election cycle. So I can't really say that I believe that if the Fed cuts interest rates in the third quarter of the year by a quarter of a point, that, you know, the HELOC rate, which is approximately 12% now, somebody that needed financing for a new pool, a half percent or a quarter percent rate reduction, so, you know, 11 and three quarters or 11 and a half would say, okay, I'm totally in So I think we are, we're just looking for the demand environment as it relates to the new pool construction to be fairly consistent. The more affluent buyers that are less subject to financing, the business will be good.

Susan Marie Maklari: Sure.

Susan Marie Maklari: The competitive environment is as interesting in any industry in that depending on the level of overall demand, we usually dictates how competitive are there.

Susan Marie Maklari: The environment is.

Susan Marie Maklari: So in coming off of the year that we had in 2023 and the beginning of 2024.

Susan Marie Maklari: It is I.

Susan Marie Maklari: I would tell you there is nothing that we see that we haven't seen before.

Susan Marie Maklari: In the slower months right when the demand environment isn't that isn't that good we see competitors doing.

Susan Marie Maklari: What some would consider to be desperate things, but there we view those as short term in nature, because nobody is more efficient than we are nobody has a better cost position than we do so when we see competitors go in and offer ridiculous deal. We know that it's a in many cases.

Susan Marie Maklari: Out of desperation, and it's nothing that is sustainable and unfortunately, our customers know that too.

Peter Arvan: We think the average price of the pool is going to increase because of the slanting of the business that way. And the renovation and remodel phenomenon, the phenomenon that's going on there is, as I mentioned in my comments, every year, about 10% of the homeowners or pool owners decide, think about, hey, should I be doing a renovation? Renovations now could be, you know, in the $20,000 to $30,000 range, depending on what you're doing.

Susan Marie Maklari: So we tend to focus on as always being the.

Susan Marie Maklari: Best provider in the market being the easiest to do business with and making sure that we are attentive to our customers' needs instead of worrying about how much product we can sell them, we try and worry about how they're doing and how we could help them grow their business and how we can help them be more productive which is driving a lot of the investment.

Peter Arvan: So I think what we're seeing is some of our builders saying, some of our remodelers saying, okay, maybe we can do this in stages because there is still a big impact of borrowing costs on those larger renovation products. So I think normal maintenance products, pumps, filters, cartridges, chemicals, business is good. We're investing in improving our value proposition, making it easier for our customers to do business with us, and providing an exceptional focus on customer experience. I think that's great. If I look at our portfolio of products for building materials for renovation and remodel, and I look at our expansive network of design centers, building materials, I think that's going to be good, but we have to play the cards we're dealt in terms of what the demand environment is going to be for new pools. So overall, I think we should view the year in context of what we got for the first six weeks of weather and what the ongoing economic environment looks like. Yep, makes sense. All right.

Susan Marie Maklari: We're making certainly on the technology side those tools are designed specifically to make our customers more productive and to help them grow faster and we hope that by doing that that will grow right along with them as opposed to just figuring out if I can get an order today from our customers. So we have a much longer term view.

Susan Marie Maklari: And therefore invest and act accordingly.

Susan Marie Maklari: <unk>.

Susan Marie Maklari: The second part of your question was about share gains I think and I would tell you. We believe that we gained share again in 2023, we are quite confident of that given the data that we have access to.

Susan Marie Maklari: And we see it we see it every day now we have to compete every day right. We have to compete every day and we have to make sure that we provide that unparalleled service, but I think given that we continue to provide new resources were our customer and that we continue to do I've got 6000 people that wake up every day and want to make sure that we are the best provider.

Peter Arvan: Best of luck. Thank you. The next question comes from Susan Maklari of Goldman Sachs. Please go ahead. Thank you. Good morning, everyone.

Susan Marie Maklari: Good morning. My first question, Pete, is I'd like to talk a little bit about the operating environment you're coming into this year. Can you talk a bit about just the competitive dynamics and how you're thinking that may come through for 24? And then, I guess, relative to that, you know, any updates on the ability to hold the share gains that you've realized in the last couple of years and perhaps to continue to even gain some share as we move through 24? Sure.

Susan Marie Maklari: And the best partner for our customers and the best channel to market for our suppliers that is a is a tremendous force that has a tremendous work and a huge differentiator. So I don't really think about the share gains that we've had with fear that we may give them back rather we are focused on deliberately working to be the best provider in the market.

Peter Arvan: You know, the competitive environment is interesting in any industry because, depending on the level of overall demand, it usually dictates how competitive the environment is. So, coming off of the year that we had in 2023 and the beginning of 2024, it is, I would tell you, there's nothing that we see that we haven't seen before. You know, in the slower months, right, when the demand environment isn't that good, we see competitors doing what some would consider to be desperate things. But there, we view those as short-term in nature, because nobody is more efficient than we are. Nobody has a better cost position than we do.

Susan Marie Maklari: So that we continue to get those opportunities to enjoy more business from our existing customers and to make new friends along the way.

Susan Marie Maklari: Okay. That's very helpful color and then I wanted to dig a little deeper into the semi discretionary products and the demand there heaters in the cleaners those kinds of things you've talked about the weakness there for the last several quarters as you think about people that had delayed those purchases in.

Susan Marie Maklari: The last 12 months or so coming into the pool season, do you think that they could start to come back into the market that well maybe that does remain a headwind for the full year as we move through 'twenty four we do start to see some move off of the trough in that and then I guess with that do you think that any change in the macro environment.

Peter Arvan: So, when we see competitors go in and offer, you know, ridiculous deals, we know that it's, in many cases, out of desperation, and it's nothing that is sustainable. And unfortunately, our customers know that. So we tend to focus on, as always, being the best provider in the market, being the easiest to do business with, and making sure that we are attentive to our customers' needs. Instead of worrying about how much product we can sell them, we try and worry about how they are doing and how we can help them grow their business, and how we can help them be more productive, which is driving a lot of the investments we're making, certainly on the technology side.

Susan Marie Maklari: Ironman whether it comes late this year or next year could help to drive more of that demand is it enough to offset the tough comps and the pull forward that we saw during the pandemic.

Susan Marie Maklari: Yes, I think what we have on our hands is.

Peter Arvan: And we hope that by doing that, we'll grow right along with them, as opposed to just figuring out if I can get an order today from a customer. So we have a much longer-term view and, therefore, invest and act accordingly. Um, the second part of your question was about share gains. I think, and I would tell you, we believe that we will gain share again in 2023. We are quite confident of that, given the data that we have access to, and we see it every day.

Susan Marie Maklari: And our advantage is time right and that is that we're not in it for the short term and we know that those products will.

Susan Marie Maklari: <unk> will be necessary. So you can only defer if you have a cool you need somebody to clean the pool or you need an automatic cleaner you need both in most cases, so those semi discretionary things and if people if theres a normal replacement cycle for a heater right or there is normal replacement cycle for a cleaner or those are those more.

Peter Arvan: Now, we have to compete every day, right? We have to compete every day, and we have to make sure that we provide that unparalleled service. But I think, given that we continue to provide new resources for our customers, and that we continue, I've got 6,000 people that wake up every day and want to make sure that we are the best provider, and the best partner for our customers, and the best channel to market for our suppliers. That is a tremendous force and a huge differentiator.

Susan Marie Maklari: Or discretionary purchases there comes a time when they are no longer discretionary and that we have to do it. So do I think that there was some pull forward in demand on those products I absolutely do.

Susan Marie Maklari: Do I think that every month that goes by we get a little closer to being back to the normal rate of replacement cycle on those products.

Susan Marie Maklari: Absolutely do I also think at the same time there are the technology improvements that the manufacturers are driving on those products also make them more desirable. So I think that I can't tell you exactly the month of point of inflection where heater split I can tell you that we have markets now that are flipping where the demand is.

Peter Arvan: So I don't really think about the share gains that we've had with fear that we may give them back. Rather, we're focused on deliberately working to be the best provider in the market so that we continue to get those opportunities to enjoy more business from our existing customers and to make new friends along the way. That's a very helpful color. And then I want to dig a little deeper into the semi-discretionary products and the demand there, the heaters and the cleaners, those kinds of things. You've talked about the weakness there for the last several quarters.

Susan Marie Maklari: Higher.

Susan Marie Maklari: As we stopped we stopped shrinking of demand and we're now starting to grow again is that universal across the board no is it going to happen. Yes. It just takes time for us to for us to cycle through for the consumers to get a little more comfortable with the elevated inflation and their consumer spending.

Peter Arvan: As you think about people that delayed those purchases in the last 12 months or so, coming into the pool season, do you think that they could start to come back into the market? And while maybe that does remain a headwind for the full year, as we move through 24, we do start to see some movement off of the trough in that. And then, I guess with that, do you think that any change in the macro environment, whether it comes late this year or next year, could help to drive more of that demand? Is it enough to offset the tough comps and the pull forward that we saw during the pandemic? Yeah, I think what we have on our hands is, and our advantage is time, right?

Susan Marie Maklari: That.

Susan Marie Maklari: So that they see across their entire.

Susan Marie Maklari: Spend but I think that this is an area that there was a pull forward I think we're starting to lap that and we'll be back to growth on those products in the not too distant future I just can't tell you exactly what month, that's going to have.

Speaker Change: Yeah, Okay I appreciate those thoughts and thank you and good luck with everything.

Speaker Change: Thank you.

Speaker Change: The next question comes from David Manthey of Baird. Please go ahead.

Peter Arvan: And that is that we're not in it for the short term. And we know that those products will be necessary. So you can only defer. I mean, if you have a pool, you need somebody to clean the pool, or you need an automatic cleaner, or you need both in most cases.

David John Manthey: Yeah. Thanks, good morning.

David John Manthey: Just so we have this information all in one place could you give us base business volume and price across Blue Green and international please.

Peter Arvan: So those semi-discretionary things, and if people, you know, if there's a normal replacement cycle for a heater, right? Or there's a normal replacement cycle for, you know, a cleaner, or those more discretionary purchases, there comes a time when they're no longer discretionary, and we have to do them. So do I think that there was some pull-forward in the demand for those products? Absolutely. Do I think that every month that goes by, we get a little closer to being back to the normal rate replacement cycle on those products? I absolutely do.

David John Manthey: And is that for the full year is that what you're looking for.

David John Manthey: For the quarter.

David John Manthey: For the quarter, yeah. So for the quarter pricing was we thought about one to two for price in the quarter.

David John Manthey: We thought the base business was.

David John Manthey: Relatively the same as consolidated because there was very little contribution meaningful from acquisitions that was less than 1%.

David John Manthey: And then on the Green side, we did see that it.

David John Manthey: It was down four in the quarter. So it contributed about negative one to revenue in the quarter.

David John Manthey: And international was.

David John Manthey: It had a it didn't have a significant impact because it was kind of relatively flat.

Peter Arvan: I also think at the same time, the technological improvements that the manufacturers are driving in those products also make them more desirable. So I think that, you know, I can't tell you exactly the month of the point of inflection where, you know, heaters flip. But I can tell you that we have markets now that are flipping where the demand is higher, you know, because we stopped shrinking in demand. And we're now starting to grow again. Is that universal across the board? Is it going to happen?

David John Manthey: And what was price in the green.

David John Manthey: Priced in Green was closer to the higher end so it would've been at for the quarter closer to three and then two it sounds.

David John Manthey: Alright, we will be closer to two with one overall.

David John Manthey: Okay.

Speaker Change: Alright, and then looking long term.

David John Manthey: Okay.

David John Manthey: Melanie you and Pete you often talk about growing SG&A at a slower rate than revenues or assuming a flat gross margin gross margin dollar growth.

Peter Arvan: Yes. It just takes time for us to, for us to cycle through, for consumers to get a little more comfortable with the elevated inflation and their consumer spending pressures that they see across their entire spend. But I think that this is an area where, you know, there was a pull forward. I think we're starting to reverse that, and we'll be back to growth on those products in the not too distant future. I just can't tell you exactly what month that's going to be. Yeah, okay. I appreciate those thoughts and thank you, and good luck with everything.

David John Manthey: As we look forward from here what are your expectations for growing SG&A kind of on a secular basis.

David John Manthey: Relative to sales growth and gross profit dollar growth.

Melanie: Yeah. So when you look at the guide for next year, you will see kind of that similar.

Melanie: And what we've always consistently achieved over time and so specifically you know kind of called out the three areas, where we would expect those incremental investments as we move into 2024 and as we get kind of out past that.

David John Manthey: Thank you. The next question comes from David Manthey of Baird. Please go ahead. Yeah, thanks. Good morning.

David John Manthey: No we wouldn't necessarily see that as larger fluctuations in the performance based compensation.

David John Manthey: Just so we have this information all in one place, could you give us base business volume and price across blue, green, and international, please? And is that for the full year, is that what you're looking for? for the quarter?

David John Manthey: Depending upon how many sales centers, we opened each year could indicate kind.

Melanie Hart: Yeah, so for the quarter, pricing was, we saw about 1 to 2 for price in the quarter. We saw, you know, base business was relatively, it's the same as consolidated because there was very little meaningful contribution from acquisitions; it was less than 1%. And then on the green side, you know, we did see that it was down 4 in the quarter, so it contributed about a negative 1 to revenue in the quarter, and International, it didn't have a significant impact because it was kind of relatively flat. And what was the price in the green?

David John Manthey: Kind of what that expense burden is in any particular here and you know at this point, we would expect that the.

David John Manthey: It kind of the near term, we would expect that there's continuing dollar that we're spending on it.

David John Manthey: Will it be part of the expense base as well.

David John Manthey: But long term it used to be like 60% and then it was a little bit higher than that.

David John Manthey: SG&A growth relative to sales growth.

Speaker Change: Yeah. So it was it's going to be higher than the 60% when you consider the technology investments.

David John Manthey: Even beyond <unk>.

Speaker Change: Yes, as we said they were.

Melanie Hart: The price in green was closer to the higher end, so it would have been for the quarter closer to three and then, No, I'm sorry. It would be closer to two with one overall. Okay. All right, and then I'll look long term. Melanie, you and Pete, you often talk about growing SG&A at a slower rate than revenues or assuming a flat gross margin or gross margin dollar growth. As you look forward from here, what are your expectations for growing SG&A kind of on a secular basis? relative to sales growth or gross profit dollar growth.

Speaker Change: We're trying to we're trying to invest in our capabilities, which will allow us to keep growing.

David John Manthey: For many many years to come the technology platforms that we are investing in.

David John Manthey: Are real.

David John Manthey: They are a real differentiator for us.

David John Manthey: But they take investment so we know that we're going to spend ahead of the benefits on that so early on I would expect that.

David John Manthey: If I looked at that ratio on technology I'm going to spend more in the beginning that I am going to get back, but I'm going to get that back.

Melanie Hart: Yeah, so when you look at the guide for next year, you will see kind of that similar formula as what we've always consistently achieved over time. And so specifically, I kind of called out the three areas where we would expect those incremental investments as we move into 2024. As we get kind of out past that, you know, we wouldn't necessarily see those larger fluctuations in performance-based compensation; depending upon how many sales centers we open each year could indicate, you know, kind of what that expense burden is in any particular year. And, you know, at this point, we would expect that, for kind of the near term, we would expect that those continuing dollars that we're spending on IT would be part of the expense base as well. But long term, it used to be like 60%, and then it was a little bit higher than that SG&A growth relative to sales growth.

David John Manthey: In the outer years, and that's really the way.

David John Manthey: Investing in the technology cycles would work for us.

Speaker Change: Okay, we'll follow up thank you.

Speaker Change: Thank you.

Speaker Change: Next question comes from Scott Schneeberger of Oppenheimer. Please go ahead.

Scott Schneeberger: Oh, thanks, very much and good morning, one of I guess mountain morning.

Scott Schneeberger: Now we can probably more for you then in theory on weather it sounds like in the guidance you said, maybe one or two percentage points of benefit year over year, but then Peter had those comments at the beginning that California has actually started with tough weather this year.

David John Manthey: So it's very unpredictable, but just wanted to get a sense of where were really how youre looking at that versus last year and the opportunity to make up that ground. Thanks.

Speaker Change: Yeah, so the the 1% to 2% while the recovery is really what we're looking at within the high end and so at the flat revenue base would be consideration no weather recovery. So normally when we guide we're kind of looking for for.

Melanie Hart: Yeah, so it's going to be higher than 60% when you consider the technology investment, even beyond 2024. Yeah, as we said, Dave, we're trying to invest in our capabilities, which will allow us to keep growing for many, many years to come. The technology platforms that we are investing in, they're real differentiators for us, but they take investment.

David John Manthey: For normalized weather, but know that we do have those comps in first and second quarter, where we were impacted more significantly from weather for the year. So it's really kind of within the range but.

Peter Arvan: So we know that we're going to spend ahead of the benefits on that. So early on, I would expect that if I looked at that ratio on technology, I'm going to spend more in the beginning than I'm going to get back, but I'm going to get that back in the later years. And that's really the way investing in technology cycles would work for us. Okay, we'll follow up. Thank you. Thank you. The next question comes from Scott Sneeberger of Oppenheimer. Please go ahead. Thanks very much, and good morning.

David John Manthey: Hard to predict kind of quarter over quarter, and we know what the historical impact will be but you know as we look for the timing if we get that recovering and when we get it is a little bit out of our hands at this point.

Speaker Change: Okay. Thanks for that and then.

Speaker Change: As a follow up inventories down I think it was 14% year over year in 2023, I believe you quantified at around $230 million.

Speaker Change: And then I think the guidance was.

Speaker Change: A bit of a challenge in the first quarter, but much lower levels in second third and fourth do you still have room to reduce inventory overall by a lot did you get it all done in 'twenty three or is there more opportunity with how you're managing that thank you.

Scott Sneeberger: Morning. I guess, Melanie, probably more for you than Peter. On weather, it sounds like in the guidance you said maybe one or two percentage points of benefit year over year, but then Peter had those comments at the beginning that California has actually started with tough weather this year. So it's very unpredictable, but just want to get a sense of where you're looking at that versus last year and the opportunity to make up that ground. Yeah, so the 1 to 2% weather recovery is really what we're looking at within the high end. And so at the flat revenue base, there would be consideration of no weather recovery. So normally, when we guide, we're kind of looking for normalized weather, but we know that, you know, we do have those comps in first and second quarter where we were impacted, you know, more significantly from weather for the year. So, you know, it's really kind of within the range, but very hard to project kind of quarter over quarter. You know, we do not know what the historical impact will be.

Speaker Change: Yeah, so for our first quarter I'm actually where we're very much on pace to what we would expect the uptick in first quarter is really us to be prepared from a stocking level for the selling season, so, but we would we would see that the the level of inquiries from the year end to first quarter it would be.

Speaker Change: It really kind of consistent with historical levels and.

Speaker Change: And as we look across the network.

Speaker Change: Internally as part of our capacity creation initiatives, we do continually strive to reduce overall inventories at our kind of existing sales centers and then the flip side to that is you know we also continue to bring in new products to new sales centers as well so yeah. When you look at.

Speaker Change: Kind of our overall target by the end to end of this year and certainly from a days sales on hand standpoint, we would expect.

Speaker Change: To see a couple of days of improvement and that would really be offset by the mix of.

Melanie Hart: But, you know, as we look forward, the timing of whether we get that recovery and when we get it is, you know, a little bit out of our hands at this point. Okay, thanks for that. And then as a follow-up, inventory is down, I think it was 14% year-over-year in 2023. I believe you quantified around, you know, $230 million. And then I think the guidance was a bit of a challenge in the first quarter, but there were much lower levels in the second, third, and fourth. Do you still have room to reduce inventory overall by a lot? Did you get it all done in 23 hours?

Speaker Change: Additional skus that we're carrying and then lower a lower level because of improved our supply chain.

Speaker Change: Sure.

Speaker Change: Inventory management is one of those functions that is we treat like continuous improvement we look at inventory at the individual sales center, we look at it at the market level and we're always looking for ways to be more efficient and making sure that we do the best job representing our.

Speaker Change: Our supplier partners to take those new products to market.

Speaker Change: So I think last year, we demonstrated a tremendous ability to deliver on our commitments and manage inventory and we will do that this year was well in line with what the volume activity is.

Melanie Hart: Or is there more opportunity with how you're managing that? Yeah, so for the first quarter, actually, you know, we're very much on pace with what we would expect. The uptick in the first quarter is really us getting prepared from a stocking level for the selling season. So, but we would see that the level of increase from the year end to the first quarter would be, you know, really kind of consistent with historical levels. And as we look across, you know, the network, you know, we, you know, internally, as part of our capacity creation initiatives, you know, we do continually strive to reduce overall inventories at our kind of existing sales centers. And then the flip side to that is, you know, we also continue to bring in new products to those sales centers as well.

Speaker Change: Great. Thank you.

Speaker Change: The next question comes from David Macgregor of Longbow Research. Please go ahead.

David John Manthey: Yes, good morning, everyone.

David John Manthey: I wanted to go back and talk to me. Good morning, I wanted to go back and pick up on the conversation around SG&A, if we could and I guess I'm thinking back to a previous analyst meeting where you'd expressed a fairly.

David John Manthey: High level causes your ability to hold 15% operating margins.

David John Manthey: Weak environment, just given the progress that you've made on a number of structural factors, presumably at that point, you're taking into consideration whatever the investment requirements would be who are to achieve that.

Melanie Hart: So, you know, when you look at kind of our overall target, you know, by the end of this year, certainly from a day sales on hand standpoint, we would expect to see a couple of days improvement. And that would really be offset by the mix of, you know, additional SKUs that we're carrying and then lower levels because of the improved supply chain. Our inventory management is one of those functions that we treat like continuous improvement. We look at inventory at the individual sales center, we look at it at the market level, and we're always looking for ways to be more efficient and making sure that we do the best job representing our supplier partners to take those new products to market. So I think last year we demonstrated a tremendous ability to deliver on our commitments and manage inventory, and we'll do that this year as well, in line with what the volume activity is. Great, thank you. The next question comes from David McGregor of Longbow Research. Please go ahead. Yes, good morning, everyone. Pete, I want to go back and talk.

Now things seem to have changed and searching a percent last year's 30%. This year, where did you see the greatest divergence from bullish expectations, just the level of investment necessary to achieve your goals just gone up fairly substantially from what you had envisioned at that point in time.

Well I think we've added more things to the deck in terms of what our what our contribution is I think the technology platforms that we're working on today as I said the way. The cycles work is you actually you invest ahead of those things.

David John Manthey: I go back a couple of years and I looked at what we were what we're doing from a technology perspective, and where we are today and where we're investing money. The deck is actually very different at the same time as I mentioned in my comments. We are also relentlessly focused on our productivity initiatives across the branches looking at all of our.

David McGregor: Yeah, good morning. I wanted to go back and pick up on the conversation around SG&A, if we could. And I guess I'm thinking back to a previous analyst meeting where you expressed a fairly high level of confidence in your ability to hold 15% operating margins in a weak environment, just given the progress that you've made on a number of structural factors. Presumably, at that point, you took into consideration whatever the investment requirements would be to achieve that. Now, things seem to have changed.

David John Manthey: Controllable expenses and also our capacity.

David John Manthey: I've asked the creation initiatives, but theres a couple of things too if I look at the rent levels today versus what they were a couple of years ago the rental rate.

David John Manthey: Renewals that we are seeing are significant if I look at the labor cost today that we are we are seeing is compared to a couple of years ago. They are significant but I think the business is doing a very good job digesting those those increases by continually focusing on capacity creation, but as I look at operating.

Peter Arvan: And, you know, 13 and a half percent last year, 13% this year. Where did you see the greatest divergence from those expectations? Is the level of investment necessary to achieve your goals just gone up fairly substantially from what you had envisioned at that point in time? I think we've added more things to the deck in terms of what our contribution is. I think the technology platforms that we're working on today, as I said, the way the cycles work is you actually invest ahead of those things. And if I go back a couple of years and I look at what we were doing from a technology perspective and where we are today and where we're investing money, the deck is actually very different. At the same time, as I mentioned in my comments, we are also relentlessly focused on our productivity initiatives across the branches, looking at all of our controllable expenses and also our capacity creation initiatives. But there are a couple of things too.

David John Manthey: <unk>.

It's it's.

David John Manthey: It's a longer view, so I don't look at it and say well I have to make sure that I get exactly to what we did last year or a little bit better. This year, because if I did that then I would probably forgo our ability to invest in longer term programs. Our view is that that we're going to be here for the long haul.

David John Manthey: We're not going anywhere we are that we were the <unk>.

David John Manthey: Biggest industry or the biggest company in this industry, which we believe has very good long term growth characteristics. So when we invest we invest for the long term so.

Peter Arvan: If I look at the rent levels today versus what they were a couple of years ago, the rental rate renewals that we are seeing are significant. Similarly, if I look at the labor costs today that we are seeing as compared to a couple of years ago, they are significant. But I think the business is doing a very good job digesting those increases by continually focusing on capacity creation. But as I look at operating margin, it's a longer view. So I don't look at it and say, wow, I have to make sure that I get exactly to what we did last year or a little bit better this year. Because if I did that, then I would probably forego our ability to invest in longer-term programs.

David John Manthey: Am I concerned that that our level of spending. This year is is up no I'm not because I think if you look at where we're investing that money and what the longer term returns on our for the business I think it's a very wise investment and I think we would be shortsighted. If we said, okay, we got to stick to.

David John Manthey: Of that ratio every year, because I think we would pigeonholed ourselves and inhibit our ability to grow over the long term.

Peter Arvan: Our view is that we're going to be here for the long haul. We're not going anywhere. We are the biggest industry or the biggest company in this industry, which we believe has very good long-term growth characteristics. So when we invest, we invest for the long term. So am I concerned that our level of spending this year is up? No, I'm not.

David John Manthey: Right.

David John Manthey: Think about the returns that you're anticipating on these investments if you get back into an environment with a 115 to 120000 new pools.

David John Manthey: What's achievable in terms of operating margins.

David McGregor: Because I think if you look at where we're investing that money and what the longer-term returns are for the business, I think it's a very wise investment. And I think we would be short-sighted if we said, okay, we got to stick to that ratio every year because I think we would pigeonhole ourselves and inhibit our ability to grow over the long term. Right. If you think about the returns that you're anticipating on these investments, if you get back into an environment with, you know, 115, 120,000 new pools, what's achievable in terms of operating, I think if you look at our history on operating margins, I mean, if new pool construction was back up to 120,000 units, all things considered, I think we could be back close to the numbers that we saw at our peak. Obviously, there are a lot of variables to consider, but the structural fundamentals of the business are there. The company's ability to execute and history of delivering on those things are there, so obviously, volume is our largest lever in terms of operating margin improvement.

David John Manthey: I think if you look at our history on operating margins I mean, if new pool construction was back up to 120000.

David John Manthey: In units.

David John Manthey: All things considered I think we could be back in close to the numbers that we saw we saw at our peak, obviously a lot of variables.

David John Manthey: To consider but the structural.

David John Manthey: Fundamentals of the business are there the company's ability to execute and history of delivering on those things is there. So obviously volume is our largest is our largest lever in terms of operating margin improvement. So if the volume comes back because new pool construction goes through the roof and renovation goes through the roof than I would.

David John Manthey: Certainly expect our operating margins to expand at a rapid rate.

Speaker Change: Okay. Good that's all I got thanks, and good luck.

Speaker Change: Thank you.

Speaker Change: The next question comes from Trey Grooms from Stephens. Please go ahead.

Trey Grooms: Good morning, everyone. This is actually silver mesh on for Trey Thanks for taking my questions today.

Peter Arvan: So if the volume comes back because new pool construction goes through the roof and renovation goes through the roof, then I would certainly expect our operating margins to expand at a rapid rate. Good, that's all I got. Thanks and good luck.

Silver Mesh: I'm sorry to go back to more SG&A, but good morning could you give us some more color on.

Trey Grooms: What these investments are in the tech.

Trey Grooms: Thank you. The next question comes from Trey Grooms from Stephen's. Please go ahead. Good morning, everyone. This is actually Sid Ramesh on behalf of Trey.

Trey Grooms: And and and their impact longer term.

Trey Grooms: Yes.

Speaker Change: Since intact our.

Speaker Change: Largely the ones that Pete described so it's continuing to build out our pool of 360 suite of service as the the water test as well as the the service software.

Sid Ramesh: Thanks for taking my questions today. Sorry to go back to SG&A, but could you give us some more color on what these investments are in the tech and their impact longer term? Yeah, so the investments in tech are largely the ones that Pete described. So it's continuing to build out our Pool 360 suite of services. It's the water test, as well as the service software.

Speaker Change: Definitely going to go into some more robust discussion on that at our upcoming Investor day.

Speaker Change: Got it and then as a follow up kind of switching gears could you give us kind of an updated commentary on backlogs and what youre seeing in seen there in terms of new construction versus remodel.

Melanie Hart: You know, we're definitely going to go into some more robust discussion on that at our upcoming Investor Day. And then, kind of switching gears, could you give us kind of an updated commentary on backlogs and what you're seeing there in terms of new construction versus remodel? Sure. Now, just keep in mind that that's just the smallest part of our business. So the beginning of the year is always show season, right?

Speaker Change: Sure.

Speaker Change: Just keep in mind that this.

Speaker Change: That's the smallest part of our business. So at the beginning of the year is always show season, right. So I have I have spoken to hundreds of customers over the last several over the last several weeks since the beginning of the year and I guess the way I would describe their sentiment is.

Peter Arvan: So I have spoken to hundreds of customers over the last several weeks since the beginning of the year, and I guess the way I would describe their sentiment is that, by and large, the group is very optimistic. But with caution.

Speaker Change: By and large the group is the group is very.

Speaker Change: Optimistic.

Speaker Change: But cautious.

Speaker Change: So the.

Speaker Change: I didn't meet anybody that said you know what.

Speaker Change: Doom and gloom.

Speaker Change: I think you were stronger your stronger dealers are getting stronger I think some of the.

Peter Arvan: So I didn't meet anybody that said it's doom and gloom. I think your stronger dealers are getting stronger. I think some of the weaker dealers are feeling it worse than others. But if I looked at the dealer base as a cohort for new pool construction, renovation, and remodel, they're optimistic but cautious. I don't think anybody believes that there's anything structural, excuse me, in the economy that is gonna drive a huge resurgence in new pool demand until monetary policy changes and access to affordable lending improves. I appreciate the color.

Speaker Change: Weaker dealers are feeling it worse than others, but if I looked at the dealer base as a cohort or new pool, construction and renovation and remodel their.

Speaker Change: They're optimistic but cautious I don't think anybody believes that there is anything structural.

Speaker Change: Excuse me in the economy that is going to drive a huge resurgence in the pool demand until the monetary policy changes and access to affordable lending improves.

Speaker Change: Got it I appreciate the color I'll pass it on thanks.

Sid Ramesh: I'll pass it on. The next question comes from Andrew Carter from Stiefel; please go ahead. Hey, thanks. Good morning.

Speaker Change: The next question comes from Andrew Carter from Stifel. Please go ahead.

Andrew Carter: Thanks, Good morning, I wanted to ask if in your guidance are you kind of contemplating any kind of elevated level of deferrals or could you say with definitive conclusion that any kind of deferrals, what's kind of completely done in 2023 also within kind of the the equipment and the mix Theres been an ongoing story of trade up.

Andrew Carter: I wanted to ask if, in your guidance, are you kind of contemplating any kind of elevated level of deferrals? Or could you say with a definitive conclusion that any kind of deferrals will be kind of completely done in 2023? Also, within kind of the equipment in the mix, there's been an ongoing story of trade up, replacing lower value analogs with higher value, recognizing that variable speed pumps can't go backwards. Anything you're saying that says the risk of that going backwards this year as a headwind to guidance? So, let me try and answer the first part, and I think I got it right. If not, come back and tell me I didn't answer your question.

Andrew Carter: Replacing lower value analogs with higher value.

Andrew Carter: Rising variable speed pumps can't go backwards anything youre getting the saying that the risk of that going backwards. This year as a headwind to guidance. Thanks.

Speaker Change: So let me.

Speaker Change: Try and answer the first part of that I think I got it right if not come back and tell me I didn't answer your question on deferrals I would tell you nothing really new I don't expect you don't expect people to say on more cautious this year than I was when I was last year I think people are still appropriately cautious so.

Peter Arvan: On deferrals, I would tell you nothing really new. I don't expect people to say, oh, I'm more cautious this year than I was last year. I think people are still appropriately cautious, so I don't expect anything to change really from a deferred maintenance perspective. On the desirability of new products, I spend a lot of time, as you can imagine, talking to our customers and also to our manufacturers, suppliers, and partners, who also spend a lot of time talking to the dealers. Technology is still very important. You know, if you talk to the dealers that are building pools today, very few pools are being built without any technology.

Speaker Change: So I don't expect anything to change really.

Speaker Change: From a from a deferral from a deferred maintenance perspective and.

Speaker Change: On the desirability of the new products, you know I spend a lot of time as you can imagine talking to our customers and also too.

Speaker Change: Our manufacturers suppliers partners, who also spent a lot of time talking to the dealers.

Speaker Change: And.

Speaker Change: Technology.

Technology is still very important if you talk to the dealers that are building pools today.

Speaker Change: Very few pools are being built without without any technology almost everybody is opting for some level of automation, sometimes more than others, but if I look in general compared to what it was several years ago.

Peter Arvan: Almost everybody is opting for some level of automation, sometimes more than others. But if I look in general, compared to what it was several years ago, it's significantly better. Do I think that's going to materially jump this year? No, I think those products are still very desirable, and they'll continue to gain share.

Speaker Change: It's significantly its significantly better do I think thats going to materially jump. This year no I think those products are still there.

Speaker Change: Very desirable and they'll continue to gain share, but I don't Andrew I wouldn't look for a step function change in the if I look at 10 pieces of equipment that were sold a 100 pieces of equipment are sold to say that this year.

Peter Arvan: But I don't, Andrew, I wouldn't look for a step function change in the, you know, if I look at 10 pieces of equipment that were sold or 100 pieces of equipment that were sold, to say that this year, a huge percentage more will be going to the higher end. I think they'll continue to slowly gain share. And then, kind of, final question, just to kind of wrap things up, my final question, wrap things up around weather. I mean, quarter to date, can you give me trends, but, as a reminder, how much of March kind of dictates 1Q? Is the kind of swing this year versus last year really determined in March versus April? And was there any weather benefit? Would you call out any weather benefits in the fourth quarter? Thank you.

Speaker Change: A huge.

Speaker Change: Percentage more will be going to the higher end I think that will continue to slowly gain share.

Speaker Change: Okay, and then kind of final question just to kind of wrap a bow around my final question wrap a bow around weather I mean.

Andrew Carter: Quarter to date can you give any trends, but reminder, how much how much of March kind of dictates <unk> is the kind of swing this year versus last year really determined in March versus April and was there any weather benefit would you call out any weather benefits in the fourth quarter. Thank you.

Speaker Change: Yeah, the weather overall for the fourth quarter was.

Andrew Carter: Yeah, so weather overall for the fourth quarter was, you know, fairly favorable, so not a significant change over last year. The first quarter is most definitely determined by the weather in March, as we saw last year. So, you know, certainly we'll look for that to see how the, you know, how we fall within the range for the quarter. Obviously, you know, March is a much more important month for us than January, and it grows sequentially, you know, through April, May, and June. So it would be great if March had had fantastic weather, because if I had a choice of having great weather in March or great weather in January, I'd take it in March.

Speaker Change: Fairly favorable and so not a significant change over over last year.

Speaker Change: The first quarter is most definitely determined by the weather in March as we saw last year. So.

Speaker Change: Certainly, we'll look for that to see how the.

Speaker Change: How we fall within the range for the quarter. Obviously, you know March is a much more important month for US and then January and it grows sequentially through April may and June so.

Speaker Change: It would be great. If March was the March had fantastic weather right.

Speaker Change: Alright.

Speaker Change: Because I had a choice of getting having great weather in March or Greg weather in January I take it in March.

Andrew Carter: I'll pass it on. Thank you. Thank you. The next question comes from Sam Reed from Wells Fargo. Please go ahead.

Speaker Change: I'll pass it on thank you.

Speaker Change: Thank you.

Speaker Change: The next question comes from Sam Reed from Wells Fargo. Please go ahead.

Sam Reed: Awesome. Thanks so much, guys, for taking my question. This is actually a follow-up to an earlier question.

Sam Reed: Awesome. Thanks, so much guys for taking my question. This is actually a follow up to an earlier question. You guys gave some helpful color around Q1 topline contribution to the full year I believe it was around 18% to 20% of total annual revenues is what youre anticipating so first I just wanted to make sure. That's the correct way to think about that.

Melanie Hart: You know, you guys gave some helpful color around Q1 top-line contribution to the full year. I believe it was around kind of 18 to 20 percent of total annual revenues, which is what you're anticipating. So first, I just want to make sure that's the correct way to think about that.

Melanie Hart: And then, you know, can we talk through the flow-through on the P&L in a little bit more detail? The reason why I ask is because I think it would imply a pretty meaningful pullback in year-over-year EPS. Thanks.

Sam Reed: And then can we talk through the flow through on the P&L on a little bit more detail. The reason why I ask is because I think it would imply a pretty meaningful pullback in year over year EPS. Thanks.

Speaker Change: Yeah. So when you look at the first quarter. If you look kind of historically, you'll kind of see our contribution revenue contribution.

Melanie Hart: Yeah, so when you look at the first quarter, you know, if you look kind of historically, you'll kind of see our contribution, revenue contribution, you know, within a relatively consistent range. I would probably exclude 2020 from that just because there was kind of a lean toward the later portion of the year. And so, you know, with that, we've talked about margins for the first quarter being less than last year. So that'll have an impact on the overall, the ultimate EPS for the quarter. Gotcha. And then maybe one more follow-up question, and this ties back to your Q4 results. So I want to maybe bridge, you know, the down 8% that you ultimately printed kind of versus the mid to high single-digit down guide.

Speaker Change: Within a relative range is fairly a fairly consistent.

Speaker Change: Would probably exclude from that 2020, and just because there was a kind of a lean towards the later portion of the year and so with that.

Speaker Change: We've talked about margins for first quarter being less than last year. So that'll have an impact on the overall.

Speaker Change: The overall ultimate EPS for the quarter.

Speaker Change: Gotcha, and then maybe one more follow up and this ties back into your Q4 results. So I wanted maybe bridge.

Speaker Change: The 8%, but down 8% that you ultimately printed kind of versus the mid to high single digit down guide and.

Melanie Hart: And what I want to understand specifically is sort of what transpired in your quarter that got you to the low end of that range, especially when you consider whether it was perhaps a moderate tailwind. Yeah, so overall, when you look at the fourth quarter, it was kind of relative, relatively consistent in contribution to the third quarter. When you look at the components with, you know, a little bit less on the inflation side, and Horizon, because of the seasonal nature of their business, it had, you know, a slightly higher negative impact on the fourth quarter than it did on the third quarter. Gotcha. Thanks so much. I'll pass it on.

Speaker Change: And what I wanted to understand specifically sort of what transpired intra quarter that got you to the low end of that range, especially when you consider whether it was perhaps a moderate tailwind.

Speaker Change: Yeah. So overall you know when you.

Speaker Change: Look at the fourth quarter, it was kind of relative relatively consistent.

Speaker Change: Contribution to the third quarter when you look at the components.

Speaker Change: It's a little bit less on the inflation side and horizon because of the seasonal nature of their business. It had.

Speaker Change: Slightly a higher negative impact on the fourth quarter than it did on the third quarter.

Speaker Change: Gotcha. Thanks, so much I'll pass it on.

Garak Shmoy: The next question comes from Garak Shmoy from Loop Capital. Please go ahead. Oh, hi, thank you.

Speaker Change: The next question comes from Garik <unk> from loop capital. Please go ahead.

Garik: Oh Hi, Thank you I was wondering if you could go over when it will.

Melanie Hart: I'm wondering if you can go over a little bit more detail just for modeling the cadence of the SG&A investment this year. Would the increases follow normal seasonality, or should we expect an equal impact? Yeah, so the component as it relates to performance compensation, we record that as a percentage of operating income, so that will follow our overall normal seasonality. As it relates to the new sales center's investments, you would see, really, a good bulk of that will happen pre-season with the remaining amounts happening at the end of the season. Typically, I try to focus on opening those new sales centers either in the first or the fourth quarter, generally. And as it relates to the technology investments, we are continuing to add resources, so you'll see some investment in the first quarter, and then that'll ramp up through the rest of the year.

Garik: A bit more detail just for modeling the cadence would be SG&A investments. This year would be increases follow normal seasonality or should we expect any lumpiness.

Speaker Change: Yeah. So the component as it relates to the performance compensation that we recorded that as a percentage of operating income so that will follow our normal seasonality.

Speaker Change: As it relates to the new sales centers investments you would see them really a a good bulk of that will happen pre season with the remaining amounts happening.

So we typically try to focus on opening this new south centers, either in the first or the fourth quarter generally and as it relates to the technology investments.

Speaker Change: We are continuing to add resources, so you'll see some investment in the first quarter and then that will ramp up through the rest of the year.

Speaker Change: Got it.

Peter Arvan: Follow-up question: wondering if you could speak to just the expectations for seasonal versus year-round markets. In 2024, you know, it looks like year-round actually performed a little bit better last year. Just curious if you're expecting that to be the case as well. Yeah, I think you really have to go deeper than just seasonal and year-round. I think you've got to look at specific markets.

Speaker Change: So question is wonder if you could speak to just the expectations for seasonal versus year round markets.

Speaker Change: In 2024, it looks like year round actually performed a little bit better last year.

Speaker Change: Curious, if you're expecting that to be the case as well.

Yes, I think you really you have to go deeper than just seasonal and year round, but I think you've got to look at.

Speaker Change: Specific markets like so, Florida had a Florida had a very strong quarter and year end 2022, so the comps in Florida are going to be very tough in the beginning of the year and then we'll we'll.

Peter Arvan: So Florida had a very strong quarter and year in 2022. So the comps in Florida are going to be very tough in the beginning of the year and then will more even out. So if I look at California, California's issue was weather early in the year.

Speaker Change: More even out.

Speaker Change: So if I look at California.

Speaker Change: California's issue was weather early in the year, but from a new construction perspective, I don't see much changing out there compared to what we saw this year given the general economic environment the demand curve is.

Peter Arvan: But from a new construction perspective, I don't see much changing out there compared to what we saw this year, given the general economic environment. The demand curve is going to be fairly stable. I don't look for a big improvement there. If I look at Texas and Arizona, they'll be fairly stable.

Speaker Change: There's going to be fairly.

Speaker Change: Stable I don't look for a big improvement there.

Speaker Change: If I look at Texas, and Arizona, there'll be they'll be fairly stable seasonal markets I think.

Peter Arvan: Seasonal markets, I think. All things considered, weather included, we'll probably do okay this year. I think that they had a bigger correction earlier, but it's still very early to tell. Understood. Thanks for that. Best of luck. Yeah And the next question comes from Joe Allersmeyer from Dutcher Bank. Please go ahead. Hey, good morning, everyone, well, good afternoon, everyone. I'll keep it quick since we're a little late. I just want to be very clear about what I'm hearing on the OneQ. I'm getting to something like a down 5 to a down 17 on 1Q sales. Is that right, or is there something wrong with that?

Speaker Change:

Speaker Change: All things considered.

Speaker Change: <unk> included.

Speaker Change: We'll probably do okay. This year I think that the.

Speaker Change: They had a bigger correction sooner.

Speaker Change: But it's still very early very early to tell.

Speaker Change: Understood Thanks for that vessel.

Speaker Change: Okay.

Speaker Change: The next question comes from Joe Hello, Meyer from Deutsche Bank. Please go ahead.

Joseph Nolan: Hey, good morning, good afternoon, everybody.

Joseph Nolan: I'll keep it quick since we're a little over here I just want to be very clear about what I'm hearing on the <unk>.

Joseph Nolan: Maybe with some numbers around it I'm getting to something like a down five to down 17 on <unk> sales is that right or is there something wrong with my math here.

Joseph Nolan: Yeah, 17 seems a little bit high to me, you know, that was, you know, even with the worst weather in March, that would seem a little bit on the high end. So I don't know if I'd quite have that broad of a range. Okay, but maybe at the midpoint, it is something like high singles to low doubles down here. Yeah, I think probably, you know, toward the high end of the range, the kind of midpoint, you know, depending upon what the weather looks like in March, would be a reasonable expectation. And again, you know, we'll know more once we get to March. Joe, it's just so hard to say, given the thought that, you know, if you look at the relative size of March compared to, you know, January, and the uncertainty that we've seen in weather, I think your minus 17 is very, very much at the high end. But I think that the overall demand environment is still, It's still solid, it's just a question of when the season opens, so I don't know that I would over-correct on anything. Okay.

Speaker Change: Yes, 17 themes it seems a little bit high to me.

Speaker Change: No that was it.

Speaker Change: Even with the worst weather in March that would seem a little bit on the high end. So I don't know if I'd quite have that broad range.

Speaker Change: Okay, but maybe at the midpoint it is something like high single to low doubles down year over year.

Speaker Change: Yeah, I think probably toward your work toward your high end of the range to kind of midpoint.

Speaker Change: Depending upon what the weather looks like in March.

Would be a reasonable expectation and again, we'll know more once we get to March Joe. It's just so hard to say given the if you look at the relative size of March compared to compared to January.

And the uncertainty that we've seen on whether I think I think you're minus 17 is is very very much at the high end.

But.

Speaker Change: I think that the overall demand environment is still.

Speaker Change: It's still solid it's just a question of when does the when does the season open. So I don't know that I would.

Overcorrected on anything.

Speaker Change: Okay got it.

Melanie Hart: I just, I think with expectations looking at growth in the first quarter because of the weather lapping, I just want to make sure I wasn't. The other question I had was clarity around the full year margin comment. You said near 30%, is that the same as saying less than 30%, or is there another way to just say approximately within maybe 50%, certainly within 50 basis points. Thank you very much. This concludes our question and answer session. I would like to turn the conference back over to Peter Arvin, President and CEO, for closing remarks. Yes, thank you all for joining us today. We look forward to our next call, which will be on April 25th, when we will release our first quarter 2024 results. We also look forward to hosting our Investor Day on March 19th, where we will dive deeper into our long-term strategies and financial growth initiatives. Additional details about this event will be announced later today. Thanks and have a great day. The conference is now concluded. Thank you for attending today's presentation.

Speaker Change: I think with expectations looking at growth in the first quarter because of the weather lapping I just wanted to make sure I wasn't that far off.

The other question I had was clarity around the full year margin comment you said near 30% is that the same as saying less.

Speaker Change: Less than 30%, whereas near another way, let's just say approximately within maybe 50 basis points or so thanks.

Speaker Change: Certainly approximately within 50 basis points.

Speaker Change: Understood Alright. Thanks.

Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Peter Arvin, President and CEO for closing remarks.

Speaker Change: Yes.

Peter Arvin: Thank you all for joining US today, we look forward to our next call, which will be on April 25th when we will release, our first quarter 2024 results. We also look forward to hosting our Investor day on March 19th where we will dive deeper into our long term strategies and financial growth initiatives.

Peter Arvin: Additional details for this event will be announced later today, thanks and have a great day.

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