Q3 2024 Pool Corp Earnings Call
Speaker Change: [music].
Good morning, everyone and welcome to the Pool Corporation third quarter 2024 conference call all participants will be in a listen only mode.
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After todays presentation, there will be an opportunity to ask questions to.
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Speaker Change: Also note todays event is being recorded.
Speaker Change: I'd like to turn the floor over to Melanie Hart, Vice President and Chief Financial Officer Ma'am. Please go ahead.
Melanie Hart: Thank you and welcome to our third quarter 'twenty 'twenty four earnings conference call, our discussion comments and responses to questions. Today may include forward looking statements, including management's outlook for 2024 and future periods.
Melanie Hart: Actual results may differ materially from those discussed today information regarding the factors and variables that could cause actual results to differ from our projected results are discussed in our 10-K.
Melanie Hart: In addition, we may make references to non-GAAP financial measures in our comments a description and reconciliation of any non-GAAP financial measures included in our press release will be posted on our corporate website in the Investor Relations section at.
Melanie Hart: Once again, we have included a brief presentation on our investor website to summarize key points from our press release and call comments, unless otherwise stated within our prepared remarks, all comparisons refer to third quarter 2024 versus third quarter 2023.
Speaker Change: We will begin today's call with comments from Pete <unk>, our president and CEO.
Pete: Thank you Melanie and good morning, everyone.
Pete: Earlier today, we released our third quarter results highlighting solid performance in our maintenance related sales and continued progress on our strategic priorities.
Pete: Our results reflect our team's coordinated efforts and our exceptional ability to fulfill our customers' needs and deliver an outstanding experience. During the critical peak season, with our expanded product offerings enhanced customer service tools and resources and the ability to quickly deliver through our expansive distribution network. We continue.
Outperforming the market during the dynamic economic conditions, our industry has experienced over the past few years.
Pete: In the third quarter total sales declined 3% as we saw similar year over year trends as last quarter with an extra selling day this year versus last.
Pete: Maintenance product offerings generated steady sales growth, while the discretionary portion of our business continued to experience impacts from a hesitant consumer.
Pete: We see pressure on entry to mid level perspective pool buyers, while demand for higher end pools remains resilient.
Pete: We've made great progress on several of our strategic priorities from network expansion capacity creation and pricing optimization growing our private label product sales and increasing adoption of our poultry 60 ecosystem.
Moving down the income statement gross margins finished in line with prior year signaling progress on our structural margin initiatives, especially considering the drag on our product mix from headwinds in new construction and renovation and remodel Melanie.
Melanie Hart: Now when you go to more detail on this in her financial commentary from a profitability standpoint, we produced operating income of $176 4 million, an operating margin of 12, 3%.
Melanie Hart: We generated diluted earnings per share of $3 27, including a <unk> <unk> benefit from ASU.
Melanie Hart: Looking at sales by geography, we saw sales grow by 1% in Florida with underlying demand holding up well to support Florida is growing installed base. This is the first major market. This year to post a positive sales trend, which is very encouraging.
Melanie Hart: Arizona sales were flat.
Melanie Hart: Which is also somewhat encouraging from a cyclical standpoint as it was one of the first areas that showed signs of a slowdown back in 2022.
Melanie Hart: If I look only at the pool business for Arizona, They too had a positive quarter helped by excessive heat, which created headwinds for our horizon business there.
Melanie Hart: Texas, and California sales were down, 6% and 3%, respectively, reflecting the weak discretionary spending that is impacting our overall business, Texas also experienced excessive rain and cooler temperatures in July that adversely.
Melanie Hart: Impacted maintenance needs during this key seasonal period.
Melanie Hart: Well horizon net sales declined 7% in the period compared to the third quarter last year and consistent with what we've seen so far in 2024 resident.
Melanie Hart: The residential construction and remodel remain challenged while commercial construction is slightly better with demand relatively flat.
Melanie Hart: Similar to the pool business the maintenance part of Horizon's business is stronger although it makes up a much smaller portion of the business comprising approximately 25% of sales.
Melanie Hart: Europe finished the quarter down 1% much improved sequentially. This area has been challenged with a tough market and weak consumer sentiment since the spring of 2023, Europes third quarter results reflect the summer season, and peak will usage and will likely be more impacted by a cautious consumer behavior in the fourth quarter due to the uncertainty.
Melanie Hart: Macro environment.
Melanie Hart: Turning to our product categories chemical sales increased 2% supported by mid teens growth in our private label chemical products and overall volume growth of 4% exceeding the increase in the installed base chemical pricing has remained relatively stable, which is encouraging given the dynamic market conditions, we have seen in the past.
Melanie Hart: Building materials sales showed a 9% decline consistent with last quarter and while reflective of a tougher new construction and remodel environment performed better than projected industry estimates for new pool builds this year.
Melanie Hart: This better than market building, our market building material.
Melanie Hart: Highlights the power of our over 100 M. P T showrooms, bringing our unique product offering to the customer with our design tool and the broadest selection of decking tile and pool finish for our customers.
Melanie Hart: Equipment sales, which exclude cleaners increased 1% this quarter bolstered by a recovery in the heaters and solid demand for pumps lice electrical products and filters.
Melanie Hart: Some of this product category is not discretionary in nature, however items like heaters and lights can be more discretionary and impacted by consumer sentiment.
Melanie Hart: As we have mentioned aftermarket equipment installations are roughly four to five times that of new construction and combined with price increases that had been realized in the market. These products are holding up well, even with lower discretionary spending.
Melanie Hart: In our end markets, our commercial sales increased 7% during the quarter showing continued strength through the summer travel and community full season sales through our independent retail customers declined 2%. These retail sales represent our wholesale sell in to the retail dealer channel, which ultimately serves the DIY market.
The improvement from what we saw in the second quarter reflects the strength of our service product offering and the value that our retail trained sales support teams to provide during the swimming pool season.
Melanie Hart: For Pinchpenny, our franchisee sales to their end customers were flat boosted by strong store a strong store presence in year round markets and a premier customer and product service offering.
Melanie Hart: We continue to make progress on our pool of 360 platform initiatives.
Melanie Hart: Orders processed through our B to B pool, $3 60 application the foundation of our digital ecosystem increased to 14, 5% of total sales for the quarter.
Melanie Hart: While we are in the early innings of introducing our expanded suite of customer facing tools. We consider this metric to be most meaningful in measuring our progress at this time beginning last year, we introduced <unk> hundred 60 water test to our independent retail customers and have developed a similar application that is embedded in our full 360 service software.
Melanie Hart: Product, which we debuted earlier this year just before the season began we believe both tools when combined with our incredible footprint extensive inventory and growing private label brands provide a value proposition that cannot be matched in the industry. As I mentioned, we are early in the game, we continue to add innovative.
Melanie Hart: Features and provide hyper responsive support for the early adopters to be sure that we bet as we scale, we deliver on our commitments to our customers.
Melanie Hart: During the quarter, we embarked on a journey around the country with our full 360 roadshow, taking the tools and training directly to our customers in key markets by a dedicated pool 360 team our employees' enthusiasm and dedication played a crucial role in generating awareness and excitement around our software solutions showcasing the incredible value they.
Melanie Hart: Bring to our customers, it's exciting to see our teams connect with so many cool professionals and their positive responses to our innovative new programs and solutions.
Melanie Hart: Our relationships with customers are deep as we had been their trusted supplier for decades in many cases.
Melanie Hart: Finding trust and strong relationships with innovation and coal industry knowledge is enabling us to introduce feature rich software to help our customers grow and improve their capacity, while strengthening our ability to grow share into the future.
Melanie Hart: Now let me update you on our network expansion activities, we opened three new sales centers during the quarter, bringing our year to date openings to nine well on track to achieve our stated goal is 10 openings this year.
Melanie Hart: Our Pennsylvania franchise network added three new stores, including two in this strategic Texas market, bringing their store openings to 11, so far this year and ending the quarter with a total of 295 franchise stores.
Melanie Hart: Now, let me share how we see the remainder of the year shaping up.
Melanie Hart: We would expect fourth quarter sales to be in line with the year to date performance considering our results through the peak swimming pool season in our fourth quarter outlook, we are maintaining our full year diluted earnings per share guidance range of $11 six to $11 46, including.
Melanie Hart: Dated 20 ones that estimate estimated benefit from ASU.
Melanie Hart: For the full year, we believe new pool construction could decline closer to 20%, but still fall within our forecasted range. This includes the potential storm impact on cool construction in Florida, where last year approximately 6000 pools were built in the fourth quarter give.
Melanie Hart: Given the storm damage and repair activity. It is not likely we will see similar levels of new construction for the balance of 2024 in Florida, We would expect new pool construction and remodel activity for the balance of the markets to be in line with previous guidance for the remainder of the year.
Melanie Hart: For the overall business, we believe maintenance and repair activity will be steady with the notable exception of Florida, where it would be higher as storm damage pools are repaired.
Melanie Hart: Okay.
Melanie Hart: Given the normal seasonality maintenance will be less of a contributor in the fourth quarter in our remaining markets hurricane.
Melanie Hart: Hurricane Francine and <unk> in the third quarter and Milton in the fourth quarter created a short term disruptions to our business, we sustained only minor damage to our facilities with operations restored quickly. So that we can help our customers to repair the damage ahead of the busy season in Florida.
Melanie Hart: Looking ahead, we remain encouraged by several economic factors such as stable home values record home equity levels, continuing sunbelt migration and a resilient consumer and gradual interest rate easing.
Melanie Hart: We expect healthy setup for the industry dynamics and favorable growth opportunities in correlation with the broader housing market stimulation in coming years, let me pools in outdoor living.
Melanie Hart: We're still very desirable and no one is better positioned to capitalize on that now and in the future.
Melanie Hart: Our industry is 20% to 25% bigger than in 2019, the past five years had been volatile compared to the industry history and with rapid growth followed by a period of lower discretionary spending, but we believe it is coming closer to normalization or.
Melanie Hart: Our network is the largest most integrated in the industry, allowing us to provide the greatest variety of products serve as an extension of our customers' business and to cultivate our vendor partnerships, providing what our customers need when they need it and bringing the latest product innovations to market.
Melanie Hart: Our efforts to elevate our customer experience help improve their business and operate with disciplined execution make us the best positioned to grow share in both periods of growth and normalization. We believe we are the clear market leader and we are getting stronger every day.
Melanie Hart: Before I turn the call over to Melanie I would be remiss, if I did not once again, thank our incredible team.
Melanie Hart: Their knowledge dedication and creativity and passion for the industry and customer experience, our amazing and I could not be prouder to be part of such an extraordinary team.
Speaker Change: I will now turn the call over to Melanie <unk>, Vice President and Chief Financial Officer for detailed financial commentary Melanie.
Melanie Hart: <unk> third quarter 2020 for sale were $1 4, billion% to 3% decrease compared to prior year as maintenance sales trends continued to see an improvement in here every year comparison as the warm weather through the end of the season saw increased chemical usage.
Melanie Hart: Comparative trends are consistent with second quarter and an improvement every year to date trend through the first half the third quarter included an extra selling day compared to last year.
Melanie Hart: Inflation provided a 1% benefit during the quarter as we saw a 2% pricing lift on equipment and other product sales that was offset by a 1% decline in chemicals and commodity from.
Melanie Hart: From a pricing standpoint, we noted no significant changes kind of second quarter.
Melanie Hart: Therefore, construction and remodel activity combined negatively impacted total sales by 5% and Europe and horizon sales declines together had a 1% adverse effect.
Melanie Hart: No material impact for noted from Hurricane Francine and having that occurred during the quarter.
Melanie Hart: Gross margin for the quarter was 29, 1% the same as prior year third quarter and consistent with our typical seasonal gross margin pattern as we exit the peak selling season.
Melanie Hart: Positive momentum in our supply chain actions, including increased mix of private label chemical sales and higher vendor incentive compared to last year. When we had lower purchasing levels were offset by a less favorable product and customer mix.
Melanie Hart: Product sales net was affected by lower levels of higher margin building material sales.
Melanie Hart: Customer mix was more heavily weighted to larger customers, who typically have special pricing and higher volume related discounts.
Melanie Hart: We tightly manage operating expenses to 2% for the third quarter compared to last year.
Melanie Hart: We expect to see for the year as we focused on controlling volume related expenses as we wind it down from peak filing season activity.
Melanie Hart: Last year third quarter expenses included approximately 2 million of costs associated with our annual sales conference.
Melanie Hart: Occurred in the fourth quarter of 2024.
Melanie Hart: As a result, those expenses will impact Q4, this year, adding to an increased expense expectation in Q4 compared to last year.
Melanie Hart: During the quarter, we opened three new South center locations.
Melanie Hart: Total of nine year to date, which accounted for a 1% increase in year over year expense, we continue to see progress on our technology investments with even more value added features rolled out this quarter.
Melanie Hart: Interest expense was $12 4 million down $1 2 million from Q3, 2023, due primarily to lower outstanding borrowings during the quarter compared to last year.
Melanie Hart: Operating income of 176 million was down 18 million or 9% with quarterly net income of $126 million.
Melanie Hart: One 9%.
Diluted earnings per share were $3, and 27% down 7% compared to $3 51 in the prior year quarter, reflecting reduced weight.
Melanie Hart: Shares outstanding due to our share buyback activity year to date.
Melanie Hart: As we turn to our balance sheet and cash flow. We noted that accounts receivable days outstanding of $26 seven days compared to $26 eight days from last quarter continuing to reflect our excellent collection efforts as well.
Melanie Hart: We work with our customers to support their business.
Quarter end inventory totaled $1 2.079 billion or 6% less than last year's third quarter, which reflected the completion of our stated inventory reduction effort we.
Melanie Hart: We are continuing our focus on inventory efficiency under more normal supply conditions, resulting in our current inventory days on hand, trailing seven days lower than prior year, even with product cost inflation and inventory added five new locations and acquisitions.
Melanie Hart: We continue to be a strong cash generator and we reduced our total debt to $924 million 110 million lower compared to last year, while repurchasing shares totaling $159 million year to date, we finished the quarter with a debt leverage ratio of one for one slightly below our target range.
Melanie Hart: One five to two times.
During the quarter, we amended our credit facility, increasing our borrowing capacity from $750 million to $800 million and extending the maturity date to September 2020 are currently got leverage and increased borrowing arrangement provides significant capacity to continue funding our capital allocation priorities and so.
Melanie Hart: TJ initiative.
Melanie Hart: Cash flow from operating activities of 489 million year to date reflects excellent working capital management as we have realized operating cash flows of 123% of net income during the third quarter.
Melanie Hart: Prior year cash flow benefited from our inventory reduction goals, which we completed at the end of third quarter 2023, resulting in a higher year to date benefit from inventory reduction of $150 million in 2023 compared to 2024.
Melanie Hart: As is typical part of our business, we will begin receiving inventory under our early buy purchase programs with our vendors in the fourth quarter, resulting in an expected increase in inventory from third quarter to fourth quarter.
Melanie Hart: We also received a cash flow timing benefit in the third quarter for a deferral of quarterly estimated income tax payment for those impacted by Hurricane Francine.
Melanie Hart: Tax payments that would have been paid September 15th are now due in February 2025.
Melanie Hart: Fourth quarter December payment will also be delayed until first quarter of 2025.
We have utilized $50 million on capital expenditures, including our nine new sales center locations opening to date did you sell center added through acquisition has been fully integrated into the network.
Melanie Hart: As noted above we reduced outstanding debt completed $159 million in total share buybacks year to date and still have 507 million remaining under our share repurchase authorization as.
Melanie Hart: As we wrap up 2024, we continue to expect similar top line trends in the fourth quarter as we have seen year to date.
Melanie Hart: Sales will remain under pressure from the weak discretionary spending environment as our expectations for the full year still include 15% to 20% fewer new wholesale versus 2023.
Speaker Change: You mentioned, new pool of Bell to land on the lower end of that range given the restoration activity in Florida.
Speaker Change: Remodel activity may be down as much as 15% for the full year and will be labor and weather dependent in the fourth quarter.
Speaker Change: Extra day in the fourth quarter of 2024 is expected to have less than a 1% impact to net sales for the quarter and the full year impact of the two additional selling days will also be at less than 1% impact.
Speaker Change: For the full year, we expect deflation to reflect similar characteristics to what we have seen so far this year, providing an approximate 1% benefit overall with equipment and other product categories contributing a positive 2% effect and chemical pricing offsetting this positive benefit by 1%.
Speaker Change: Chemical selling prices have remained stable since second quarter, but at current levels will continue to be a modest drag on the remainder of the year.
Speaker Change: New construction and remodel activities are expected to negatively impact sales approximately 5% collectively and lower levels of activity for horizon Europe will affect total sales by about 1% for the year.
Speaker Change: For the fourth quarter, we should see gross margins similar to prior year fourth quarter gross margin.
Speaker Change: Having finished the final full season, we would expect that full year gross margins will be similar to the year to date rate three third quarter.
Speaker Change: Any negative year over year impacts from the higher level of lower cost inventory on hand last year has been reflected in our first quarter 2024, great margin comparison.
Speaker Change: Second and third quarter provide more opportunities for focus on variable expenses during our peak selling period and the much lower volume fourth quarter, the higher relative impact of fixed expenses, such as rent and insurance.
Speaker Change: Wholesale center opening cost this year versus last year, and our technology investments combined with the sales conference expense timing shift in the fourth quarter.
Speaker Change: Would expect that the year over year expense increase for the fourth quarter to be closer to 5%.
Speaker Change: Combined with a year to date results. So far this will result in operating expenses for the full year in the range of a 4% to 5% increase year every year.
Speaker Change: Note that the 2020 for expense growth includes approximately 12 million in investments and Karen in your new location and 'twenty are spending to develop and implement our significantly expanded 436 seawater cast for 360 service and enhanced <unk> platform. These technology investments are expected to buy.
Speaker Change: Provide future sales and productivity gains.
Speaker Change: Interest expense for the full year is expected to be approximately $50 million to.
Speaker Change: The annual tax rate will be around 25%, excluding ASC better.
Speaker Change: After consideration of the share buyback completed in the third quarter, our estimated fully diluted weighted average shares outstanding for fourth quarter will be $38 3 million shares and $38 5 billion shares for the full year.
Speaker Change: We are confirming our 2024 of diluted EPS range of $11 six to $11, 46%, including the additional one of ASU benefit added in the third quarter and the 21 realized year to date.
Speaker Change: During this period of industry transition our management team has committed extraordinary efforts they look back.
Speaker Change: Actively managed our dynamics business. During this period as we discussed our spending and softness in new construction and remodel and renovation activity.
Speaker Change: We continue to strategically invest in our business with new locations accelerated growth of our franchise store network acquisition and enhanced technology initiatives.
Speaker Change: Moving our customers experience and our internal operating efficiency.
Speaker Change: We will finish 2024 strategically better than we started it positioning us well for future growth.
Speaker Change: I will now turn the call over to the operator for our Q&A session.
Speaker Change: Ladies and gentlemen at this time, we'll begin the question and answer session to ask a question you May Press Star and then one on your Touchtone telephone.
Speaker Change: You are using a speaker phone, we do ask that you. Please pick up the handset prior to pressing the keys.
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We do ask that you please limit yourselves to one question and a single follow up.
Once again that is star and then one to join the question queue.
Speaker Change: Our first question today comes from Scott Schneeberger from Oppenheimer. Please go ahead with your question.
Yeah.
Scott Schneeberger: Oh, Thanks, good morning.
Scott Schneeberger: I guess.
Scott Schneeberger: I wanted to start out.
Speaker Change: And you guys elaborated a lot on the weather, but I wanted to follow up there was there any impact specifically from the hurricanes in the third quarter because they happened late in the third quarter fourth quarter or is that is that more work ahead and could that have a trickle through into I guess, how would you think about it.
Speaker Change: Trickle through impact to next year, given particularly in Florida, given what you've seen with permits and then I'll come back with another thanks.
Speaker Change: Thanks Scott.
Speaker Change: I guess, here's what I would say the hurricane happened.
Speaker Change: Two back to back for Florida. They were late in the third quarter. So there was.
Speaker Change: We were we were closed for a couple of days during the onset of the storm and we realized probably a little bit of a pick up immediately after that but the two from my perspective, the two really kind of cancel each other out so I can't say that it provided any real benefit in the in the third quarter and the fourth quarter. We had another storm another storm hit it.
Speaker Change: A similar scenario we were closed for a couple of days as the employees took shelter in and.
Speaker Change: We're protecting their their homes and families and then.
Speaker Change: We as I mentioned sustained relatively little damage I think the net effect on the business is going to be there.
Speaker Change: There will be an uptick in demand for maintenance and repair and it will come in a couple of waves in my opinion. The initial wave I would describe more as a triage, which is the most important thing of a pool that has been damage from the storm is to get it clean.
Speaker Change: Get the water balance and get the water moving again.
Speaker Change: Depending on the nature of the flooding that could have impacted heaters it could have impacted.
Speaker Change: Automation.
Speaker Change: Heat pumps, and such that will and lights that will probably be repaired later, because I think the dealers are so busy right now just trying to get water circulating. So I think we've seen it in initial and are experiencing an initial lift now on maintenance and repair I think there'll be another one that comes when they go back and say, okay, now I'll come back and fix it.
Speaker Change: Non critical components at the same time, we're going to have headwinds in the fourth quarter I believe on new construction that I think will create some tail winds on Florida, new construction in the first quarter of next year.
Speaker Change: Thanks, I appreciate that clarification and color Pete.
Speaker Change: No.
Speaker Change: On inventories.
Speaker Change: Certainly from two years ago, and then down from last year and I think you said you know we've completed the reduction efforts.
Speaker Change: I'm just kind of curious as you as you.
Speaker Change: Are you happy where you are is there a little bit more and how are you thinking about the pre buy season.
Speaker Change: Particularly with regard to pricing given where we are in the in the market. Thanks.
Speaker Change: Yes. So we are we're happy with where we are on the current inventory level certainly acknowledging that our inventory at the current year over year are down more than sales and so we look at that and gained efficiency and prudent management on our working capital and so we continue to work.
Speaker Change: On that path and we've developed many new processes that allow us to.
Speaker Change: Better utilize our inventory throughout the network and so are our quest for continued efficiency there.
Speaker Change: And but with that we don't have any major reduction goals as we had coming out of the higher levels of inventory that we were carrying with the supply chain disruption.
Speaker Change: As it relates to pre buy polymer.
Speaker Change: Preliminary.
Speaker Change: Increases that we've seen from some of the equipment vendors are in that 2% to 3% range for next year.
Speaker Change: So we would plan to participate in that as we normally would where we would be bringing on inventory that we would sell them really prior from prior to the time that we would otherwise payments from those early buys. So we would cover really kind of the early portion of the year prior to us having to make any payments to vendors.
Speaker Change: Thanks, I'll turn it over.
Speaker Change: Our next question comes from Ryan Merkel from William Blair. Please go ahead with your question.
Ryan Merkel: Hey, everyone. Thanks for taking the question I wanted to follow up on on the last question I'm curious what are you seeing from the Oems on equipment pricing for 2025 at this point.
Speaker Change: Yes.
Speaker Change: Ryan I would tell you that the melee mentioned, it's in the two.
Speaker Change: 2% to 3% range. Some items are a little bit more of some items are a little bit less but we think about it in terms of.
Speaker Change: 2% to 3% we.
Speaker Change: We expect that will flow through the channel.
Speaker Change: Just like just like normal so I.
Speaker Change: I don't really see much different at this point.
Speaker Change: Got it okay.
Speaker Change: And then a question on gross margin.
Speaker Change: You're guiding to approximately 30% this year.
Speaker Change: So how should we think about the fourth quarter I think typically it's up seasonally but just calibrate us if theres anything to think about.
Speaker Change: Yes, so our fourth quarter margin outlook is that it will be similar to last year, which would be up from where we are a third quarter.
Speaker Change: We look at kind of the the long term guidance.
Speaker Change: Gross margin.
Speaker Change: The 30% is the full year margin as you know, we typically see that vary seasonally throughout the full year with second quarter being being the highest level when.
Speaker Change: When you think about this year third quarter and fourth quarter margin is actually really I would say our first opportunity for normalized margins I'm thinking back outside of the higher levels as inflation and the some of the supply chain disruption.
If you go back and you look at our 2020, and our 22019 margins for third and fourth quarter.
Speaker Change: Are substantially ahead of where we were in both of those periods. So kind of a normalized look and where we started our 29% to 30% grades that we've talked about on how we.
Speaker Change: Have we gotten to our 30% long term margin outlook. So definitely well ahead of where we had been historically for all of the supply chain things that we've discussed them and so when you think about you know.
Speaker Change: We're not at 30% for our third quarter lumpy.
Speaker Change: Lumpy for a fourth quarter because of the seasonality.
Speaker Change: And then the other thing is I would maintain for the full year gross margin.
Speaker Change: B, where we are kind of year to date, because theres just not a lot of impact in fourth quarter firm.
Speaker Change: Seasonal obtained plant because it's our smallest quarter, but the 30% gross margin is really in alignment with our long term guide, which does have built into that the sales cycle.
And the operating efficiency leverage and so the things that are impacting this year that are kind of outside of that normal top line.
Speaker Change: Rhythm is also impacting the margins, but with that being said you know we're very proud of it's a step ahead that we are from their historical levels.
Speaker Change: Ryan Let me, let me add one other comment to that so when we look at gross margins as Melanie said when when we look at them, we're actually pretty happy with where we are when you consider the impact of the of the reduction in new pool construction and renovation and remodel I mean that is a that is a significant driver.
Speaker Change: The enhanced gross margin and with nuclear construction being well below where we thought we would be for this time period I think our performance on gross margin is reflective of the team's effort and some.
Speaker Change: Wisely placed our bets and investments that are helping us to improve gross margin. So the comment on long term gross margins being in the 30% range. When we when you consider the impact of renovation and remodel and new pool construction.
Im actually pretty happy with the team's work and what we've been able to accomplish.
Speaker Change: That's really helpful. Thanks for that I'll pass it on.
Speaker Change: Thanks.
Speaker Change: Our next question comes from Susan Mcclary from Goldman Sachs. Please go ahead with your question.
Susan Mcclary: Thank you good morning, everyone.
Speaker Change: Good morning.
Susan Mcclary: My first question is on demand you had some positive comments as it relates to the trends that you saw in Florida, and Arizona during the quarter, which is in contrast to what we're hearing more generally I would say about the consumer, especially as it relates to some of the bigger ticket discretionary projects can you talk a little bit more about what drove those trends.
Susan Mcclary: And how you're thinking about what that could suggest as we look out.
Speaker Change: Yeah, I think it's I think it's a couple of things specifically in those areas and even frankly more more broadly.
Speaker Change: Number one I would say that.
Speaker Change: The things that we had been focused on for the last several years, our strategic priorities are helping us gain share. So we are encouraged by the love <unk>.
Speaker Change: Our growth that we saw in Arizona and Florida. Those were those were very nice to see especially knowing how hard the teams have been working in a very very tough and very competitive market. So I think it's a function of a couple of things. It's a function of the markets are are becoming more normalized number one.
Speaker Change: Number two I think the investments that we have made to improve our customer experience and ultimately our value proposition our efficiency our customers efficiency are garnering a favor with the customers and for the business that is out there I think we we continue to.
Speaker Change: A disproportionate share of that and continue to build upon that.
Speaker Change: Okay. That's helpful. And then the other thing that you noted is the progress that you're seeing on the pool of 360 initiatives. There can you just give some more color on how that's coming together any feedback you got from the road show that she did and how we should think about the further lift in sales going forward.
Speaker Change: Sure.
Speaker Change: Remember when we debuted debuted this gets into a complete ecosystem right. So we built upon.
Speaker Change: <unk> hundred 60 was which was just our <unk> system, we completely rebuilt that and then we looked forward and said, okay. What can we do to create value for our customers improve their experience.
Speaker Change: Hopefully improve their business help them and help them grow so we invested in a couple of different areas. The first one was the full 360 water test, which goes hand in hand, with our private brands on pool chemicals, primarily our Regal easy Gloria and life for the Spa business. So the software.
Speaker Change: Sure.
Speaker Change: Is.
Speaker Change: Primarily the driver is is developed for the retail store that stocks our chemicals. It helps prescribe it helps provide a uniform prescription for the for the water when homeowners spring their water into test to figure out what they need for the pool the reception that we've gotten on that.
Speaker Change: It's been very good as you can imagine it's a for a retail store chemical chemical line is really a very big decision that they make because it's associated with their brand in many cases the dealers have been carrying specific brands for many many years. So changes of that nature are not taken.
Speaker Change: Lately, so as we rolled it out we knew that it was going to be a slow slow adoption. We wanted to make sure that we were more right than fast.
Speaker Change: The feedback that we have gotten from the dealers has been consistently very very good.
Speaker Change: We think that will continue to expand that and we've got lots of upside to continue to add dealers to that but we're very.
Speaker Change: I'm very proud of where we are today and the feedback that we're getting and the feedback on the Roadshow was was in line with that if I look at <unk> 360 service, which has a much broader application. If you will because that is something that all of our dealers can use not all of our dealers as you know have a retail store.
Speaker Change: But almost all of our dealers and certainly the largest group.
Speaker Change: Group of customers that we have our foodservice companies.
Speaker Change: That tool was specifically designed for them to create efficiencies on their side to professionalize their business to create a tie with.
Speaker Change: And improve efficiencies with how they procure material and also.
Speaker Change: Help them grow their business by being able to tap into our our edge marketing digital marketing programs. So again back to is going well, but as you know we are in a seasonal business. So the selling season. We are really just beginning the selling season. So we rolled that tool out right at the end of the selling <unk>.
Speaker Change: Isn't.
Speaker Change: For 2024, and then once you're into the season, that's not something that most companies are going to embark on so we've got a we've got a nice backlog of customers that are that have seen the tools that are interested in and that we're in the process of onboarding, but again, we are trying to be good.
Speaker Change: Good.
Speaker Change: A great I should say as opposed to being fast. So we are extending kind of hyper care to those new customers and again the feedback with the customers that are using it is really good and I know that the people that will use it that we'll see the benefits that we talk about and more importantly, it will allow them to tap into our digital marketing programs, which will allow them to.
Speaker Change: To grow their business as well as gain the operating efficiencies.
Speaker Change: Okay. That's great color. Thank you Pete and good luck with everything.
Speaker Change: Thanks.
Speaker Change: Our next question comes from David.
Speaker Change: Mantech from Baird. Please go ahead with your question.
David Mantech: Yes. Thank you good morning, everyone.
David Mantech: First off Pete historically, your long term growth algorithm, most for 6% to 9% that's in.
David Mantech: Inflation, one to two installed base growth one to two new pools wanted to giving you 4% to 6% industry growth and then pool outgrowing that by 2% to 3% I guess acquisitions zero to one.
David Mantech: And with all of those puzzle pieces. When you think about the next five years any reason to believe there'd be a change to that formula or do you want to tweak any of those variables at all.
Speaker Change: No Dave I don't I don't think so the one thing I would tell you is the.
Speaker Change: 1% from acquisitions, which was a much easier number when we were a much smaller business is going to become harder there aren't a lot of acquisitions out there that can get us 1%. So most of the growth that we will get will come from share gain.
Installed base growing.
Speaker Change: New products, so our inflation and such so I found.
Speaker Change: When I look at our long term model is predicated upon one.
Speaker Change: Return to a normal cycle on new pool construction, we need to return to the normal cycle on renovation remodel, which I believe both of those things are going to happen.
Speaker Change: We've we've invested prudently in our business to provide additional value to our customers, which will allow us to continue to grow share and to continue to drive operational efficiencies for both us and for our customers, which should help us from a from a share gain perspective, I don't see any major changes in the pricing algorithm poor.
Speaker Change: How the industry operates in the installed base continues to grow this year, it's going to be closer to 1% of that growth, but when we get back to a normal cadence of new pool construction will be back closer to the one and a half to two times or wanted to up to 2% growth from installed base. So so long term I think those are very much intact.
Speaker Change: <unk>.
Speaker Change: Caution I would give you is on the.
Speaker Change: The acquisition front.
Speaker Change: Yeah fair enough. Thank you for that.
Speaker Change: Color and EM.
Speaker Change: Second the value of new pools, if we look five years before COVID-19.
Speaker Change: <unk> is running 40% to 50, K and then during Covid kind of 'twenty one to 'twenty three it was 55 to 65 moving up and.
Speaker Change: Pete back in February you said that the average was looking closer to 80000 at the time I'm. Just wondering has there been this year or do you expect in 'twenty five 'twenty six any retrenchment at all in that average price, whether thats component prices coming down content mix I mean anything.
Speaker Change: Or does that number just continues to stare step higher do you think.
Speaker Change: I think there.
Speaker Change: Theres a couple of things that could drive that one is.
Speaker Change: Obviously, the biggest component of new pool construction cost is labor I don't really see a change in labor cost because of the inherent inflation, that's been driven through the entire economy and I don't really see wages dropping anytime in the near future and we are at essentially nearing full employment. So its not like there are that there is a lot of people.
Speaker Change: That are looking for work that would that could potentially drive down the drive down wages I don't I don't think that is the case certainly for this type of work I think inflation on the or the inflation or the cost of materials is also.
Speaker Change: I think pretty sticky and if not I don't see any of the major components.
Speaker Change: Coming down much I mean, you might see on commodities, you might see some deflation or.
Speaker Change: For inflation on steel or PVC, but those are relatively small in terms of the total cost of the pool you mentioned features.
Speaker Change: What I would tell you is today.
Speaker Change: Our new pool construction, we believe is going to be is going to be off.
Speaker Change: 15% to 20% range, which brings us to a number that we haven't seen in many many years a component of the $80000 pool cost is the mix in that we're seeing higher end pools being built versus lower end pools. So if just logically speaking if new pool construction returns to a normal cadence.
Speaker Change: Youre going to have more entry level to mid level pools, which could mix down the <unk>.
Speaker Change: Total car or the average cost if you will but that's simply a function of more overall mix than D featuring.
Speaker Change: That's great color. Thank you very much.
Speaker Change: Thank you.
Speaker Change: Our next question comes from David Macgregor from Longbow Research. Please go ahead with your question.
David Macgregor: Yes, good morning, and thanks for taking my questions I wanted to ask you about the private label offering and you've talked about leveraging that line with the investments and pull $3 60.
David Macgregor: Could you just talk about any plans or your thoughts longer term about expanding that private label offering and also while we're on it.
David Macgregor: How do the margins on that line stand up in this kind of environment are you seeing some narrowing and contribution are they getting better.
Color on that would be helpful.
David Macgregor: Sure.
Speaker Change: Morning, David Good question I would tell you that the private label for US is a very important part of our go forward strategy, but we're very focused in a few areas. So for instance, the largest product category that we have as a company is which comprises 30% to 35% of our business is going to be equipment.
Speaker Change: So I don't see us getting into the equipment gain from a private label perspective with the acquisition of <unk>, We acquired a world class chemical packaging facility, which has allowed us to essentially refresh our brands for the longest time. We had you know proprietary brands, we had reasonably easy floor in life.
Speaker Change: Our chemical lines, but frankly.
Speaker Change: They werent complete and they were a bit outdated.
Speaker Change: So with the with the acquisition of <unk>.
Speaker Change: And Japan, and the knowledge that we acquired on the chemical side, we were able to refresh those brands and we're leaning heavily into those they have been refreshed.
Speaker Change: Had been rebranded they look great. We have a complete line and frankly they are.
Speaker Change: There are as good as or better than any other products.
Speaker Change: The market and we think that.
Speaker Change: That will continue to allow us to gain share in that space because when you think about brands on chemicals, it's much more important on the retail side than it is on the service side on the service side, they're buying essentially product in the bucket as long as it works brand is really not a big part of that price is a bigger component of it availabilities.
A component of it.
Speaker Change: Being in the right location as a component of it all of those boxes, we have historically check very well, where we were weaker was on the on the retail side and there are thousands of independent retail stores that are selling pool chemicals everyday that we now can compete head to head with the best the best and the biggest in the industry, which provide us a nice.
Speaker Change: This opportunity to continue to grow there's also some maintenance products you know whether you are talking about cartridge filters or or just tools right for the cool pro which as you know net polls brushes and such which are a big portion of the industry that and some parts where again.
Speaker Change: Our work on the servicing side.
Speaker Change: In product management side has allowed us to refresh those brands and.
Speaker Change: And bring something to market that is a that is complete that is unique great product that we think provides an opportunity for us to grow and continue to take a bit more share leveraging our leveraging our footprint. So we have almost <unk>.
Speaker Change: Total almost 450 locations from a from a transaction count alone through August we had over 5 million face to face transactions with customers in our branches, which provides an enormous opportunity. When you have a very good curated product line to help grow our business and enhanced.
Speaker Change: The the.
Speaker Change: Our customers' business at the same time from a from US. So we tend to lean into that very heavily because we see that as a as a very rich opportunity for us going forward and then certainly on the margin side when you're talking about our brands you know the margins are accretive they're better than they are better than when we're selling other products.
Speaker Change: So that too is a it is a win for the business. So when you combine the enhanced marketing programs.
Speaker Change: We will focus that we've had on product management and.
Speaker Change: Product development, if you will on the chemical side and tools and maintenance.
Speaker Change: And then you look at that across you know 5 million plus transactions and that was only through August it provides a nice opportunity for us.
Speaker Change: For many years to come.
Speaker Change: Got it yeah, a lot of potential there I guess as a follow up question just with respect to the $20 million of technology spending this year.
Speaker Change: It's early to think about 2025, but just your preliminary thoughts on directionally, where that level of spending goes are we going to a more aggressive spend on technology next year.
Speaker Change: Yeah, I don't I don't think it's going to be much different right. Because we did a bunch of work. This year that we won't have to do next year, we technology when you're in the technology business.
Speaker Change: And I believe we are in the technology business now Youre never done. So we have to continue to invest to keep our tools current in value a value accretive to our customers into us. So I look at the spend as a you know given our size and scale frankly, it's not a lot of money.
And I would tell you that.
Speaker Change: Early in its early we obviously haven't settled on our 2025.
Speaker Change: But I don't see any major change in that number.
Speaker Change: Got it thanks, very much and good luck.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Shred to tell from Jefferies. Please go ahead with your question.
Speaker Change: Thanks, Todd I, just wanted to kind of cover the competitive landscape that you're seeing currently.
Speaker Change: Specifically the actions from Srs, if theres any sort of an impact in your business and it's still early days just trying to get a sense for how that kind of lays out as we go forward.
Speaker Change: Yes. Thank you.
Speaker Change: I would tell you nothing really new to report on that side Hasnt been we havent experienced really any changes from what we've seen in the past the industry. Obviously is more competitive now because the industry is smaller than it would be with a normal new pool, construction and remodel and renovation market.
Speaker Change: So you have to be on top of your game in terms of value, we never sell on price right. So we're not the price leaders never intended to be the price leaders, we sell on value and providing the best customer experience some of our competitors. The only way that they can compete with us on price is on price nothing new in that regard.
Speaker Change: We expect that we expect that to continue but it's nothing that we haven't seen before it will ebb and flow with demand as demand in the industry improves and I would say competitive pressures will probably abate. Some if the industry stays contracted then I would expect competitive pressures to continue to be.
Speaker Change: Robust.
Speaker Change: Thank you I appreciate that.
Speaker Change: Yeah.
Speaker Change: Our next question comes from Andrew Carter from Stifel. Please go ahead with your question.
Andrew Carter: Hey, Thank you good morning, I guess the first question I wanted to ask is about chemicals kind of kind of comprehensive.
Andrew Carter: Hence the question number one it's been kind of volatile the past couple of years price skirmishes or whatnot, where do you see kind of the pricing now going into next year do you see any give back from your manufacturers and then a second question on your chemical supply chain. There was obviously the plant fire in Atlanta, I believe at Biolab facility.
So the storage I don't I don't imagine, it's not much disruption you haven't called it out but could you speak to kind of how your chemical supply chain. Our procurement is different now than four years ago are you do you have just as much risk around one supplier or are you much more diversified.
Speaker Change: Yes, Thank you Andrew good morning.
Speaker Change: Our chemical supply chain is much more diverse than it was.
Speaker Change: For a couple of reasons number one we have our own packaging facility today that we didn't have that procures product from multiple sources. So from a from a surety of supply perspective, we're in a we're in a much better position.
Speaker Change: Then we were a few years ago.
Speaker Change: Your first question first part of the question had to do with pricing.
Speaker Change: I would tell you that.
Speaker Change: As I mentioned in my comments overall chemical pricing now theres, some up some down but by and large chemical pricing is fairly stable.
Speaker Change: And I don't think that I don't think that at this point I see any major changes in that as far as the disruption from the fire in in Georgia.
Speaker Change: Really has no impact on us and at this point I would tell you I think there's limited to no impact on the on the industry. So no major changes.
Speaker Change: And then a second question kind of thinking about new construction and I know that we're kind of we're at 59000 units kind of in the year I think that's where your guidance is.
Speaker Change: Going into next year, I know you need that that that piece of the business to grow kind of high single digits to hit your long term algorithm.
Speaker Change: Do you need rates to come down and see some easing in these next couple of months for consumers to make that decision next summer or could it be a longer lag in rate improvements or whatever or and just any kind of early indications of how you look at that market next year in our capital costs are still high pool costs are still high but anything any.
Speaker Change: Now on to help on that on that side would be helpful. Thanks.
Speaker Change: Sure Andrew So here's what we're hearing from our dealers our dealers are telling us. The phones are ringing people want pools. There are people are asking for are budgetary pricing in some cases, where they've had pricing from the past that we're refreshing that pricing because there's still the underlying demand they still want.
Speaker Change: The swimming pool, so I would tell you that the overall demand environment.
Speaker Change: Still cautious, but there still is there still is demand.
Speaker Change: If you go back to kind of pre Covid days, you were talking about an 80 80000 pool newbuild market and we're down we're gonna be 55 to 60000 pools. This year, which is which is obviously much lower than it was during the peak, but the order for the return to I would call normal too.
Speaker Change: Happen. The housing market is going to is going to have to loosen up a little bit and that's not going to happen I think until there's a little more.
Speaker Change: Movement on the rate side, so I think that the feds attempt with the first rate cut is good.
Speaker Change: It's going to take more than that but again from our perspective. The thing that's very encouraging as home values are still very strong and home equity levels have never been higher so people have the ability to borrow I think it's a combination of just the overall economic conditions in the country right now that are causing people.
Speaker Change: Specifically at the lower end mid end that would want a pool to say, they probably need to wait a little bit more to make sure that there isn't a relapse on the inflation side and our overall cost.
Speaker Change: Cost of living is going to increase I think they've seen.
Speaker Change: We are accepted and.
Speaker Change: Had to absorb significant pricing.
Speaker Change: For consumable goods, if you will and I think overtime wages are catching up.
Speaker Change: I think that if the fed continues to loosen the monetary policy and we get the housing market moving that I would tell you that the first thing we would probably see is a renovation and remodel would would be the one of the first things we see pickup followed by new pool construction.
Speaker Change: Thanks, I'll pass it on.
Speaker Change: Thanks.
Speaker Change: Our next question comes from Trey Grooms from Stephens. Please go ahead with your question.
Speaker Change: Good morning, everyone sorry.
Trey Grooms: I dropped off during the middle of the Q&A. So please forgive me if you've touched on any of this but.
Trey Grooms: Melanie you reiterated the EPS range.
Melanie Hart: $11 six to 11 46.
Speaker Change: We're we're mostly through the pretty well through the pool season as you mentioned.
Speaker Change: We're making our way through most of October which I assume is just typically the strongest month in the <unk>. So.
Speaker Change: And you gave some pretty good color.
Speaker Change: On some of the line items here, but I guess the question is what could.
Really kind of get us into either the low end or high end of this range, just especially given where we are in the year.
Yeah, so that the fluctuations in the fourth quarter are going to.
Speaker Change: Certainly weather has impacted how long pools within the seasonal markets stay open.
Speaker Change: Whether or not that will kind of extend into.
The back half of the fourth quarter.
Speaker Change: The other thing is going to be the rate of the new pool construction, so depending upon how much and how many of those pools are actually impacting significantly in Florida.
Speaker Change: And then kind of the converse of that is going to be you know the labor market.
Speaker Change: In Florida, and as it relates to some of that new construction. So.
Speaker Change: Look at it to kind of at the low end, we're going to be certainly on the low end you could.
Speaker Change: Yeah on the low end, if that new pool construction number moves down lower.
Speaker Change: We will make up some of that from the repair market in Florida, but its not at the same kind of dollar increments as developing that we would see within that timeframe and then also we see a recovery.
Speaker Change: Impact us toward kind of dyskinesia is at the higher end.
Speaker Change: Okay got it that's helpful and then as a follow up and this is kind of getting maybe begin to cutting hairs here, just a little bit or splitting hairs.
Speaker Change: But prior guide for inflation and pricing was 2% to 3% I think it was.
Speaker Change: A 1% headwind on the commodity and then 1% to 2% overall that was the prior guidance and now it's 2%, but that same kind of a 1% headwind on the commodity but overall, it's not one versus the one to two again I know, it's a small change but anything to note there.
Speaker Change: Maybe what what.
Speaker Change: We drove that slight change in the inflation kind of guide here for the year.
Speaker Change: Yeah, nothing significant pickup in the chemical volumes impacted that slightly.
Speaker Change: Also some of the building material components were captured in that commodity level.
Speaker Change: That's impacting it and then really just the mix of products overall.
Speaker Change: There's just so many doctors that there.
Speaker Change: It's just a lot of factors involved in trying.
Speaker Change: Trying to trying to pin that down and as Melanie said mix is going to be the biggest thing that impacts the overall impact of the business from inflation.
Speaker Change: Yep got it makes sense to me thanks.
Speaker Change: Thanks, a lot I'll pass it on.
Speaker Change: Thank you.
Speaker Change: Our next question comes from.
Speaker Change: Gerry Schwartz from loop capital. Please go ahead with your question.
Gerry Schwartz: Oh, hi, Thanks for having me I wanted to ask about some of the smaller markets.
Here, just first of all from commercial banking was up 7% in the quarter down from <unk> 16.
<unk> still got a nicely positive, but just wondering if you could speak to.
Gerry Schwartz: Maybe the deceleration in growth.
Gerry Schwartz: Just maybe some broader trend toward commercial side, considering it's been an area of focus for you.
Speaker Change: Yeah, I wouldn't read too much into that what I, what I would say on commercial as a function of two things there is kind of maintenance and repair and theres projects. So projects in the commercial arena as you can imagine are very large so if if a lot of it is timing. So it's win win the large projects hit and when the invoice.
Speaker Change: And then you know when we look further out we're looking at what does the backlog look like for commercial work and then there is a function of it's a it's a focus area for us. So we continue to gain.
Speaker Change: Gained share in that area by investing in and value creating.
Speaker Change: Good things for our customers.
Speaker Change: So I wouldn't read too much into the 7% versus 16% because I believe when I looked at that that it's mostly project driven and win win projects actually invoice and also just for to contextualize. It just remember it's still a pretty small portion of the business in total it's encouraging.
Speaker Change: There's.
Speaker Change: Certainly more opportunity there than there is on the residential building cited in terms of <unk>.
Speaker Change: Investments in new construction and large projects, but it's also relatively small so you kind of have to dimensionalize it too.
Speaker Change: Yes of course, and then I guess, just secondly, just on the retail part of the business again I apologize for focusing on some of the smaller end markets here at the end of the call but.
Speaker Change: <unk> sales were flat in Q3, maybe.
Speaker Change: Maybe a little bit softer than what rate of growth than the last quarter, but retail sales into retail actually improved sequentially. So anything to glean out of those those kind of diverging trends.
Speaker Change: No I think that the overall.
Speaker Change: Overall consumer so think about what a retail store is going to sell retail stores are going to sell things like chemicals, which are non discretionary that part of the business from a retail perspective has been has been good but things like.
Speaker Change: Robotic cleaners, right or in toys and games as such tend to be much more discretionary.
Speaker Change: Where we have seen a what we have seen some headwinds this year on the retail side. The biggest area from a headwind perspective is on the cleaner side. So you.
Speaker Change: You don't have to have a cleaner, but most pools do I don't have to have a robotic cleaner. It's it just happens to be the best cleaner in the market, but the downside is theyre quite expensive. So if you have a consumer that is that is struggling with cash flow and the idea of hunting down $1000 or $700 or $500 for a high end robotic cleaner.
Speaker Change: <unk>, which is a more of a luxury than a necessity is going to impact the retail buyer more than more than it would.
Speaker Change: During normal times, so I think the retail business is good I think we continue to take share I love our value proposition for the independent retailer I loved the pinch of any value proposition, but we're also gonna have to deal with the health of the consumer too and the more discretionary items are going to come under more pressure.
Speaker Change: Understood Thanks for calling.
Speaker Change: Thank you.
Speaker Change: Yeah.
Our next question comes from Sam Reed from Wells Fargo. Please go ahead with your question.
Sam Reed: Awesome. Thanks, so much so wanted to ask a follow up question on your Auger-eyed them, but this time approach it from a more near term perspective, so it sounds like acquisitions will be less of a tailwind and then you've obviously got fewer new pools entering the base.
2024, and 2025, so just wanted to maybe contextualize those two dynamics plus anything else that you think might be relevant for 2025 in the context of near 6% to 9% all go.
Sam Reed: Yeah.
Speaker Change: I would say and I'll, let Melanie chime in if I, if I Miss something I would say on the new pool construction.
I would and again, we haven't called 2025 numbers. So it's very hard for me to and in fact, I can't really speculate on what 2025 years, because we don't have enough information, but certainly for our long term algorithm to be to be back.
Speaker Change: And reflective of what is actually happening we're gonna have to see a return to more normal nuclear construction and it just frankly, it's just too soon for me to tell you what I think the 2025, new pool construction season is going to be the acquisition Im pretty comfortable with what I said on that in terms of Ah I don't.
Speaker Change: I think given our size that when I look at our acquisition pipeline, which we certainly have things in the pipeline just none of them are big.
Speaker Change: Big enough to really move the needle consistently at.
Speaker Change: At that at that 1% range.
Speaker Change: Overtime.
Speaker Change: Yes.
Speaker Change: He took a portion of the growth algorithm that relate to the new construction being you know, where we're going to kind of finish out the year, we're very far from normal if we finish this year, 55% to 60000, new pool prepay.
Speaker Change: We were around 80000 range.
Speaker Change: We have brands that could be made up in order to get us there would be slightly ahead of the one to two that's in that's our current long term algorithm.
Speaker Change: No that's helpful and then maybe switching gears.
Speaker Change: Touching on Q4, just wanted to get a sense for the sales number that you're seeing quarter to date.
Speaker Change: This go around September.
Speaker Change: September or in October specifically I wanted to say the guidance imply something closer to down 5% for the fourth quarter are you tracking at those levels quarter to date above those levels below just wanted to get a sense for that as we head into year end.
Speaker Change: Yes.
Speaker Change: As you can imagine October is more critical months of the quarter.
Speaker Change: October is a.
Speaker Change: It is tracking.
Speaker Change: Above the above.
The minus five that you cited so that we're seeing strong we're seeing strong demand in Florida, right now as their renovation and remodel I'm sorry, as the repair work goes on the offset is that what the what we're not sure of is the impact on nuclear construction for the remainder of the quarter. So October is October is good.
Speaker Change: And I don't I think the rest as I look you know as I look around the country I think we're performing well there.
Speaker Change: But it's the biggest wildcard for us in the fourth quarter is going to be.
Speaker Change: The what.
Speaker Change: What is going to be the impact on fewer pools that we think will get built in Florida in the fourth quarter and how much of that can be made up for by the repair work by the weather in October. So far has been has been has been pretty good. So that's so that's favorable as well.
Speaker Change: That's very helpful. Thanks, so much.
Speaker Change: And our final question comes from Sean <unk> from Bank of America. Please go ahead with your question.
Speaker Change: Hi, guys. Thanks for taking my question I just had a couple on the gross margin bridge on slide six.
Speaker Change: It looks like you guys had 100 basis point improvement.
Speaker Change: From supply chain benefits.
Speaker Change: Can you just talk about.
Speaker Change: Whether you expect that to continue to improve or is this kind of a normalized level and then on the customer mix is that something that you expect to reverse over time are we at like a more normalized customer mix after having a bunch of smaller customers during COVID-19.
Speaker Change #100: Yes, so as far as the 100 basis points leads specifically.
Speaker Change #100: On that bridge is more.
Speaker Change #100: Conceptually very quantitative.
Speaker Change #100: So I wouldn't equate that to 100 basis points from an improvement standpoint, but.
Speaker Change #100: To answer your question as it relates to the supply chain benefits and we do continue to expect them to see the benefit related to the pipe.
Speaker Change #100: Label.
Speaker Change #100: This initiative, our CSL initiatives that we have had in place.
Speaker Change #100: Last several years that have kind of taken us through this volatile period.
Speaker Change #100: That will continue going forward and we have further actions that we intend to take as it relates to that.
Speaker Change #100: Specifically to your question on the customer.
Speaker Change #100: Have seen in this market, where there are fewer pools to be built that our larger customers are winning winning more of their job and so that is putting some pressure on our margins from a pricing standpoint, because we do have our customer rebate programs with those larger customers.
Speaker Change #100: Win more pool will start getting built and we get back up to that more normalized 80000 foot level.
Speaker Change #100: Allow for smaller pool builder to come back into the market.
Speaker Change #100: And so that will put some more balance into our gross margins.
Speaker Change #101: Got it thanks, and then the other one I had was just.
Speaker Change #102: So it looks like you guys were in line or be consensus on sale this quarter, but the gross margin came in lower than at least.
Speaker Change #107: On the sell side were projecting what what do you think kind of drove that did you see any increased pricing competition or is it just a difference between what we were expecting and you were expecting on the gross margin.
Speaker Change #103: Yeah, when we when you look back at our commentary as it relates to the second quarter. We did at that point in time projects that the margin for both the third and fourth quarter would be similar to last year and so we haven't made any changes to that expectation.
Speaker Change #104: Okay. Thank you.
Speaker Change #104: Yeah.
Speaker Change #104: Yes.
Speaker Change #105: And with that will be concluding today's question and answer session I'd like to turn the floor back over to Peter Osborne, our president and CEO for closing remarks.
Peter Osborne: Thank you all for joining US today, we look forward to reporting our full year and fourth quarter results and initiating our guidance for 2025 on February 20th 2025 until then I Hope you all take some time to enjoy the holiday season, and have a happy and healthy new year.
Speaker Change #105: Thanks for your support.
And with that ladies and gentlemen, we will conclude today's conference call. We do thank you for attending you may now disconnect your lines.