Pool Corporation (Nasdaq/GSM:POOL) today reported record results
for the third quarter of 2020.
“I could not be happier with the truly
outstanding results that we reported for the third quarter.
Consumer spending on outdoor living products remained strong, and
our team continued to execute at a very high level, which resulted
in stellar results this quarter across a broad range of operating
metrics,” said Peter D. Arvan, president and CEO. “In addition, as
part of our strategic growth initiatives, we further expanded our
network through two acquisitions, Northeastern Swimming Pool
Distributors, Inc., which closed on September 11, 2020, and Jet
Line Products, Inc., which closed on October 1, 2020. These
businesses bring solid teams that have excelled at building
exceptional customer relationships, and we are excited to have them
join the POOLCORP family.”
In the third quarter of 2020, net sales
increased 27% to a record $1.14 billion compared to $898.5
million in the third quarter of 2019. Our sales benefited from
continued elevated demand for residential pool products, driven by
home-centric trends influenced by the COVID-19 pandemic, as working
from home becomes routine and families create and enjoy safe social
and entertainment alternatives in their own backyards. We realized
broad sales gains across many product categories, as maintenance,
replacement, refurbishment and construction activities across most
geographies were strong.
Gross profit increased 27% to a record $328.7
million in the third quarter of 2020 from $257.9 million in the
same period of 2019. Gross margin increased 20 basis points to
28.9% in the third quarter of 2020 compared to 28.7% in the third
quarter of 2019, with increased purchase volumes driving
improvements in supply chain management.
Selling and administrative expenses (operating
expenses) increased 18% to $180.5 million in the third quarter
of 2020 compared to $153.4 million in the third quarter of
2019, primarily reflecting a $20.1 million increase in
performance-based compensation. Excluding performance-based
compensation in both periods, operating expenses increased 5% due
to growth-driven freight expenses and greater facility-related
costs. As a percentage of net sales, operating expenses decreased
to 15.8% in the third quarter of 2020 compared to 17.1% in the same
period of 2019 as we continued to realize benefits from
discretionary spending controls implemented earlier in the
year.
Operating income in the third quarter of 2020
increased 42% to $148.2 million compared to $104.5 million in
the same period in 2019. Operating margin was 13.0% in the third
quarter of 2020 compared to 11.6% in the third quarter of 2019.
We recorded an $8.5 million, or $0.21 per
diluted share, tax benefit from Accounting Standards Update (ASU)
2016-09, Improvements to Employee Share-Based Payment Accounting,
in the quarter ended September 30, 2020, compared to a tax benefit
of $4.5 million, or $0.11 per diluted share, realized in the
same period of 2019.
Net income increased 50% to $119.1
million in the third quarter of 2020 compared to $79.5 million
in the third quarter of 2019. Earnings per share increased 50% to
$2.92 per diluted share in the third quarter of 2020 compared to
$1.95 in the same period of 2019. Excluding the impact from ASU
2016-09 in both periods, earnings per diluted share increased 47%
to $2.71 in the third quarter of 2020 compared to $1.84 in the
third quarter of 2019.
Net sales for the nine months ended September
30, 2020 increased 18% to a record $3.10 billion from $2.62 billion
in the nine months ended September 30, 2019. Gross margin
declined 30 basis points to 28.8% compared to 29.1% in the same
period last year, primarily due to sales of lower margin,
big-ticket items, such as in-ground and above-ground pools and pool
equipment, which comprised a larger portion of our product mix in
the nine months ended September 30, 2020 compared to the first nine
months of 2019.
Operating expenses for the nine months ended
September 30, 2020 increased 12% compared to the first nine months
of 2019. In the first quarter of 2020, we recorded impairment
charges of $6.9 million, which included $2.5 million from a
long-term note, as collectability was impacted by the COVID-19
pandemic, and non-cash goodwill and intangibles impairment charges
of $4.4 million, equal to the total goodwill and intangibles
carrying amounts of our Australian reporting units. Excluding
impairment charges, operating expenses were up 11%, reflecting a
$32.1 million increase in performance-based compensation, in
addition to growth-driven freight expenses and greater
facility-related costs.
Operating income for the first nine months of
2020 increased 24% to a record $389.7 million compared to
$315.4 million in the same period last year. Adjusted
operating income, excluding non-cash impairments, for the first
nine months of 2020 increased 26% from the prior year to
$396.6 million. See the reconciliation of GAAP to non-GAAP
measures in the addendum of this release. Operating margin for the
nine months ended September 30, 2020 was 12.6% compared to 12.1%
for the nine months ended September 30, 2019.
We recorded a $22.6 million, or $0.55 per
diluted share, tax benefit from ASU 2016-09 in the nine months
ended September 30, 2020 compared to a $21.1 million, or $0.52 per
diluted share, tax benefit in the same period of 2019.
Net income for the nine months ended September
30, 2020 increased 26% to a record $307.6 million compared to
$243.6 million for the nine months ended September 30, 2019.
Adjusted net income for the first nine months of 2020, excluding
the $6.3 million, or $0.15 per diluted share, impact of non-cash
impairments, net of tax, increased 29% to $313.9 million.
Earnings per share for the first nine months of 2020 increased 26%
to $7.53 per diluted share versus $5.97 in the first nine months of
2019. Excluding the impact of non-cash impairments, net of tax,
adjusted diluted EPS increased 29% over 2019.
On the balance sheet at September 30, 2020,
total net receivables, including pledged receivables, increased 19%
compared to September 30, 2019, driven by our September sales
growth and partially offset by improved collections. Inventory
levels decreased 1% compared to September 30, 2019, reflecting
the strong pace of sales in the third quarter of 2020. Total debt
outstanding was $339.9 million at September 30, 2020, a $207.6
million decrease from total debt at September 30, 2019, as we
have utilized our operating cash flows to decrease debt
balances.
Cash provided by operations was $388.9 million
in the first nine months of 2020 compared to $243.3 million in the
first nine months of 2019, an improvement of $145.7 million. The
improvement in cash provided by operations primarily reflects an
increase in net income, a decline in inventory balances between
periods and improvements in working capital management. Adjusted
EBITDA (as defined in the addendum to this release) was
$429.4 million and $347.1 million for the nine months
ended September 30, 2020, and September 30, 2019,
respectively. Interest expense decreased compared to last year
primarily due to lower average debt levels and lower average
interest rates.
“Our success is a direct result of the
contributions and achievements of the POOLCORP team who have
continued supporting our customers through these difficult and
uncertain times. As we move forward into the fourth quarter, we
believe that demand for our products remains strong, and our teams
are committed to sustaining our track record of operational
excellence. Based on our results to date and expectations for the
remainder of the year, we are increasing and narrowing our annual
earnings guidance to $8.05 to $8.35 per diluted share, including
the impact of year-to-date tax benefits of $0.55 and the $0.15
impact of non-cash impairments recorded in the first quarter of
2020,” commented Arvan. “Excluding the impact of non-cash
impairments, we expect 2020 adjusted diluted EPS of $8.20 to $8.50.
Our previous 2020 earnings guidance range disclosed in our July 23,
2020 earnings release was $6.90 to $7.30 per diluted share or $7.05
to $7.45, excluding the impact of non-cash impairments.” See the
reconciliation of GAAP to non-GAAP measures in the addendum of this
release.
POOLCORP is the world’s largest wholesale
distributor of swimming pool and related backyard products.
POOLCORP operates 381 sales centers in North America, Europe and
Australia, through which it distributes more than 200,000 national
brand and private label products to roughly 120,000 wholesale
customers. For more information, please visit www.poolcorp.com.
This news release includes “forward-looking”
statements that involve risks and uncertainties that are generally
identifiable through the use of words such as “believe,” “expect,”
“anticipate,” “intend,” “plan,” “estimate,” “project,” “should” and
similar expressions and include projections of earnings. The
forward-looking statements in this release are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform
Act of 1995. Forward-looking statements speak only as of the date
of this release, and we undertake no obligation to update or revise
such statements to reflect new circumstances or unanticipated
events as they occur. Actual results may differ materially due to a
variety of factors, including impacts on our business from the
COVID-19 pandemic, the sensitivity of our business to weather
conditions, changes in the economy and the housing market, our
ability to maintain favorable relationships with suppliers and
manufacturers, competition from other leisure product alternatives
and mass merchants, excess tax benefits or deficiencies recognized
under ASU 2016-09 and other risks detailed in POOLCORP’s 2019
Annual Report on Form 10-K, 2020 Quarterly Reports on Form
10-Q and other reports and filings filed with the Securities and
Exchange Commission (SEC).
CONTACT:Curtis J. ScheelDirector of Investor
Relations985.801.5341curtis.scheel@poolcorp.com
POOL
CORPORATIONConsolidated Statements of
Income(Unaudited)(In thousands, except per share data)
|
Three Months Ended |
|
Nine Months Ended |
|
September 30, |
|
September 30, |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Net sales |
$ |
1,139,229 |
|
|
$ |
898,500 |
|
|
$ |
3,097,362 |
|
|
$ |
2,617,283 |
|
Cost of sales |
810,531 |
|
|
640,569 |
|
|
2,205,555 |
|
|
1,854,408 |
|
Gross profit |
328,698 |
|
|
257,931 |
|
|
891,807 |
|
|
762,875 |
|
Percent |
28.9 |
% |
|
28.7 |
% |
|
28.8 |
% |
|
29.1 |
% |
|
|
|
|
|
|
|
|
Selling and administrative
expenses |
180,465 |
|
|
153,391 |
|
|
495,186 |
|
|
447,427 |
|
Impairment of goodwill and
other assets |
— |
|
|
— |
|
|
6,944 |
|
|
— |
|
Operating income |
148,233 |
|
|
104,540 |
|
|
389,677 |
|
|
315,448 |
|
Percent |
13.0 |
% |
|
11.6 |
% |
|
12.6 |
% |
|
12.1 |
% |
|
|
|
|
|
|
|
|
Interest and other
non-operating expenses, net |
1,861 |
|
|
5,498 |
|
|
9,292 |
|
|
18,538 |
|
Income before income taxes and
equity earnings |
146,372 |
|
|
99,042 |
|
|
380,385 |
|
|
296,910 |
|
Provision for income
taxes |
27,360 |
|
|
19,593 |
|
|
73,068 |
|
|
53,569 |
|
Equity earnings in
unconsolidated investments, net |
86 |
|
|
76 |
|
|
248 |
|
|
210 |
|
Net income |
$ |
119,098 |
|
|
$ |
79,525 |
|
|
$ |
307,565 |
|
|
$ |
243,551 |
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
Basic |
$ |
2.97 |
|
|
$ |
1.99 |
|
|
$ |
7.68 |
|
|
$ |
6.13 |
|
Diluted |
$ |
2.92 |
|
|
$ |
1.95 |
|
|
$ |
7.53 |
|
|
$ |
5.97 |
|
Weighted average shares
outstanding: |
|
|
|
|
|
|
|
Basic |
40,123 |
|
|
39,933 |
|
|
40,073 |
|
|
39,750 |
|
Diluted |
40,839 |
|
|
40,865 |
|
|
40,849 |
|
|
40,811 |
|
|
|
|
|
|
|
|
|
Cash dividends declared per
common share |
$ |
0.58 |
|
|
$ |
0.55 |
|
|
$ |
1.71 |
|
|
$ |
1.55 |
|
POOL
CORPORATIONCondensed Consolidated Balance
Sheets(Unaudited)(In thousands)
|
|
September 30, |
|
September 30, |
|
Change |
|
|
2020 |
|
2019 |
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
74,749 |
|
|
$ |
36,693 |
|
|
$ |
38,056 |
|
|
104 |
|
% |
|
Receivables, net (1) |
|
135,555 |
|
|
|
95,971 |
|
|
|
39,584 |
|
|
41 |
|
|
|
Receivables pledged under
receivables facility |
|
230,857 |
|
|
|
211,827 |
|
|
|
19,030 |
|
|
9 |
|
|
|
Product inventories, net (2) |
|
612,824 |
|
|
|
616,217 |
|
|
|
(3,393 |
) |
|
(1 |
) |
|
|
Prepaid expenses and other
current assets |
|
12,696 |
|
|
|
12,384 |
|
|
|
312 |
|
|
3 |
|
|
Total current
assets |
|
1,066,681 |
|
|
|
973,092 |
|
|
|
93,589 |
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and
equipment, net |
|
109,086 |
|
|
|
112,816 |
|
|
|
(3,730 |
) |
|
(3 |
) |
|
Goodwill |
|
199,360 |
|
|
|
188,133 |
|
|
|
11,227 |
|
|
6 |
|
|
Other intangible
assets, net |
|
10,522 |
|
|
|
11,235 |
|
|
|
(713 |
) |
|
(6 |
) |
|
Equity interest
investments |
|
1,314 |
|
|
|
1,237 |
|
|
|
77 |
|
|
6 |
|
|
Operating lease
assets |
|
180,230 |
|
|
|
175,878 |
|
|
|
4,352 |
|
|
2 |
|
|
Other assets |
|
20,396 |
|
|
|
19,017 |
|
|
|
1,379 |
|
|
7 |
|
|
Total
assets |
$ |
1,587,589 |
|
|
$ |
1,481,408 |
|
|
$ |
106,181 |
|
|
7 |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
$ |
268,412 |
|
|
$ |
214,309 |
|
|
$ |
54,103 |
|
|
25 |
|
% |
|
Accrued expenses and other
current liabilities |
|
145,420 |
|
|
|
81,459 |
|
|
|
63,961 |
|
|
79 |
|
|
|
Short-term borrowings and
current portion of long-term debt |
|
11,709 |
|
|
|
11,840 |
|
|
|
(131 |
) |
|
(1 |
) |
|
|
Current operating lease
liabilities |
|
56,977 |
|
|
|
56,025 |
|
|
|
952 |
|
|
2 |
|
|
Total current
liabilities |
|
482,518 |
|
|
|
363,633 |
|
|
|
118,885 |
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income
taxes |
|
29,476 |
|
|
|
27,951 |
|
|
|
1,525 |
|
|
5 |
|
|
Long-term debt,
net |
|
328,225 |
|
|
|
535,720 |
|
|
|
(207,495 |
) |
|
(39 |
) |
|
Other long-term
liabilities |
|
32,846 |
|
|
|
26,737 |
|
|
|
6,109 |
|
|
23 |
|
|
Non-current operating
lease liabilities |
|
125,023 |
|
|
|
121,397 |
|
|
|
3,626 |
|
|
3 |
|
|
Total
liabilities |
|
998,088 |
|
|
|
1,075,438 |
|
|
|
(77,350 |
) |
|
(7 |
) |
|
Total
stockholders’ equity |
|
589,501 |
|
|
|
405,970 |
|
|
|
183,531 |
|
|
45 |
|
|
Total
liabilities and stockholders’ equity |
$ |
1,587,589 |
|
|
$ |
1,481,408 |
|
|
$ |
106,181 |
|
|
7 |
|
% |
(1) |
The allowance for doubtful accounts was $5.3 million at September
30, 2020 and $6.2 million at September 30, 2019. |
(2) |
The inventory reserve was $11.4
million at September 30, 2020 and $9.9 million at
September 30, 2019. |
POOL
CORPORATIONCondensed Consolidated Statements of
Cash Flows(Unaudited)(In thousands)
|
Nine Months EndedSeptember 30, |
|
|
|
|
|
2020 |
|
|
2019 |
|
|
Change |
Operating
activities |
|
|
|
|
|
|
|
|
Net income |
$ |
307,565 |
|
|
$ |
243,551 |
|
|
$ |
64,014 |
|
Adjustments to
reconcile net income to net cash provided by operating
activities: |
|
|
|
|
|
|
|
|
|
Depreciation |
|
20,979 |
|
|
|
20,648 |
|
|
|
331 |
|
|
Amortization |
|
975 |
|
|
|
1,049 |
|
|
|
(74 |
) |
|
Share-based compensation |
|
11,095 |
|
|
|
10,243 |
|
|
|
852 |
|
|
Equity earnings in
unconsolidated investments, net |
|
(248 |
) |
|
|
(210 |
) |
|
|
(38 |
) |
|
Impairment of goodwill and
other assets |
|
6,944 |
|
|
|
— |
|
|
|
6,944 |
|
|
Other |
|
1,092 |
|
|
|
5,334 |
|
|
|
(4,242 |
) |
Changes in
operating assets and liabilities, net of effects of
acquisitions: |
|
|
|
|
|
|
|
|
|
Receivables |
|
(135,129 |
) |
|
|
(98,538 |
) |
|
|
(36,591 |
) |
|
Product inventories |
|
99,767 |
|
|
|
68,827 |
|
|
|
30,940 |
|
|
Prepaid expenses and other
assets |
|
311 |
|
|
|
1,231 |
|
|
|
(920 |
) |
|
Accounts payable |
|
3,385 |
|
|
|
(29,782 |
) |
|
|
33,167 |
|
|
Accrued expenses and other
current liabilities |
|
72,178 |
|
|
|
20,900 |
|
|
|
51,278 |
|
Net cash provided
by operating activities |
|
388,914 |
|
|
|
243,253 |
|
|
|
145,661 |
|
|
|
|
|
|
|
|
|
|
Investing
activities |
|
|
|
|
|
|
|
|
Acquisition of
businesses, net of cash acquired |
|
(24,655 |
) |
|
|
(8,913 |
) |
|
|
(15,742 |
) |
Purchases of
property and equipment, net of sale proceeds |
|
(16,897 |
) |
|
|
(26,926 |
) |
|
|
10,029 |
|
Net cash used in
investing activities |
|
(41,552 |
) |
|
|
(35,839 |
) |
|
|
(5,713 |
) |
|
|
|
|
|
|
|
|
|
Financing
activities |
|
|
|
|
|
|
|
|
Proceeds from
revolving line of credit |
|
749,840 |
|
|
|
836,534 |
|
|
|
(86,694 |
) |
Payments on
revolving line of credit |
|
(909,637 |
) |
|
|
(1,011,430 |
) |
|
|
101,793 |
|
Proceeds from
asset-backed financing |
|
261,700 |
|
|
|
189,000 |
|
|
|
72,700 |
|
Payments on
asset-backed financing |
|
(266,700 |
) |
|
|
(136,300 |
) |
|
|
(130,400 |
) |
Payments on term
facility |
|
(6,938 |
) |
|
|
— |
|
|
|
(6,938 |
) |
Proceeds from
short-term borrowings and current portion of long-term debt |
|
13,255 |
|
|
|
27,633 |
|
|
|
(14,378 |
) |
Payments on
short-term borrowings and current portion of long-term debt |
|
(13,291 |
) |
|
|
(24,962 |
) |
|
|
11,671 |
|
Payments of
deferred financing costs |
|
(12 |
) |
|
|
— |
|
|
|
(12 |
) |
Payments of
deferred and contingent acquisition consideration |
|
(281 |
) |
|
|
(311 |
) |
|
|
30 |
|
Proceeds from
stock issued under share-based compensation plans |
|
16,696 |
|
|
|
17,042 |
|
|
|
(346 |
) |
Payments of cash
dividends |
|
(68,599 |
) |
|
|
(61,752 |
) |
|
|
(6,847 |
) |
Purchases of
treasury stock |
|
(76,194 |
) |
|
|
(23,188 |
) |
|
|
(53,006 |
) |
Net cash used in
financing activities |
|
(300,161 |
) |
|
|
(187,734 |
) |
|
|
(112,427 |
) |
Effect of exchange
rate changes on cash and cash equivalents |
|
(1,035 |
) |
|
|
655 |
|
|
|
(1,690 |
) |
Change in cash and
cash equivalents |
|
46,166 |
|
|
|
20,335 |
|
|
|
25,831 |
|
Cash and cash
equivalents at beginning of period |
|
28,583 |
|
|
|
16,358 |
|
|
|
12,225 |
|
Cash and cash
equivalents at end of period |
$ |
74,749 |
|
|
$ |
36,693 |
|
|
$ |
38,056 |
|
ADDENDUM
Base Business
The following table breaks out our consolidated
results into the base business component and the excluded component
(sales centers excluded from base business):
(Unaudited) |
|
Base
Business |
|
Excluded |
|
Total |
(in
thousands) |
|
Three Months
Ended |
|
Three Months
Ended |
|
Three Months
Ended |
|
|
September
30, |
|
September
30, |
|
September
30, |
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Net sales |
|
$ |
1,133,608 |
|
|
$ |
895,489 |
|
|
$ |
5,621 |
|
|
$ |
3,011 |
|
|
|
$ |
1,139,229 |
|
|
$ |
898,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit |
|
326,692 |
|
|
257,525 |
|
|
2,006 |
|
|
406 |
|
|
|
328,698 |
|
|
257,931 |
|
Gross
margin |
|
28.8 |
% |
|
28.8 |
% |
|
35.7 |
% |
|
13.5 |
|
% |
|
28.9 |
% |
|
28.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses |
|
178,773 |
|
|
152,630 |
|
|
1,692 |
|
|
761 |
|
|
|
180,465 |
|
|
153,391 |
|
Expenses as
a % of net sales |
|
15.8 |
% |
|
17.0 |
% |
|
30.1 |
% |
|
25.3 |
|
% |
|
15.8 |
% |
|
17.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss) |
|
147,919 |
|
|
104,895 |
|
|
314 |
|
|
(355 |
) |
|
|
148,233 |
|
|
104,540 |
|
Operating
margin |
|
13.0 |
% |
|
11.7 |
% |
|
5.6 |
% |
|
(11.8 |
) |
% |
|
13.0 |
% |
|
11.6 |
% |
(Unaudited) |
|
Base
Business |
|
Excluded |
|
Total |
(in
thousands) |
|
Nine Months
Ended |
|
Nine Months
Ended |
|
Nine Months
Ended |
|
|
September
30, |
|
September
30, |
|
September
30, |
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Net sales |
|
$ |
3,078,463 |
|
|
$ |
2,601,801 |
|
|
$ |
18,899 |
|
|
$ |
15,482 |
|
|
|
$ |
3,097,362 |
|
|
$ |
2,617,283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit |
|
885,002 |
|
|
759,858 |
|
|
6,805 |
|
|
3,017 |
|
|
|
891,807 |
|
|
762,875 |
|
Gross
margin |
|
28.7 |
% |
|
29.2 |
% |
|
36.0 |
% |
|
19.5 |
|
% |
|
28.8 |
% |
|
29.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses (1) |
|
495,710 |
|
|
443,107 |
|
|
6,420 |
|
|
4,320 |
|
|
|
502,130 |
|
|
447,427 |
|
Expenses as
a % of net sales |
|
16.1 |
% |
|
17.0 |
% |
|
34.0 |
% |
|
27.9 |
|
% |
|
16.2 |
% |
|
17.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss) (1) |
|
389,292 |
|
|
316,751 |
|
|
385 |
|
|
(1,303 |
) |
|
|
389,677 |
|
|
315,448 |
|
Operating
margin |
|
12.6 |
% |
|
12.2 |
% |
|
2.0 |
% |
|
(8.4 |
) |
% |
|
12.6 |
% |
|
12.1 |
% |
(1) |
Base business and total include $6.9 million of impairment from
goodwill and other assets. |
We have excluded the following acquisitions from
base business for the periods identified:
Acquired |
|
Acquisition Date |
|
Net Sales Centers
Acquired |
|
Periods Excluded |
Northeastern Swimming Pool Distributors, Inc. (1) |
|
September 2020 |
|
3 |
|
September 2020 |
Master Tile Network LLC (1) |
|
February 2020 |
|
4 |
|
February - September 2020 |
W.W. Adcock, Inc. (1) |
|
January 2019 |
|
4 |
|
January - March 2020 and January - March 2019 |
Turf & Garden, Inc. (1) |
|
November 2018 |
|
4 |
|
January 2020 and January 2019 |
(1) |
We
acquired certain distribution assets of each of these
companies. |
When calculating our base business results, we
exclude sales centers that are acquired, closed or opened in new
markets for a period of 15 months. We also exclude consolidated
sales centers when we do not expect to maintain the majority of the
existing business and existing sales centers that are consolidated
with acquired sales centers.
We generally allocate corporate overhead
expenses to excluded sales centers on the basis of their net sales
as a percentage of total net sales. After 15 months of operations,
we include acquired, consolidated and new market sales centers in
the base business calculation including the comparative prior year
period.
The table below summarizes the changes in our
sales center count in the first nine months of 2020.
December 31, 2019 |
373 |
|
|
Acquired locations |
7 |
|
|
New locations |
3 |
|
|
Closed/consolidated locations |
(2 |
) |
|
September 30, 2020 |
381 |
|
|
Adjusted EBITDA
We define Adjusted EBITDA as net income or net
loss plus interest and other non-operating expenses, income taxes,
depreciation, amortization, share-based compensation, goodwill and
other non-cash impairments and equity earnings or loss in
unconsolidated investments. Adjusted EBITDA is not a
measure of cash flow or liquidity as determined by generally
accepted accounting principles (GAAP). We have included Adjusted
EBITDA as a supplemental disclosure because we believe that it is
widely used by our investors, industry analysts and others as a
useful supplemental liquidity measure in conjunction with cash
flows provided by or used in operating activities to help
investors understand our ability to provide cash flows to fund
growth, service debt, repurchase shares and pay dividends as well
as compare our cash flow generating capacity from year to year.
We believe Adjusted EBITDA should be considered
in addition to, not as a substitute for, operating income or loss,
net income or loss, cash flows provided by or used in operating,
investing and financing activities or other income statement or
cash flow statement line items reported in accordance with GAAP.
Other companies may calculate Adjusted EBITDA differently than we
do, which may limit its usefulness as a comparative measure.
The table below presents a reconciliation of
Adjusted EBITDA to net cash provided by operating activities.
Please see page 6 for our Condensed Consolidated Statements of
Cash Flows.
(Unaudited) |
|
Three Months
Ended |
|
|
Nine Months
Ended |
(in thousands) |
|
September
30, |
|
|
September
30, |
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
Adjusted EBITDA |
$ |
159,310 |
|
|
$ |
115,508 |
|
|
$ |
429,360 |
|
|
$ |
347,065 |
|
|
Add: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other non-operating expenses, net of interest
income |
|
(1,758 |
) |
|
|
(5,390 |
) |
|
|
(8,982 |
) |
|
|
(18,215 |
) |
|
Provision for income taxes |
|
(27,360 |
) |
|
|
(19,593 |
) |
|
|
(73,068 |
) |
|
|
(53,569 |
) |
|
Other |
|
(2,079 |
) |
|
|
2,776 |
|
|
|
1,092 |
|
|
|
5,334 |
|
|
Change in operating assets and liabilities |
|
39,601 |
|
|
|
52,511 |
|
|
|
40,512 |
|
|
|
(37,362 |
) |
Net cash provided by operating activities |
$ |
167,714 |
|
|
$ |
145,812 |
|
|
$ |
388,914 |
|
|
$ |
243,253 |
|
The table below presents a reconciliation of net
income to Adjusted EBITDA.
(Unaudited) |
|
Three Months
Ended |
|
|
Nine Months
Ended |
(in thousands) |
|
September
30, |
|
|
September
30, |
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
Net income |
$ |
119,098 |
|
|
$ |
79,525 |
|
|
$ |
307,565 |
|
|
$ |
243,551 |
|
|
Add: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other non-operating expenses (1) |
|
1,861 |
|
|
|
5,498 |
|
|
|
9,292 |
|
|
|
18,538 |
|
|
Provision for income taxes |
|
27,360 |
|
|
|
19,593 |
|
|
|
73,068 |
|
|
|
53,569 |
|
|
Share-based compensation |
|
3,874 |
|
|
|
3,649 |
|
|
|
11,095 |
|
|
|
10,243 |
|
|
Equity earnings in unconsolidated investments |
|
(86 |
) |
|
|
(76 |
) |
|
|
(248 |
) |
|
|
(210 |
) |
|
Impairment of goodwill and other assets |
|
— |
|
|
|
— |
|
|
|
6,944 |
|
|
|
— |
|
|
Depreciation |
|
6,986 |
|
|
|
7,090 |
|
|
|
20,979 |
|
|
|
20,648 |
|
|
Amortization (2) |
|
217 |
|
|
|
229 |
|
|
|
665 |
|
|
|
726 |
|
Adjusted EBITDA |
$ |
159,310 |
|
|
$ |
115,508 |
|
|
$ |
429,360 |
|
|
$ |
347,065 |
|
(1) |
Shown net of interest income and includes gains and losses on
foreign currency transactions and amortization of deferred
financing costs as discussed below. |
(2) |
Excludes amortization of deferred
financing costs of $103 and $108 for the three months ended
September 30, 2020 and September 30, 2019, respectively, and
$310 and $323 for the nine months ended September 30, 2020 and
September 30, 2019, respectively. This non-cash expense is
included in Interest and other non-operating expenses, net on the
Consolidated Statements of Income. |
2020 Diluted EPS Guidance
We have included adjusted projected 2020 diluted
EPS, a non-GAAP financial measure, in this press release as a
supplemental disclosure to demonstrate the impact of our non-cash
impairment charge recorded in the first quarter of 2020 on our
projected 2020 diluted EPS and provide investors and others with
additional information about our potential future operating
performance. We believe adjusted projected 2020 diluted EPS should
be considered in addition to, not as a substitute for, our
projected 2020 diluted EPS presented in accordance with GAAP, and
in the context of our other forward-looking and cautionary
statements in this press release.
The table below presents a reconciliation of
projected 2020 diluted EPS to adjusted projected 2020 diluted
EPS.
(Unaudited) |
2020 Guidance Range |
|
Floor |
|
Ceiling |
Diluted EPS (1) |
$ |
8.05 |
|
|
$ |
8.35 |
|
After-tax non-cash impairment charges |
0.15 |
|
|
0.15 |
|
Adjusted
Diluted EPS (1) |
$ |
8.20 |
|
|
$ |
8.50 |
|
(1) |
Includes 2020 year-to-date ASU 2016-09 tax benefit of $0.55 per
diluted share and does not include potential additional tax
benefits. |
Adjusted Income Statement
Information
We have included adjusted operating income,
adjusted net income and adjusted diluted EPS, which are non-GAAP
financial measures, in this press release as supplemental
disclosures because we believe these measures are useful to
investors and others in assessing our year-over-year operating
performance. We believe these measures should be considered in
addition to, not as a substitute for, operating income, net income,
and diluted EPS presented in accordance with GAAP, respectively,
and in the context of our other disclosures in this press release.
Other companies may calculate these non-GAAP financial measures
differently than we do, which may limit their usefulness as
comparative measures.
The table below presents a reconciliation of
operating income to adjusted operating income.
(Unaudited) |
Nine Months
Ended |
(in
thousands) |
September 30, |
|
2020 |
Operating income |
$ |
389,677 |
|
Impairment of goodwill and other assets |
6,944 |
|
Adjusted
operating income |
$ |
396,621 |
|
The table below presents a reconciliation of net
income to adjusted net income.
(Unaudited) |
Nine Months
Ended |
(in
thousands) |
September
30, |
|
2020 |
Net income |
$ |
307,565 |
|
Impairment of goodwill and other assets |
6,944 |
|
Tax impact on impairment of long-term note (1) |
(654 |
) |
Adjusted net
income |
$ |
313,855 |
|
(1) |
As
described in our April 23, 2020 earnings release, our effective tax
rate at March 31, 2020 was a 0.1% benefit. Excluding impairment
from goodwill and intangibles and tax benefits from ASU 2016-19
recorded in the first quarter of 2020, our effective tax rate for
the first quarter of 2020 was 25.4%, which we used to calculate the
tax impact related to the $2.5 million long-term note
impairment. |
The table below presents a reconciliation of
diluted EPS to adjusted diluted EPS.
(Unaudited) |
Nine Months
Ended |
|
September
30, |
|
2020 |
|
2019 |
Diluted EPS |
$ |
7.53 |
|
|
$ |
5.97 |
|
After-tax non-cash impairment charges |
0.15 |
|
|
— |
|
Adjusted
diluted EPS excluding after-tax non-cash impairment charges |
7.68 |
|
|
5.97 |
|
Tax benefit |
(0.55 |
) |
|
(0.52 |
) |
Adjusted
diluted EPS excluding after-tax non-cash impairment charges and tax
benefit |
$ |
7.13 |
|
|
$ |
5.45 |
|
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