GlobeNewswire Inc | Oct 22, 2020 07:00AM EDT

October 22, 2020

Highlights

-- Record net sales for Q3 2020 with both overall and base business sales growth of 27% -- Q3 2020 diluted EPS increase of 50% to a record $2.92, or excluding tax benefits in both periods, an increase of 47% to $2.71 -- Record cash provided by operations of $388.9 million, an increase of $145.7 million from the first nine months of 2019 -- 2020 earnings guidance increased to $8.05 - $8.35 per diluted share or $8.20 - $8.50, excluding non-cash impairments recorded in Q1 2020, from previous $6.90 - $7.30 range or $7.05 - $7.45, excluding impairments

COVINGTON, La., Oct. 22, 2020 (GLOBE NEWSWIRE) -- 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 millionin 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 $180.5million in the third quarter of 2020 compared to $153.4million 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 $104.5million 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 $4.5million, or $0.11 per diluted share, realized in the same period of 2019.

Net income increased 50% to $119.1 millionin 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 September30, 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 $6.9million, 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 $389.7million 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 $396.6million. 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 September30, 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 September30, 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 $313.9million. 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 September30, 2019, driven by our September sales growth and partially offset by improved collections. Inventory levels decreased 1% compared to September30, 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 September30, 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 $429.4million and $347.1million for the nine months ended September 30, 2020, and September30, 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 worlds 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 POOLCORPs 2019 Annual Report on Form10-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 2019Net 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 andadministrative 180,465 153,391 495,186 447,427 expensesImpairment ofgoodwill and other ? ? 6,944 ? assetsOperating income 148,233 104,540 389,677 315,448 Percent 13.0 % 11.6 % 12.6 % 12.1 % Interest and othernon-operating 1,861 5,498 9,292 18,538 expenses, netIncome beforeincome taxes and 146,372 99,042 380,385 296,910 equity earningsProvision for 27,360 19,593 73,068 53,569 income taxesEquity earnings inunconsolidated 86 76 248 210 investments, netNet 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 dividendsdeclared per common $ 0.58 $ 0.55 $ 1.71 $ 1.55 share

POOL CORPORATIONCondensed Consolidated Balance Sheets(Unaudited)(In thousands)

September 30, September 30, Change 2020 2019 $ % Assets Current assets: Cash and cash $ 74,749 $ 36,693 $ 38,056 104 % equivalents Receivables, net ^(1) 135,555 95,971 39,584 41 Receivables pledged under receivables 230,857 211,827 19,030 9 facility Product inventories, 612,824 616,217 (3,393 ) (1 ) net^ (2) Prepaid expenses and 12,696 12,384 312 3 other current assetsTotal current assets 1,066,681 973,092 93,589 10 Property and equipment, 109,086 112,816 (3,730 ) (3 ) netGoodwill 199,360 188,133 11,227 6 Other intangible assets, 10,522 11,235 (713 ) (6 ) netEquity interest 1,314 1,237 77 6 investmentsOperating 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? equityCurrent liabilities: Accounts payable $ 268,412 $ 214,309 $ 54,103 25 % Accrued expenses and other current 145,420 81,459 63,961 79 liabilities Short-term borrowings and current portion of 11,709 11,840 (131 ) (1 ) long-term debt Current operating 56,977 56,025 952 2 lease liabilitiesTotal current 482,518 363,633 118,885 33 liabilities Deferred income taxes 29,476 27,951 1,525 5 Long-term debt, net 328,225 535,720 (207,495 ) (39 ) Other long-term 32,846 26,737 6,109 23 liabilitiesNon-current operating 125,023 121,397 3,626 3 lease liabilitiesTotal liabilities 998,088 1,075,438 (77,350 ) (7 ) Total stockholders? 589,501 405,970 183,531 45 equityTotal liabilities and $ 1,587,589 $ 1,481,408 $ 106,181 7 %stockholders? equity

(1) The allowance for doubtful accounts was $5.3 million at September 30, 2020 and $6.2 million at September30, 2019.(2) The inventory reserve was $11.4 million at September 30, 2020 and $9.9 million at September30, 2019.

POOL CORPORATIONCondensed Consolidated Statements of Cash Flows(Unaudited)(In thousands)

Nine Months Ended September 30, 2020 2019 ChangeOperating activities Net income $ 307,565 $ 243,551 $ 64,014 Adjustments to reconcile netincome 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 (248 ) (210 ) (38 ) unconsolidated investments, net Impairment of goodwill and other 6,944 ? 6,944 assets Other 1,092 5,334 (4,242 )Changes in operating assets andliabilities, net of effects of acquisitions: Receivables (135,129 ) (98,538 ) (36,591 ) Product inventories 99,767 68,827 30,940 Prepaid expenses and other 311 1,231 (920 ) assets Accounts payable 3,385 (29,782 ) 33,167 Accrued expenses and other 72,178 20,900 51,278 current liabilitiesNet cash provided by operating 388,914 243,253 145,661 activities Investing activities Acquisition of businesses, net of (24,655 ) (8,913 ) (15,742 )cash acquiredPurchases of property and (16,897 ) (26,926 ) 10,029 equipment, net of sale proceedsNet cash used in investing (41,552 ) (35,839 ) (5,713 )activities Financing activities Proceeds from revolving line of 749,840 836,534 (86,694 )creditPayments on revolving line of (909,637 ) (1,011,430 ) 101,793 creditProceeds from asset-backed 261,700 189,000 72,700 financingPayments on asset-backed financing (266,700 ) (136,300 ) (130,400 )Payments on term facility (6,938 ) ? (6,938 )Proceeds from short-termborrowings and current portion of 13,255 27,633 (14,378 )long-term debtPayments on short-term borrowingsand current portion of long-term (13,291 ) (24,962 ) 11,671 debtPayments of deferred financing (12 ) ? (12 )costsPayments of deferred andcontingent acquisition (281 ) (311 ) 30 considerationProceeds from stock issued under 16,696 17,042 (346 )share-based compensation plansPayments of cash dividends (68,599 ) (61,752 ) (6,847 )Purchases of treasury stock (76,194 ) (23,188 ) (53,006 )Net cash used in financing (300,161 ) (187,734 ) (112,427 )activitiesEffect of exchange rate changes on (1,035 ) 655 (1,690 )cash and cash equivalentsChange in cash and cash 46,166 20,335 25,831 equivalentsCash and cash equivalents at 28,583 16,358 12,225 beginning of periodCash and cash equivalents at end $ 74,749 $ 36,693 $ 38,056 of period

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 Three Months Ended Three Months Ended Three Months Endedthousands) September 30, September 30, September 30, 2020 2019 2020 2019 2020 2019Net sales $ 1,133,608 $ 895,489 $ 5,621 $ 3,011 $ 1,139,229 $ 898,500 Gross 326,692 257,525 2,006 406 328,698 257,931 profitGross 28.8 % 28.8 % 35.7 % 13.5 % 28.9 % 28.7 %margin Operating 178,773 152,630 1,692 761 180,465 153,391 expensesExpenses asa % of net 15.8 % 17.0 % 30.1 % 25.3 % 15.8 % 17.1 %sales Operatingincome 147,919 104,895 314 (355 ) 148,233 104,540 (loss)Operating 13.0 % 11.7 % 5.6 % (11.8 ) % 13.0 % 11.6 %margin

(Unaudited) Base Business Excluded Total(in Nine Months Ended Nine Months Ended Nine Months Endedthousands) September 30, September 30, September 30, 2020 2019 2020 2019 2020 2019Net sales $ 3,078,463 $ 2,601,801 $ 18,899 $ 15,482 $ 3,097,362 $ 2,617,283 Gross 885,002 759,858 6,805 3,017 891,807 762,875 profitGross 28.7 % 29.2 % 36.0 % 19.5 % 28.8 % 29.1 %margin Operatingexpenses ^ 495,710 443,107 6,420 4,320 502,130 447,427 (1)Expenses asa % of net 16.1 % 17.0 % 34.0 % 27.9 % 16.2 % 17.1 %sales Operatingincome 389,292 316,751 385 (1,303 ) 389,677 315,448 (loss) ^(1)Operating 12.6 % 12.2 % 2.0 % (8.4 ) % 12.6 % 12.1 %margin

(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:

NetAcquired Acquisition Sales Periods Date Centers Excluded AcquiredNortheastern Swimming Pool September 3 September 2020Distributors, Inc. ^(1) 2020Master Tile Network LLC ^(1) February 4 February - 2020 September 2020 January - MarchW.W. Adcock, Inc. ^(1) January 4 2020 and 2019 January - March 2019Turf & Garden, Inc. ^(1) November 4 January 2020 and 2018 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 usedin 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 page6 for our Condensed Consolidated Statements of Cash Flows.

(Unaudited) Three Months Ended Nine Months Ended(in thousands) September 30, September 30, 2020 2019 2020 2019Adjusted EBITDA $ 159,310 $ 115,508 $ 429,360 $ 347,065 Add: Interest and other non-operating (1,758 ) (5,390 ) (8,982 ) (18,215 ) expenses, net of interest income Provision for (27,360 ) (19,593 ) (73,068 ) (53,569 ) income taxes Other (2,079 ) 2,776 1,092 5,334 Change in operating 39,601 52,511 40,512 (37,362 ) assets and liabilitiesNet cashprovided by $ 167,714 $ 145,812 $ 388,914 $ 243,253 operatingactivities

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 2019Net income $ 119,098 $ 79,525 $ 307,565 $ 243,551 Add: Interest and other non-operating expenses 1,861 5,498 9,292 18,538 ^(1) Provision for income 27,360 19,593 73,068 53,569 taxes Share-based 3,874 3,649 11,095 10,243 compensation Equity earnings in unconsolidated (86 ) (76 ) (248 ) (210 ) investments Impairment of goodwill ? ? 6,944 ? and other assets 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

Shown net of interest income and includes gains and losses on foreign(1) currency transactions and amortization of deferred financing costs as discussed below. Excludes amortization of deferred financing costs of $103 and $108 for the three months ended September 30, 2020 and September30, 2019,(2) respectively, and $310 and $323 for the nine months ended September 30, 2020 and September30, 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 CeilingDiluted 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, 2020Operating 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, 2020Net 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

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(1) 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 2019Diluted EPS $ 7.53 $ 5.97 After-tax non-cash impairment charges 0.15 ? Adjusted diluted EPS excluding after-tax non-cash impairment 7.68 5.97 chargesTax benefit (0.55 ) (0.52 )Adjusted diluted EPS excluding after-tax non-cash impairment $ 7.13 $ 5.45 charges and tax benefit