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Pool Corporation Reports Record Third Quarter Results and Narrows 2017 Earnings Guidance Range

Highlights

  • Net sales growth of 8% for Q3 2017
  • Q3 2017 diluted EPS increased 13% to $1.16, including an estimated $0.02 negative impact from recent weather events
  • Narrows 2017 earnings guidance range to $4.01 - $4.11 per diluted share, which includes $0.14 in tax benefits realized year to date from new accounting pronouncement

COVINGTON, La., Oct. 19, 2017 (GLOBE NEWSWIRE) -- Pool Corporation (NASDAQ:POOL) today reported record results for the third quarter of 2017.

“Once again, our business performed very well, despite severe weather in certain key markets. I would like to recognize the resiliency of our people in Florida, Texas, Puerto Rico and Mexico for their efforts through Hurricanes Irma, Harvey, Maria and Katia and the devastating earthquake in Mexico, as well as the many employees throughout the company who went out of their way to aid both their fellow co-workers and the needs of our business. While these storms are disruptive in the short term, we believe they will not have a material impact on our operating results for the year. Together with our remaining markets, our team once again produced solid results for the quarter,” said Manuel Perez de la Mesa, President and CEO.

Net sales increased 8% to a record $743.4 million in the third quarter of 2017 compared to $691.4 million in the third quarter of 2016. Base business sales increased 6%. We had one less selling day in the third quarter of 2017 compared to the same period last year, which we believe negatively impacted base business sales growth by approximately 1%. Continued increases in swimming pool repair and remodel activities, including major pool refurbishment and replacement of key pool equipment, led our sales growth. The recent weather events negatively impacted our third quarter 2017 net sales by an estimated $4.0 million.

Gross profit increased 9% to a record $216.6 million in the third quarter of 2017 from $199.6 million in the same period of 2016. Base business gross profit improved 7% over the third quarter of last year. Gross profit as a percentage of net sales (gross margin) was 29.1% for the third quarter of 2017 compared to 28.9% for the third quarter of 2016. Gross margin increased approximately 20 basis points from the third quarter of 2016 reflecting product mix and benefits from sourcing initiatives.

Selling and administrative expenses (operating expenses) increased approximately 7% to $134.7 million in the third quarter of 2017 compared to the third quarter of 2016, with base business operating expenses up 5% over the comparable 2016 period. As a percentage of net sales, base business operating expenses declined to 17.9% for the third quarter versus 18.1% last year.

Operating income for the third quarter increased 10% to a record $81.9 million compared to the same period in 2016. Operating income as a percentage of net sales (operating margin) was 11.0% for the third quarter of 2017 compared to 10.7% for the third quarter of 2016.

During the first quarter of 2017, we adopted Accounting Standards Update (ASU) 2016-09, Improvements to Employee Share-Based Payment Accounting, on a prospective basis. This adoption resulted in a benefit recorded in our provision for income taxes of $7.7 million for the nine months ended September 30, 2017, which positively impacted our net income and earnings per share, but was partially offset by a required increase of approximately 550,000 diluted weighted average shares outstanding used to calculate our diluted earnings per share. The first and second quarter benefit to our diluted earnings per share from the adoption of this new accounting pronouncement was $0.14, and there was no impact in the third quarter of 2017.

Net income attributable to Pool Corporation was $48.8 million in the third quarter of 2017 compared to $44.5 million for the third quarter of 2016. Earnings per share increased 13% to a record $1.16 per diluted share for the three months ended September 30, 2017 versus $1.03 per diluted share for the same period in 2016. Based on the estimated $4.0 million impact on our net sales and $0.5 million in property damages, we believe the recent weather events described above negatively impacted our diluted earnings per share by approximately $0.02 in the third quarter of 2017.

Net sales increased 7% to a record $2,278.0 million for the nine months ended September 30, 2017 from $2,125.6 million in the comparable 2016 period, with much of this growth coming from the 6% improvement in base business sales. Gross margin increased 10 basis points to 29.0% compared to the same period last year.

Operating expenses increased 7% compared to the first nine months of 2016, with base business operating expenses up 5%. Operating income for the first nine months of 2017 increased 9% to $267.1 million compared to $246.1 million in the same period last year.

Net income attributable to Pool Corporation for the nine months ended September 30, 2017 was $166.0 million, including a tax benefit of $7.7 million from the adoption of ASU 2016-09 as discussed above, compared to Net income attributable to Pool Corporation of $146.3 million for the nine months ended September 30, 2016. Earnings per share for the first nine months of 2017, including a favorable $0.14 per diluted share impact from the new accounting pronouncement, increased 15% to a record $3.89 per diluted share versus $3.39 per diluted share for the first nine months of 2016. Excluding the impact from the new accounting pronouncement, diluted earnings per share increased 11% for the period.

On the balance sheet at September 30, 2017, total net receivables, including pledged receivables, increased 13% while inventory levels grew 6% compared to September 30, 2016. Total debt outstanding at September 30, 2017 was $564.6 million, a $174.4 million increase from total debt at September 30, 2016.

Cash provided by operations was $112.0 million for the first nine months of 2017 compared to $143.2 million for the first nine months of 2016. Our prior year operating cash flows benefited by approximately $37.0 million due to third quarter tax payments deferred to the fourth quarter of 2016 as allowed for areas affected by severe storms and flooding in Louisiana. Excluding this timing difference, our increase in cash provided by operations in 2017 reflects our net income growth partially offset by an increase in net working capital. Our cash provided by operations has been positively impacted by the $7.7 million in tax benefits realized in the first nine months of 2017 as part of the adoption of ASU 2016-09. Adjusted EBITDA (as defined in the addendum to this release) was $91.7 million and $83.0 million for the third quarters of 2017 and 2016, respectively, and $295.3 million and $269.9 million for the first nine months of 2017 and 2016, respectively.

“With nine months of the year now completed, we are tightening our 2017 earnings guidance range to $4.01 to $4.11 per diluted share. This updated range includes the $0.14 benefit realized in the first and second quarters due to the adoption of ASU 2016-09. Excluding this benefit, our narrowed 2017 earnings guidance range is $3.87 to $3.97. We are now in the process of transitioning to 2018 as we continue to pursue the many opportunities available for profitable growth in the growing outdoor living industry,” said Perez de la Mesa.

For clarification, we have not included any additional tax benefit in our earnings guidance range for the remainder of the year. We previously included an estimated tax benefit of $0.30 per diluted share from the new ASU for fiscal 2017. Our current earnings guidance range for 2017 includes only the benefit realized year to date. As previously disclosed, the estimated impact of the accounting change related to our adoption of ASU 2016-09 is subject to several assumptions which can vary significantly, including our share price and estimations regarding the timing of when employees will exercise shares of outstanding vested options. As of September 30, 2017, based on our current stock price, we estimate that we have approximately $9.5 million in unrealized excess tax benefits for stock option grants which expire in the first quarter of 2018. These unrealized excess tax benefits will yield an estimated net $0.21 diluted earnings per share benefit when individuals exercise these stock options.

POOLCORP is the world’s largest wholesale distributor of swimming pool and related backyard products. As of September 30, 2017, POOLCORP operated 346 sales centers in North America, Europe, South America and Australia, through which it distributes more than 160,000 national brand and private label products to roughly 100,000 wholesale customers. For more information, please visit www.poolcorp.com.

This news release includes “forward-looking” statements that involve risk and uncertainties that are generally identifiable through the use of words such as “believe,” “expect,” “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 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 2016 Annual Report on Form 10-K filed with the Securities and Exchange Commission.

CONTACT:
Curtis J. Scheel
Director of Investor Relations
985.801.5341
curtis.scheel@poolcorp.com



POOL CORPORATION
Consolidated Statements of Income
(Unaudited)
(In thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Net sales$743,401 $691,429 $2,278,005 $2,125,568
Cost of sales526,795 491,878 1,618,114 1,512,258
Gross profit216,606 199,551 659,891 613,310
Percent29.1% 28.9% 29.0% 28.9%
Selling and administrative expenses134,678 125,385 392,779 367,194
Operating income81,928 74,166 267,112 246,116
Percent11.0% 10.7% 11.7% 11.6%
Interest and other non-operating expenses, net4,009 2,989 11,608 9,954
Income before income taxes and equity earnings77,919 71,177 255,504 236,162
Provision for income taxes (1)29,179 26,807 89,951 90,244
Equity earnings in unconsolidated investments, net43 51 121 113
Net income48,783 44,421 165,674 146,031
Net loss attributable to noncontrolling interest 113 294 309
Net income attributable to Pool Corporation$48,783 $44,534 $165,968 $146,340
Earnings per share:
Basic$1.20 $1.06 $4.04 $3.48
Diluted$1.16 $1.03 $3.89 $3.39
Weighted average shares outstanding:
Basic40,659 42,020 41,065 42,092
Diluted42,207 43,119 42,691 43,201
Cash dividends declared per common share$0.37 $0.31 $1.05 $0.88

(1) Upon adoption of ASU 2016-09, we were required to recognize all excess tax benefits or deficiencies related to share-based compensation as a component of our income tax provision on our Consolidated Statements of Income, rather than a component of stockholders’ equity on our Condensed Consolidated Balance Sheets. We adopted this guidance during the first quarter of 2017 on a prospective basis, and as such, our prior year presentation has not changed.



POOL CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands)
September 30, September 30, Change
2017 2016 $ %
Assets
Current assets:
Cash and cash equivalents$36,398 $30,292 $6,106 20 %
Receivables, net (1) 90,142 81,072 9,070 11
Receivables pledged under receivables facility 172,654 152,333 20,321 13
Product inventories, net (2) 484,287 455,156 29,131 6
Prepaid expenses and other current assets 14,832 12,084 2,748 23
Deferred income taxes (3) 5,288 (5,288) (100)
Total current assets 798,313 736,225 62,088 8
Property and equipment, net 103,880 84,643 19,237 23
Goodwill 189,024 185,486 3,538 2
Other intangible assets, net 13,206 13,645 (439) (3)
Equity interest investments 1,168 1,152 16 1
Other assets (3) 16,333 16,370 (37)
Total assets$1,121,924 $1,037,521 $84,403 8 %
Liabilities, redeemable noncontrolling interest and stockholders’ equity
Current liabilities:
Accounts payable$209,062 $199,922 $9,140 5 %
Accrued expenses and other current liabilities (3) 87,887 126,654 (38,767) (31)
Short-term borrowings and current portion of long-term debt and other long-term liabilities 8,609 1,298 7,311 NM
Total current liabilities 305,558 327,874 (22,316) (7)
Deferred income taxes (3) 27,244 28,359 (1,115) (4)
Long-term debt, net 555,964 388,891 167,073 43
Other long-term liabilities 22,614 17,945 4,669 26
Total liabilities 911,380 763,069 148,311 19
Redeemable noncontrolling interest 2,467 (2,467) (100)
Total stockholders’ equity 210,544 271,985 (61,441) (23)
Total liabilities, redeemable noncontrolling interest and stockholders’ equity$1,121,924 $1,037,521 $84,403 8 %

(1) The allowance for doubtful accounts was $4.1 million at September 30, 2017 and $3.7 million at September 30, 2016.
(2) The inventory reserve was $7.8 million at September 30, 2017 and $8.1 million at September 30, 2016.
(3) Upon adoption of ASU 2015-17, Balance Sheet Classification of Deferred Taxes, we were required to reclassify all of our deferred tax assets and liabilities as noncurrent on our Condensed Consolidated Balance Sheets. We adopted this guidance on a prospective basis, and as such, our prior year balances or classifications have not changed.


POOL CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Nine Months Ended
September 30,
2017 2016 Change
Operating activities
Net income$165,674 $146,031 $19,643
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation 17,947 15,020 2,927
Amortization 1,132 1,288 (156)
Share-based compensation 9,496 7,373 2,123
Excess tax benefits from share-based compensation (1) (6,582) 6,582
Equity earnings in unconsolidated investments, net (121) (113) (8)
Other 1,074 3,799 (2,725)
Changes in operating assets and liabilities, net of effects of acquisitions:
Receivables (90,204) (71,936) (18,268)
Product inventories 9,057 23,624 (14,567)
Prepaid expenses and other assets (1,523) (1,094) (429)
Accounts payable (27,328) (49,479) 22,151
Accrued expenses and other current liabilities 26,816 75,239 (48,423)
Net cash provided by operating activities 112,020 143,170 (31,150)
Investing activities
Acquisition of businesses, net of cash acquired (6,879) (19,314) 12,435
Purchases of property and equipment, net of sale proceeds (37,709) (30,388) (7,321)
Payments to fund credit agreement (3,852) 3,852
Collections from credit agreement 3,300 (3,300)
Other investments, net 4 21 (17)
Net cash used in investing activities (44,584) (50,233) 5,649
Financing activities
Proceeds from revolving line of credit 918,338 873,854 44,484
Payments on revolving line of credit (857,609) (866,801) 9,192
Proceeds from asset-backed financing 156,600 145,000 11,600
Payments on asset-backed financing (97,800) (90,000) (7,800)
Proceeds from short-term borrowings, long-term debt and other long-term liabilities 25,001 15,705 9,296
Payments on short-term borrowings, long-term debt and other long-term liabilities (17,497) (16,107) (1,390)
Payments of deferred financing costs (909) (909)
Payments of deferred and contingent acquisition consideration (199) (199)
Purchase of redeemable noncontrolling interest (2,573) (2,573)
Excess tax benefits from share-based compensation (1) 6,582 (6,582)
Proceeds from stock issued under share-based compensation plans 8,647 10,978 (2,331)
Payments of cash dividends (43,165) (37,007) (6,158)
Purchases of treasury stock (141,580) (117,901) (23,679)
Net cash used in financing activities (52,746) (75,697) 22,951
Effect of exchange rate changes on cash and cash equivalents (248) (185) (63)
Change in cash and cash equivalents 14,442 17,055 (2,613)
Cash and cash equivalents at beginning of period 21,956 13,237 8,719
Cash and cash equivalents at end of period$36,398 $30,292 $6,106

(1) Upon adoption of ASU 2016-09, the excess tax benefit from share-based compensation is no longer reclassified out of operating income tax cash flows and no longer reported as a financing activity. We adopted this guidance on a prospective basis, and as such, our prior year presentation has not changed.


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 BusinessExcludedTotal
(in thousands)Three Months EndedThree Months EndedThree Months Ended
September 30,September 30,September 30,
2017 2016 2017 2016 2017 2016
Net sales$734,175 $691,204 $9,226 $225 $743,401 $691,429
Gross profit213,788 199,455 2,818 96 216,606 199,551
Gross margin29.1% 28.9% 30.5% 42.7% 29.1% 28.9%
Operating expenses131,066 125,225 3,612 160 134,678 125,385
Expenses as a % of net sales17.9% 18.1% 39.2% 71.1% 18.1% 18.1%
Operating income (loss)82,722 74,230 (794) (64) 81,928 74,166
Operating margin11.3% 10.7% (8.6)% (28.4)% 11.0% 10.7%


(Unaudited)Base BusinessExcludedTotal
(in thousands)Nine Months EndedNine Months EndedNine Months Ended
September 30,September 30,September 30,
2017 2016 2017 2016 2017 2016
Net sales$2,246,446 $2,116,393 $31,559 $9,175 $2,278,005 $2,125,568
Gross profit650,419 610,454 9,472 2,856 659,891 613,310
Gross margin29.0% 28.8% 30.0% 31.1% 29.0% 28.9%
Operating expenses383,636 365,287 9,143 1,907 392,779 367,194
Expenses as a % of net sales17.1% 17.3% 29.0% 20.8% 17.2% 17.3%
Operating income266,783 245,167 329 949 267,112 246,116
Operating margin11.9% 11.6% 1.0% 10.3% 11.7% 11.6%

We have excluded the following acquisitions from base business for the periods identified:



Acquired

Acquisition
Date
Net
Sales Centers
Acquired
Periods
Excluded
New Star Holdings Pty Ltd July 2017 1 July - September 2017
Lincoln Aquatics (1) April 2017 2 May - September 2017
Metro Irrigation Supply Company Ltd. (1) April 2016 8 January - June 2017 and
April - June 2016
The Melton Corporation (1) November 2015 2 January 2017 and January 2016
Seaboard Industries, Inc. (1) October 2015 3 January 2017 and January 2016

(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 2017.

December 31, 2016344
Acquired locations3
New location1
Closed locations(2)
September 30, 2017346

Adjusted EBITDA

We define Adjusted EBITDA as net income or net loss plus interest expense, 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 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 net income to Adjusted EBITDA.

(Unaudited) Three Months Ended Nine Months Ended
(In thousands) September 30, September 30,
2017 2016 2017 2016
Net income$48,783 $44,421 $165,674 $146,031
Add:
Interest and other non-operating expenses (1) 4,009 2,989 11,608 9,954
Provision for income taxes 29,179 26,807 89,951 90,244
Share-based compensation 3,197 2,523 9,496 7,373
Goodwill impairment 613 613
Equity earnings in unconsolidated investments (43) (51) (121) (113)
Depreciation 6,330 5,277 17,947 15,020
Amortization (2) 253 418 724 796
Adjusted EBITDA$91,708 $82,997 $295,279 $269,918

(1) Shown net of interest income and includes amortization of deferred financing costs as discussed below.
(2) Excludes amortization of deferred financing costs of $136 and $135 for the three months ended September 30, 2017 and September 30, 2016, respectively and $408 and $492 for the nine months ended September 30, 2017 and September 30, 2016, respectively.

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,
2017 2016 2017 2016
Adjusted EBITDA$91,708 $82,997 $295,279 $269,918
Add:
Interest and other non-operating expenses, net of interest income (3,873) (2,854) (11,200) (9,462)
Provision for income taxes (29,179) (26,807) (89,951) (90,244)
Excess tax benefits from share-based compensation (3,379) (6,582)
Other (1,048) 916 1,074 3,186
Change in operating assets and liabilities 95,758 106,054 (83,182) (23,646)
Net cash provided by operating activities$153,366 $156,927 $112,020 $143,170


Source:Pool Corporation