EX-99.1 2 pool-q12019xer.htm POOL Q1 2019 EARNINGS RELEASE Exhibit
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Exhibit 99.1

FOR IMMEDIATE RELEASE

POOL CORPORATION REPORTS RECORD FIRST QUARTER RESULTS

Highlights

•
Net sales growth of 2% for Q1 2019, with 1% growth in base business sales
•
Gross margin growth of 90 basis points and operating income growth of 14%
•
Q1 2019 diluted EPS increase of 7% to $0.80 or an increase of 11% to $0.59, excluding tax benefits
•
Updates 2019 earnings guidance range to $6.09 - $6.39 per diluted share from previous $6.05 - $6.35 range
______________________

COVINGTON, LA. (April 18, 2019) – Pool Corporation (NASDAQ/GSM:POOL) today reported record results for the first quarter of 2019.
“I am pleased to report a solid first quarter of 2019 despite wetter and cooler conditions throughout most of the quarter in some of our major markets. Our team’s strong execution, coupled with modest top line growth, delivered favorable results in the quarter,” said Peter D. Arvan, President and CEO.
Net sales increased 2% to a record $597.5 million in the first quarter of 2019 compared to $585.9 million in the first quarter of 2018, while base business sales grew 1%. Cooler and wetter weather, particularly in the western US, combined with a later Easter holiday impacted first quarter sales. Pool openings and normal spring early buys from customers in seasonal markets are influenced by the timing of the Easter holiday. In addition, sales were negatively impacted approximately 2% by the loss of a selling day compared to the first quarter of 2018 and 1% from unfavorable currency exchange rates.
Gross profit increased 5% to a record $174.6 million in the first quarter of 2019 from $166.1 million in the same period of 2018. Base business gross profit improved 4% over the first quarter of 2018, including a negative currency exchange impact of 1%. Gross margin increased 90 basis points to 29.2% in the first quarter of 2019 compared to 28.3% in the first quarter of 2018, reflecting benefits from our strategic inventory purchases in 2018 and lower customer early buys.
Selling and administrative expenses (operating expenses) increased 3% to $136.2 million in the first quarter of 2019 compared to the first quarter of 2018. Base business operating expenses were up 1% over the comparable 2018 period including a 1% currency benefit. As a percentage of net sales, base business operating expenses increased to 22.6% in the first quarter of 2019 compared to 22.5% in the first quarter of 2018.
Operating income for the first quarter of 2019 increased to a record $38.4 million, up 14% compared to the same period in 2018. Operating margin was 6.4% in the first quarter of 2019 and 5.7% in the same period in 2018, while base business operating margin improved 90 basis points from the prior year to 6.7% in the first quarter of 2019.
We recorded an $8.8 million tax benefit from Accounting Standards Update (ASU) 2016-09, Improvements to Employee Share-Based Payment Accounting, in the quarter ended March 31, 2019 compared to a tax benefit of $9.0 million realized in the same period of 2018.
Net income was $32.6 million in the first quarter of 2019 compared to $31.3 million in the first quarter of 2018. Earnings per share increased 7% to a record $0.80 per diluted share in the three months ended March 31, 2019 compared to $0.75 per diluted share in the same period of 2018. The benefit from ASU 2016-09 increased diluted earnings per share by $0.21 and $0.22 in the first quarters of 2019 and 2018, respectively. Excluding the impact from ASU 2016-09 in both periods, earnings per diluted share increased 11% to $0.59 in the first quarter of 2019 compared to $0.53 in the first quarter of 2018.


1



On the balance sheet at March 31, 2019, total net receivables, including pledged receivables, remained flat, while inventory levels grew 16% compared to March 31, 2018. The growth in inventory reflects strategic inventory purchases made in the second half of 2018 in advance of greater than normal vendor price increases, inventory from acquired businesses of $18.8 million and normal business growth as well as the slower start to the season. Total debt outstanding was $699.0 million at March 31, 2019, a $130.9 million increase from total debt at March 31, 2018.
Cash provided by operations was $28.8 million in the first three months of 2019 compared to $44.1 million used in operations in the first three months of 2018, an improvement of $72.9 million. The increase in cash provided by operations primarily relates to payments for pre-price increase inventory purchases in 2018 ahead of the 2019 season. Adjusted EBITDA (as defined in the addendum to this release) was $48.6 million and $43.4 million in the first quarters of 2019 and 2018, respectively. Interest expense increased compared to last year primarily due to higher debt levels and higher interest rates.
“As a result of the additional tax benefits realized from ASU 2016-09 in the first quarter, we are updating our earnings guidance to a range of $6.09 to $6.39 from $6.05 to $6.35 per diluted share. Other than the additional $0.04 per diluted share tax benefit, our earnings expectation for 2019 remains unchanged. Looking forward to the second quarter, we’re excited about the many opportunities to continue to provide exceptional service to our customers as we head into the heart of the swimming pool season,” said Arvan.
POOLCORP is the world’s largest wholesale distributor of swimming pool and related backyard products. As of March 31, 2019, POOLCORP operates 369 sales centers in North America, Europe, South America and Australia, through which it distributes more than 180,000 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,” “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 2018 Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) as updated by POOLCORP’s subsequent filings with the SEC.

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

2


POOL CORPORATION
Consolidated Statements of Income
(Unaudited)
(In thousands, except per share data)

 
Three Months Ended
 
March 31,
 
2019
 
2018
Net sales
$
597,456

 
$
585,900

Cost of sales
422,825

 
419,827

Gross profit
174,631

 
166,073

Percent
29.2
%
 
28.3
%
 
 
 
 
Selling and administrative expenses
136,245

 
132,532

Operating income
38,386

 
33,541

Percent
6.4
%
 
5.7
%
 
 
 
 
Interest and other non-operating expenses, net
6,616

 
3,527

Income before income taxes and equity earnings
31,770

 
30,014

Income tax benefit
(802
)
 
(1,279
)
Equity earnings in unconsolidated investments, net
65

 
46

Net income
$
32,637

 
$
31,339

 
 
 
 
Earnings per share:
 
 
 
Basic
$
0.83

 
$
0.78

Diluted
$
0.80

 
$
0.75

Weighted average shares outstanding:
 
 
 
Basic
39,479

 
40,370

Diluted
40,696

 
41,862

 
 
 
 
Cash dividends declared per common share
$
0.45

 
$
0.37







3


POOL CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands)

 
 
 
March 31,
 
 
March 31,
 
 
Change
 
 
 
 
2019
 
 
2018
 
 
$
 
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
28,581

 
$
8,803

 
$
19,778

 
225

%
 
Receivables, net (1)
 
72,352

 
 
75,889

 
 
(3,537
)
 
(5
)
 
 
Receivables pledged under receivables facility
 
240,775

 
 
238,707

 
 
2,068

 
1

 
 
Product inventories, net (2)
 
815,742

 
 
703,793

 
 
111,949

 
16

 
 
Prepaid expenses and other current assets (5)
 
16,116

 
 
23,714

 
 
(7,598
)
 
(32
)
 
Total current assets
 
1,173,566

 
 
1,050,906

 
 
122,660

 
12

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Property and equipment, net
 
107,690

 
 
109,310

 
 
(1,620
)
 
(1
)
 
Goodwill
 
188,478

 
 
189,759

 
 
(1,281
)
 
(1
)
 
Other intangible assets, net
 
11,744

 
 
12,926

 
 
(1,182
)
 
(9
)
 
Equity interest investments
 
1,200

 
 
1,150

 
 
50

 
4

 
Operating lease assets (3),(4),(5)
 
177,293

 
 
—

 
 
177,293

 
100

 
Other assets
 
18,379

 
 
15,615

 
 
2,764

 
18

 
Total assets
$
1,678,350

 
$
1,379,666

 
$
298,684

 
22

%
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and stockholders’ equity
 
 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Accounts payable (4)
$
472,487

 
$
467,795

 
$
4,692

 
1

%
 
Accrued expenses and other current liabilities
 
47,658

 
 
45,504

 
 
2,154

 
5

 
 
Short-term borrowings and current portion of long-term debt
 
21,734

 
 
20,786

 
 
948

 
5

 
 
Current operating lease liabilities (3)
 
55,744

 
 
—

 
 
55,744

 
100

 
Total current liabilities
 
597,623

 
 
534,085

 
 
63,538

 
12

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred income taxes
 
29,368

 
 
24,947

 
 
4,421

 
18

 
Long-term debt, net
 
677,243

 
 
547,324

 
 
129,919

 
24

 
Other long-term liabilities
 
26,469

 
 
23,525

 
 
2,944

 
13

 
Non-current operating lease liabilities (3)
 
122,770

 
 
—

 
 
122,770

 
100

 
Total liabilities
 
1,453,473

 
 
1,129,881

 
 
323,592

 
29

 
Total stockholders’ equity
 
224,877

 
 
249,785

 
 
(24,908
)
 
(10
)
 
Total liabilities and stockholders’ equity
$
1,678,350

 
$
1,379,666

 
$
298,684

 
22

%

(1) 
The allowance for doubtful accounts was $5.6 million at March 31, 2019 and $4.0 million at March 31, 2018.
(2) 
The inventory reserve was $8.5 million at March 31, 2019 and $7.4 million at March 31, 2018.
(3) 
We adopted ASU 2016-02, Leases (Topic 842), on January 1, 2019. Upon adoption, we recorded operating lease assets and operating lease liabilities based on the present value of future lease obligations. We applied the practical expedient available in this guidance, which does not require the restatement of prior year balances.
(4) 
Due to ASU 2016-02, our straight-line rent liability of $5.1 million, reported in Accounts payable under previous accounting guidance, offsets our Operating lease assets as of March 31, 2019.
(5) 
As of March 31, 2019, we presented pre-paid rent of $4.7 million in Operating lease assets as required under the new guidance (presented in Prepaid expenses and other current assets as of March 31, 2018).

4


POOL CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
 
 
Three Months Ended
 
 
 
 
 
 
March 31,
 
 
 
 
 
 
2019
 
 
2018
 
 
Change
 
Operating activities
 
 
 
 
 
 
 
 
 
Net income
$
32,637

 
$
31,339

 
$
1,298

 
Adjustments to reconcile net income to net cash provided by (used in) operating activities
 
 
 
 
 
 
 
 
 
 
Depreciation
 
6,649

 
 
6,299

 
 
350

 
 
Amortization
 
375

 
 
470

 
 
(95
)
 
 
Share-based compensation
 
3,259

 
 
3,321

 
 
(62
)
 
 
Equity earnings in unconsolidated investments, net
 
(65
)
 
 
(46
)
 
 
(19
)
 
 
Other
 
512

 
 
681

 
 
(169
)
 
Changes in operating assets and liabilities, net of effects of acquisitions:
 
 
 
 
 
 
 
 
 
 
Receivables
 
(103,122
)
 
 
(117,377
)
 
 
14,255

 
 
Product inventories
 
(128,206
)
 
 
(168,518
)
 
 
40,312

 
 
Prepaid expenses and other assets
 
(1,427
)
 
 
(3,843
)
 
 
2,416

 
 
Accounts payable
 
230,030

 
 
222,285

 
 
7,745

 
 
Accrued expenses and other current liabilities
 
(11,838
)
 
 
(18,760
)
 
 
6,922

 
Net cash provided by (used in) operating activities
 
28,804

 
 
(44,149
)
 
 
72,953

 
 
 
 
 
 
 
 
 
 
 
Investing activities
 
 
 
 
 
 
 
 
 
Acquisition of businesses, net of cash acquired
 
(9,370
)
 
 
(578
)
 
 
(8,792
)
 
Purchases of property and equipment, net of sale proceeds
 
(6,739
)
 
 
(14,639
)
 
 
7,900

 
Net cash used in investing activities
 
(16,109
)
 
 
(15,217
)
 
 
(892
)
 
 
 
 
 
 
 
 
 
 
 
Financing activities
 
 
 
 
 
 
 
 
 
Proceeds from revolving line of credit
 
206,190

 
 
148,335

 
 
57,855

 
Payments on revolving line of credit
 
(253,249
)
 
 
(170,012
)
 
 
(83,237
)
 
Proceeds from asset-backed financing
 
80,100

 
 
80,000

 
 
100

 
Payments on asset-backed financing
 
(13,500
)
 
 
(20,000
)
 
 
6,500

 
Proceeds from short-term borrowings and current portion of long-term debt
 
13,713

 
 
10,798

 
 
2,915

 
Payments on short-term borrowings and current portion of long-term debt
 
(1,148
)
 
 
(848
)
 
 
(300
)
 
Payments of deferred financing costs
 
—

 
 
(8
)
 
 
8

 
Payments of deferred and contingent acquisition consideration
 
(311
)
 
 
(265
)
 
 
(46
)
 
Proceeds from stock issued under share-based compensation plans
 
7,071

 
 
7,808

 
 
(737
)
 
Payments of cash dividends
 
(17,819
)
 
 
(15,011
)
 
 
(2,808
)
 
Purchases of treasury stock
 
(23,097
)
 
 
(2,592
)
 
 
(20,505
)
 
Net cash (used in) provided by financing activities
 
(2,050
)
 
 
38,205

 
 
(40,255
)
 
Effect of exchange rate changes on cash and cash equivalents
 
1,578

 
 
24

 
 
1,554

 
Change in cash and cash equivalents
 
12,223

 
 
(21,137
)
 
 
33,360

 
Cash and cash equivalents at beginning of period
 
16,358

 
 
29,940

 
 
(13,582
)
 
Cash and cash equivalents at end of period
$
28,581

 
$
8,803

 
$
19,778

 


5


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
 
March 31,
March 31,
March 31,
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
Net sales
$
587,320

 
$
582,822

 
$
10,136

 
$
3,078

 
$
597,456

 
$
585,900

 
 
 
 
 
 
 
 
 
 
 
 
Gross profit
171,706

 
165,334

 
2,925

 
739

 
174,631

 
166,073

Gross margin
29.2
%
 
28.4
%
 
28.9
 %
 
24.0
 %
 
29.2
%
 
28.3
%
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses
132,548

 
131,250

 
3,697

 
1,282

 
136,245

 
132,532

Expenses as a % of net sales
22.6
%
 
22.5
%
 
36.5
 %
 
41.7
 %
 
22.8
%
 
22.6
%
 
 
 
 
 
 
 
 
 
 
 
 
Operating income (loss)
39,158

 
34,084

 
(772
)
 
(543
)
 
38,386

 
33,541

Operating margin
6.7
%
 
5.8
%
 
(7.6
)%
 
(17.6
)%
 
6.4
%
 
5.7
%
We have excluded the following acquisitions from base business for the periods identified:



Acquired
 

Acquisition
Date
 
Net
Sales Centers
Acquired
 

Periods
Excluded
W.W. Adcock, Inc. (1)
 
January 2019
 
4
 
January - March 2019
Turf & Garden, Inc. (1)
 
November 2018
 
4
 
January - March 2019
Tore Pty. Ltd. (Pool Power) (1)
 
January 2018
 
1
 
January - March 2019 and
January - March 2018
Chem Quip, Inc. (1)
 
December 2017
 
5
 
January - March 2019 and January - March 2018
Intermark
 
December 2017
 
1
 
January - February 2019 and January - February 2018
(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 three months of 2019.
December 31, 2018
364

 
Acquired locations
4

 
New locations
2

 
Consolidated location
(1
)
 
March 31, 2019
369

 

6


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 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
(in thousands)
 
March 31,
 
 
 
2019
 
 
2018
Net income
$
32,637

 
$
31,339

 
Add:
 
 
 
 
 
 
Interest and other non-operating expenses (1)
 
6,616

 
 
3,527

 
Income tax benefit
 
(802
)
 
 
(1,279
)
 
Share-based compensation
 
3,259

 
 
3,321

 
Equity earnings in unconsolidated investments
 
(65
)
 
 
(46
)
 
Depreciation
 
6,649

 
 
6,299

 
Amortization (2)
 
267

 
 
276

Adjusted EBITDA
$
48,561

 
$
43,437

(1) 
Shown net of interest income and includes amortization of deferred financing costs as discussed below.
(2) 
Excludes amortization of deferred financing costs of $108 and $194 for the three months ended March 31, 2019 and March 31, 2018, respectively.

The table below presents a reconciliation of Adjusted EBITDA to net cash provided by (used in) operating activities. Please see page 5 for our Condensed Consolidated Statements of Cash Flows.
(Unaudited)
 
Three Months Ended
(in thousands)
 
March 31,
 
 
 
2019
 
 
2018
Adjusted EBITDA
$
48,561

 
$
43,437

 
Add:
 
 
 
 
 
 
Interest and other non-operating expenses, net of interest income
 
(6,508
)
 
 
(3,333
)
 
Income tax benefit
 
802

 
 
1,279

 
Other
 
512

 
 
681

 
Change in operating assets and liabilities
 
(14,563
)
 
 
(86,213
)
Net cash provided by (used in) operating activities
$
28,804

 
$
(44,149
)

7