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| 8-K - POOL Q1 2018 EARNINGS RELEASE FORM 8-K - POOL CORP | poolq1-18erform8xk.htm |
Exhibit 99.1
FOR IMMEDIATE RELEASE
POOL CORPORATION REPORTS RECORD FIRST QUARTER RESULTS
Highlights
• | Net sales growth of 7% for Q1 2018 with 5% growth in base business sales |
• | Q1 2018 diluted EPS increase of 44% to $0.75, including tax benefits |
• | Updates 2018 earnings guidance range to $5.45 - $5.70 per diluted share from $5.36 - $5.61 to reflect $0.09 of additional tax benefit from ASU 2016-09 |
______________________
COVINGTON, LA. (April 19, 2018) – Pool Corporation (NASDAQ/GSM:POOL) today reported record results for the first quarter of 2018.
“Following a strong finish to 2017, we are poised for continued solid growth in 2018 as consumer demand for outdoor living products remains high. We generated record sales and income in the first quarter of 2018 despite inclement weather in Texas and seasonal markets, which resulted in a slower than expected start to the 2018 swimming pool season. Pools are opening later than in 2017 in seasonal markets, and remodeling and new pool construction activity has been delayed. We believe that the industry has a strong backlog due to pool owner demand for pool upgrades and remodeling, and we expect deferred sales related to pool openings to shift to the second quarter,” said Manuel Perez de la Mesa, President and CEO.
Net sales increased 7% to a record $585.9 million in the first quarter of 2018 compared to $546.4 million in the first quarter of 2017, with base business sales up 5%. Strong demand in our year-round markets for discretionary products, like heaters and lighting, led our sales growth in the first quarter of 2018. We estimate unfavorable weather conditions impacted our first quarter net sales by approximately $10 million.
Gross profit increased 8% to a record $166.1 million in the first quarter of 2018 from $153.6 million in the same period of 2017. Base business gross profit improved 6% over the first quarter of last year. Gross profit as a percentage of net sales (gross margin) was 28.3% for the first quarter of 2018 compared to 28.1% for the first quarter of 2017, reflecting minor product mix differences.
Selling and administrative expenses (operating expenses) increased approximately 8% to $132.5 million in the first quarter of 2018 compared to the first quarter of 2017, with base business operating expenses up 5% over the comparable 2017 period. Higher labor, technology, freight and employee-related insurance costs, partially offset by lower performance-based compensation expenses, contributed to this increase with operating expenses related to acquisitions being a larger than normal factor in the quarter.
Operating income for the first quarter increased 8% to a record $33.5 million compared to the same period in 2017. Operating income as a percentage of net sales (operating margin) was 5.7% for both the first quarters of 2018 and 2017. Base business operating income increased 11% and base business operating margin improved 40 basis points compared to the first quarter of 2017. Acquired businesses contributed a $1.3 million seasonal operating loss in the quarter.
Both Accounting Standards Update (ASU) 2016-09, Improvements to Employee Share-Based Payment Accounting, which we adopted on January 1, 2017, and U.S. tax reform enacted in December 2017 impacted our income tax provision for the first quarter of 2018. We recorded a $9.0 million benefit from ASU 2016-09 for the three months ended March 31, 2018, which was $3.6 million or $0.09 per diluted share more than we had previously expected, and also up compared to $5.5 million realized in the same period last year. Our effective tax rate was (4.3)% and 18.7% for the first quarters of 2018 and 2017, respectively, and 25.7% and 38.8%, excluding the benefit from ASU 2016-09. Going forward, primarily due to the impact of tax reform, we expect our annual effective tax rate (excluding the benefit from ASU 2016-09) to approximate 25.5%, which is a reduction compared to our historical rate of approximately 38.5%.
Net income attributable to Pool Corporation was $31.3 million in the first quarter of 2018 compared to $22.3 million for the first quarter of 2017. Earnings per share increased 44% to a record $0.75 per diluted share for the three months ended March 31, 2018 versus $0.52 per diluted share for the same period in 2017. The benefit from ASU 2016-09 increased diluted earnings per share by $0.22 in the first quarter of 2018 and $0.12 in the first quarter of 2017. Excluding the impact from ASU 2016-09, earnings per diluted share increased 33% to a record $0.53 for the first quarter of 2018 compared to $0.40 for the first quarter of 2017. Acquired businesses contributed a seasonal $0.03 loss per diluted share in the quarter.
On the balance sheet at March 31, 2018, total net receivables, including pledged receivables, increased 8% while inventory levels grew 9% compared to March 31, 2017. Total debt outstanding at March 31, 2018 was $568.1 million, a $77.9 million increase from total debt at March 31, 2017.
Cash used in operations was $44.1 million for the first three months of 2018 compared to $32.4 million for the first three months of 2017, with the greater cash usage reflecting earlier payment of certain inventory purchases. Adjusted EBITDA (as defined in the addendum to this release) was $43.4 million and $39.8 million for the first quarters of 2018 and 2017, respectively.
“As a result of the additional tax benefits realized from ASU 2016-09 in the first quarter, we are updating our earnings guidance range to $5.45 to $5.70 from $5.36 to $5.61 per diluted share. Other than the additional $0.09 per diluted share tax benefit, our earnings expectations for 2018 remain unchanged. We are fortunate to participate in a great industry with strong long-term growth characteristics and our team is ready to serve our customers to help them realize success in making outdoor living come to life,” said Perez de la Mesa.
We have not projected any additional tax benefit for ASU 2016-09 in our earnings guidance range for the remainder of the year. Our current earnings guidance range for 2018 includes only the benefit realized as of March 31, 2018.
POOLCORP is the world’s largest wholesale distributor of swimming pool and related backyard products. As of March 31, 2018, POOLCORP operated 354 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 2017 Annual Report on Form 10-K filed with the Securities and Exchange Commission. In addition, this press release includes forward-looking statements and estimates regarding the effects of the Tax Cuts and Jobs Act, which are based on our current interpretation of this legislation and on reasonable estimates and may change as a result of new guidance issued by regulators or changes in our estimates.
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, | ||||||||
2018 | 2017 | |||||||
Net sales | $ | 585,900 | $ | 546,441 | ||||
Cost of sales | 419,827 | 392,820 | ||||||
Gross profit | 166,073 | 153,621 | ||||||
Percent | 28.3 | % | 28.1 | % | ||||
Selling and administrative expenses | 132,532 | 122,623 | ||||||
Operating income | 33,541 | 30,998 | ||||||
Percent | 5.7 | % | 5.7 | % | ||||
Interest and other non-operating expenses, net | 3,527 | 3,647 | ||||||
Income before income taxes and equity earnings | 30,014 | 27,351 | ||||||
(Benefit) provision for income taxes | (1,279 | ) | 5,119 | |||||
Equity earnings in unconsolidated investments, net | 46 | 38 | ||||||
Net income | 31,339 | 22,270 | ||||||
Net loss attributable to noncontrolling interest | — | 11 | ||||||
Net income attributable to Pool Corporation | $ | 31,339 | $ | 22,281 | ||||
Earnings per share: | ||||||||
Basic | $ | 0.78 | $ | 0.54 | ||||
Diluted | $ | 0.75 | $ | 0.52 | ||||
Weighted average shares outstanding: | ||||||||
Basic | 40,370 | 41,192 | ||||||
Diluted | 41,862 | 42,877 | ||||||
Cash dividends declared per common share | $ | 0.37 | $ | 0.31 | ||||
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POOL CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands)
March 31, | March 31, | Change | ||||||||||||||
2018 | 2017 | $ | % | |||||||||||||
Assets | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 8,803 | $ | 13,409 | $ | (4,606 | ) | (34 | ) | % | ||||||
Receivables, net (1) | 75,889 | 61,264 | 14,625 | 24 | ||||||||||||
Receivables pledged under receivables facility | 238,707 | 228,755 | 9,952 | 4 | ||||||||||||
Product inventories, net (2) | 703,793 | 647,884 | 55,909 | 9 | ||||||||||||
Prepaid expenses and other current assets | 23,714 | 15,740 | 7,974 | 51 | ||||||||||||
Total current assets | 1,050,906 | 967,052 | 83,854 | 9 | ||||||||||||
Property and equipment, net | 109,310 | 97,140 | 12,170 | 13 | ||||||||||||
Goodwill | 189,759 | 185,062 | 4,697 | 3 | ||||||||||||
Other intangible assets, net | 12,926 | 13,172 | (246 | ) | (2 | ) | ||||||||||
Equity interest investments | 1,150 | 1,174 | (24 | ) | (2 | ) | ||||||||||
Other assets | 15,615 | 17,269 | (1,654 | ) | (10 | ) | ||||||||||
Total assets | $ | 1,379,666 | $ | 1,280,869 | $ | 98,797 | 8 | % | ||||||||
Liabilities, redeemable noncontrolling interest and stockholders’ equity | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 467,795 | $ | 465,928 | $ | 1,867 | — | % | ||||||||
Accrued expenses and other current liabilities | 45,504 | 48,982 | (3,478 | ) | (7 | ) | ||||||||||
Short-term borrowings and current portion of long-term debt | 20,786 | 9,775 | 11,011 | 113 | ||||||||||||
Total current liabilities | 534,085 | 524,685 | 9,400 | 2 | ||||||||||||
Deferred income taxes | 24,947 | 29,234 | (4,287 | ) | (15 | ) | ||||||||||
Long-term debt, net | 547,324 | 480,442 | 66,882 | 14 | ||||||||||||
Other long-term liabilities | 23,525 | 21,430 | 2,095 | 10 | ||||||||||||
Total liabilities | 1,129,881 | 1,055,791 | 74,090 | 7 | ||||||||||||
Redeemable noncontrolling interest | — | 2,424 | (2,424 | ) | (100 | ) | ||||||||||
Total stockholders’ equity | 249,785 | 222,654 | 27,131 | 12 | ||||||||||||
Total liabilities, redeemable noncontrolling interest and stockholders’ equity | $ | 1,379,666 | $ | 1,280,869 | $ | 98,797 | 8 | % | ||||||||
(1) | The allowance for doubtful accounts was $4.0 million at March 31, 2018 and $4.2 million at March 31, 2017. |
(2) | The inventory reserve was $7.4 million at March 31, 2018 and $7.3 million at March 31, 2017. |
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POOL CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Three Months Ended | |||||||||||||
March 31, | |||||||||||||
2018 | 2017 | Change | |||||||||||
Operating activities | |||||||||||||
Net income | $ | 31,339 | $ | 22,270 | $ | 9,069 | |||||||
Adjustments to reconcile net income to cash used in operating activities: | |||||||||||||
Depreciation | 6,299 | 5,557 | 742 | ||||||||||
Amortization | 470 | 365 | 105 | ||||||||||
Share-based compensation | 3,321 | 3,003 | 318 | ||||||||||
Equity earnings in unconsolidated investments, net | (46 | ) | (38 | ) | (8 | ) | |||||||
Other | 681 | 1,847 | (1,166 | ) | |||||||||
Changes in operating assets and liabilities, net of effects of acquisitions: | |||||||||||||
Receivables | (117,377 | ) | (123,515 | ) | 6,138 | ||||||||
Product inventories | (168,518 | ) | (161,668 | ) | (6,850 | ) | |||||||
Prepaid expenses and other assets | (3,843 | ) | (2,617 | ) | (1,226 | ) | |||||||
Accounts payable | 222,285 | 234,581 | (12,296 | ) | |||||||||
Accrued expenses and other current liabilities | (18,760 | ) | (12,209 | ) | (6,551 | ) | |||||||
Net cash used in operating activities | (44,149 | ) | (32,424 | ) | (11,725 | ) | |||||||
Investing activities | |||||||||||||
Acquisition of businesses, net of cash acquired | (578 | ) | — | (578 | ) | ||||||||
Purchases of property and equipment, net of sale proceeds | (14,639 | ) | (19,121 | ) | 4,482 | ||||||||
Other investments, net | — | 2 | (2 | ) | |||||||||
Net cash used in investing activities | (15,217 | ) | (19,119 | ) | 3,902 | ||||||||
Financing activities | |||||||||||||
Proceeds from revolving line of credit | 148,335 | 213,189 | (64,854 | ) | |||||||||
Payments on revolving line of credit | (170,012 | ) | (206,319 | ) | 36,307 | ||||||||
Proceeds from asset-backed financing | 80,000 | 55,000 | 25,000 | ||||||||||
Payments on asset-backed financing | (20,000 | ) | (18,500 | ) | (1,500 | ) | |||||||
Proceeds from short-term borrowings and current portion of long-term debt | 10,798 | 11,441 | (643 | ) | |||||||||
Payments on short-term borrowings and current portion of long-term debt | (848 | ) | (2,771 | ) | 1,923 | ||||||||
Payments of deferred financing costs | (8 | ) | — | (8 | ) | ||||||||
Payments of deferred and contingent acquisition consideration | (265 | ) | (199 | ) | (66 | ) | |||||||
Proceeds from stock issued under share-based compensation plans | 7,808 | 6,149 | 1,659 | ||||||||||
Payments of cash dividends | (15,011 | ) | (12,799 | ) | (2,212 | ) | |||||||
Purchases of treasury stock | (2,592 | ) | (2,725 | ) | 133 | ||||||||
Net cash provided by financing activities | 38,205 | 42,466 | (4,261 | ) | |||||||||
Effect of exchange rate changes on cash and cash equivalents | 24 | 530 | (506 | ) | |||||||||
Change in cash and cash equivalents | (21,137 | ) | (8,547 | ) | (12,590 | ) | |||||||
Cash and cash equivalents at beginning of period | 29,940 | 21,956 | 7,984 | ||||||||||
Cash and cash equivalents at end of period | $ | 8,803 | $ | 13,409 | $ | (4,606 | ) | ||||||
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, | ||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||
Net sales | $ | 575,110 | $ | 545,484 | $ | 10,790 | $ | 957 | $ | 585,900 | $ | 546,441 | ||||||||||||
Gross profit | 162,975 | 153,416 | 3,098 | 205 | 166,073 | 153,621 | ||||||||||||||||||
Gross margin | 28.3 | % | 28.1 | % | 28.7 | % | 21.4 | % | 28.3 | % | 28.1 | % | ||||||||||||
Operating expenses | 128,123 | 122,084 | 4,409 | 539 | 132,532 | 122,623 | ||||||||||||||||||
Expenses as a % of net sales | 22.3 | % | 22.4 | % | 40.9 | % | 56.3 | % | 22.6 | % | 22.4 | % | ||||||||||||
Operating income (loss) | 34,852 | 31,332 | (1,311 | ) | (334 | ) | 33,541 | 30,998 | ||||||||||||||||
Operating margin | 6.1 | % | 5.7 | % | (12.2 | )% | (34.9 | )% | 5.7 | % | 5.7 | % | ||||||||||||
We have excluded the following acquisitions from base business for the periods identified:
Acquired | Acquisition Date | Net Sales Centers Acquired | Periods Excluded | |||
Tore Pty. Ltd. (Pool Power) (1) | January 2018 | 1 | January - March 2018 | |||
Chem Quip, Inc. (1) | December 2017 | 5 | January - March 2018 | |||
Intermark | December 2017 | 1 | January - March 2018 | |||
E-Grupa | October 2017 | 1 | January - March 2018 | |||
New Star Holdings Pty. Ltd. (Newline) | July 2017 | 1 | January - March 2018 | |||
Lincoln Aquatics (1) | April 2017 | 1 | January - March 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 2018.
December 31, 2017 | 351 | ||
Acquired location | 1 | ||
New locations | 3 | ||
Consolidated location | (1 | ) | |
March 31, 2018 | 354 | ||
6
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 | ||||||||
(In thousands) | March 31, | ||||||||
2018 | 2017 | ||||||||
Net income | $ | 31,339 | $ | 22,270 | |||||
Add: | |||||||||
Interest and other non-operating expenses (1) | 3,527 | 3,647 | |||||||
(Benefit) provision for income taxes | (1,279 | ) | 5,119 | ||||||
Share-based compensation | 3,321 | 3,003 | |||||||
Equity earnings in unconsolidated investments | (46 | ) | (38 | ) | |||||
Depreciation | 6,299 | 5,557 | |||||||
Amortization (2) | 276 | 229 | |||||||
Adjusted EBITDA | $ | 43,437 | $ | 39,787 | |||||
(1) | Shown net of interest income and includes amortization of deferred financing costs as discussed below. |
(2) | Excludes amortization of deferred financing costs of $194 and $136 for the three months ended March 31, 2018 and March 31, 2017. |
The table below presents a reconciliation of Adjusted EBITDA to net cash used in operating activities. Please see page 5 for our Condensed Consolidated Statements of Cash Flows.
(Unaudited) | Three Months Ended | ||||||||
(In thousands) | March 31, | ||||||||
2018 | 2017 | ||||||||
Adjusted EBITDA | $ | 43,437 | $ | 39,787 | |||||
Add: | |||||||||
Interest and other non-operating expenses, net of interest income | (3,333 | ) | (3,511 | ) | |||||
(Benefit) provision for income taxes | 1,279 | (5,119 | ) | ||||||
Other | 681 | 1,847 | |||||||
Change in operating assets and liabilities | (86,213 | ) | (65,428 | ) | |||||
Net cash used in operating activities | $ | (44,149 | ) | $ | (32,424 | ) | |||
7