Pool Corporation (Nasdaq/GSM:POOL) today announced fourth quarter
and full year 2020 results.
“As the pandemic forced families to spend more
time at home in 2020, they sought out opportunities to create or
expand existing home-based outdoor living and entertainment spaces.
This created unprecedented demand throughout our markets. Our scale
and execution, combined with favorable weather conditions, drove
truly remarkable results for the year, including an exceptionally
strong fourth quarter. I am extremely proud of the outstanding
efforts of the POOLCORP team, whose commitment to our customers,
while maintaining a safe environment for fellow employees and our
communities under very challenging conditions, is second to none,”
commented Peter D. Arvan, president and CEO.
Net sales increased 23% to a record high of $3.9
billion for the year ended December 31, 2020 compared to $3.2
billion in 2019, while base business sales increased 22%. We
realized broad sales gains across nearly all product categories.
Our sales benefited from greater swimming pool usage and high
demand for residential pool products, which was driven by
home-centric trends influenced by the COVID-19 pandemic and aided
by warmer weather conditions during the year.
Gross profit reached a record $1.1 billion for
the year ended December 31, 2020, a 22% increase over gross
profit of $924.9 million in 2019. Gross margin declined 20 basis
points to 28.7% in 2020 compared to 28.9% in 2019. The decline in
gross margin is primarily due to sales of lower margin, big-ticket
items, such as pool equipment and in-ground and above-ground pools,
which comprised a larger portion of our product mix in 2020
compared to 2019.
Selling and administrative expenses (operating
expenses) increased 14%, or $83.2 million, to $666.9 million in
2020, up from $583.7 million in 2019, with base business operating
expenses up 12% over 2019. Over half of the increase in operating
expenses, or $43.9 million, reflects higher performance-based
compensation earned by employees in 2020, while another 20% of the
increase, or $16.9 million, came from acquired businesses.
Excluding $6.9 million of impairment charges we recorded in
the first quarter of 2020 and performance-based compensation in
both periods, operating expenses increased 6%, reflecting
growth-driven labor and freight expenses and greater
facility-related costs partially offset by lower discretionary
spending. As a result of strong expense control and our ability to
leverage our existing network, operating expenses as a percentage
of net sales declined 130 basis points to 16.9% in 2020 compared to
18.2% in 2019.
Operating income for the year increased 36% to
$464.0 million, up from $341.2 million in 2019. Adjusted operating
income, excluding non-cash impairments, increased 38% from the
prior year to $471.0 million. See the reconciliation of GAAP to
non-GAAP measures below and in the addendum of this release.
Operating margin increased 110 basis points to 11.8% in 2020
compared to 10.7% in 2019.
We recorded a $28.6 million, or $0.70 per
diluted share, benefit from Accounting Standards Update (ASU)
2016-09, Improvements to Employee Share-Based Payment Accounting,
for the year ended December 31, 2020 compared to a
benefit of $23.5 million, or $0.57 per diluted share, realized
in 2019.
Net income increased 40% to a record $366.7
million in 2020 compared to $261.6 million in 2019. Adjusted net
income, excluding the $6.3 million, or $0.15 per diluted share,
impact of non-cash impairments, net of tax, increased 43% to $373.0
million. Earnings per share increased 40% to a record $8.97 per
diluted share compared to $6.40 per diluted share in 2019.
Excluding the impact of non-cash impairments, net of tax, in 2020
and the impact from ASU 2016-09 in both periods, adjusted diluted
earnings per share increased 44% to $8.42 in 2020 compared to $5.83
in 2019. Adjusted EBITDA (as defined in the addendum to this
release) increased 34% to $512.7 million in 2020 compared to $382.2
million in 2019 and was 13.0% of net sales in 2020 compared to
11.9% of net sales in 2019.
On the balance sheet at December 31, 2020,
total net receivables, including pledged receivables, increased 28%
compared to 2019, driven by our December sales growth and partially
offset by improved collections. Inventory levels increased 11% to
$781.0 million compared to $702.3 million in 2019, reflecting
normal inventory growth and $42.2 million of inventory from
recently acquired businesses. Accrued expenses and other current
liabilities increased $82.9 million to $143.7 million in 2020,
primarily reflecting increases in accrued performance-based
compensation, unrealized losses on interest rate swaps and deferred
payroll tax payments. Total debt outstanding decreased $95.4
million, or 19%, compared to last year’s balance, as we have
utilized our operating cash flows to decrease debt balances.
Cash provided by operations was $397.6 million
in 2020 compared to $298.8 million in 2019, an improvement of
$98.8 million. The improvement in cash provided by operations
primarily reflects an increase in net income and accrued expenses
and other current liabilities, which was partially offset by
year-over-year increases in our accounts receivables and inventory
balances. Our return on invested capital (as defined in the
addendum to this release) for 2020 was 39.2% compared to 29.3% in
2019.
Net sales increased 44% to $839.3 million in the
fourth quarter of 2020 compared to $582.2 million in the fourth
quarter of 2019. Sales in the fourth quarter of 2020 benefited from
continued stay-at-home trends, favorable weather nationwide and
acquisitions. Acquisitions added 4% to sales growth in the quarter.
Gross margin increased 70 basis points to 28.5% in the fourth
quarter of 2020 from 27.8% in the fourth quarter of 2019 with
increased purchase volumes driving improvements in supply chain
management.
Operating expenses increased 21% to $164.7
million in the fourth quarter of 2020 compared to $136.3 million in
the fourth quarter of 2019, primarily reflecting higher
performance-based compensation earned by employees and expenses
from recently acquired businesses. As a percentage of net sales,
operating expenses decreased to 19.6% in the fourth quarter of 2020
compared to 23.4% in the same period of 2019.
Operating income in the fourth quarter of 2020
increased 188% to $74.4 million compared to $25.8 million in the
same period of 2019. Operating margin increased 450 basis points in
the fourth quarter. We recorded a $6.0 million benefit from
ASU 2016-09, or $0.15 per diluted share, in the fourth quarter of
2020 compared to a benefit of $2.4 million, or $0.06
per diluted share, realized in the fourth quarter of 2019. Net
income in the fourth quarter of 2020 was $59.2 million compared to
$18.0 million in the comparable 2019 period. Earnings per diluted
share increased 230% to $1.45 in the fourth quarter of 2020
compared to $0.44 for the same period in 2019. Excluding the impact
from ASU 2016-09 in both periods, earnings per diluted share
increased 242% to $1.30 compared to $0.38 for the same period in
2019.
“We expect the benefits from our investments in
capacity creation and our most recent acquisitions, along with new
sales center openings, will contribute to solid growth in
2021. Long-term demand within our industry remains
strong, and we believe results in 2021 will continue to benefit
from robust consumer interest in outdoor living. Building on the
momentum that we gained in 2020, our guidance range assumes strong
growth in the first half of the year. In the second half of the
year, we expect to face tougher year-over-year comparisons and
inherent industry capacity constraints, although we remain
encouraged by positive industry outlooks. We project
earnings for 2021 will grow on top of the incredible results
delivered in 2020 and be in the range of $9.12 to $9.62 per diluted
share, including an estimated $0.11 favorable impact from ASU
2016-09,” said Arvan.
(Unaudited) |
|
|
2021 Guidance Range |
|
2020 |
|
Floor |
|
Ceiling |
Diluted EPS |
$ |
8.97 |
|
|
$ |
9.12 |
|
|
$ |
9.62 |
|
After-tax non-cash impairment
charges |
0.15 |
|
|
— |
|
|
— |
|
ASU 2016-09 tax benefit |
(0.70 |
) |
|
(0.11 |
) |
|
(0.11 |
) |
Adjusted Diluted EPS |
$ |
8.42 |
|
|
$ |
9.01 |
|
|
$ |
9.51 |
|
Year-over-year growth |
|
|
7 |
% |
|
13 |
% |
Based on our December 31, 2020 stock price,
we estimate that we have approximately $4.5 million in unrealized
excess tax benefits related to stock options that will expire and
restricted stock awards that will vest in the first quarter of
2021, adding $0.11 in diluted earnings per share in that period. We
have included the estimated first quarter benefit in our annual
earnings guidance; however, additional tax benefits could be
recognized related to stock option exercises in 2021 from grants
that expire in years after 2021, for which we have not included any
expected benefits.
POOLCORP is the world’s largest wholesale
distributor of swimming pool and related backyard products. As of
December 31, 2020, POOLCORP operates 398 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 and the extent to which home-centric trends will
continue, accelerate or reverse; 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; our ability to continue to execute our growth
strategies; 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) as updated by POOLCORP’s subsequent filings with
the SEC.
Curtis J. ScheelDirector of Investor
Relations985.801.5341curtis.scheel@poolcorp.com
POOL
CORPORATIONConsolidated Statements of
Income (In thousands, except per share data)
|
Three Months Ended |
|
Year Ended |
|
|
December 31, |
|
December 31, |
|
|
2020 |
|
2019 |
|
2020 |
|
2019 (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
$ |
839,261 |
|
|
$ |
582,234 |
|
|
$ |
3,936,623 |
|
|
$ |
3,199,517 |
|
|
Cost of sales |
600,166 |
|
|
420,184 |
|
|
2,805,721 |
|
|
2,274,592 |
|
|
Gross profit |
239,095 |
|
|
162,050 |
|
|
1,130,902 |
|
|
924,925 |
|
|
Percent |
28.5 |
|
% |
27.8 |
|
% |
28.7 |
|
% |
28.9 |
|
% |
|
|
|
|
|
|
|
|
|
Selling and administrative
expenses |
164,744 |
|
|
136,252 |
|
|
659,931 |
|
|
583,679 |
|
|
Impairment of goodwill and
other assets |
— |
|
|
— |
|
|
6,944 |
|
|
— |
|
|
Operating income |
74,351 |
|
|
25,798 |
|
|
464,027 |
|
|
341,246 |
|
|
Percent |
8.9 |
|
% |
4.4 |
|
% |
11.8 |
|
% |
10.7 |
|
% |
|
|
|
|
|
|
|
|
|
Interest and other
non-operating expenses, net |
3,061 |
|
|
5,234 |
|
|
12,353 |
|
|
23,772 |
|
|
Income before income taxes and
equity earnings |
71,290 |
|
|
20,564 |
|
|
451,674 |
|
|
317,474 |
|
|
Provision for income
taxes |
12,163 |
|
|
2,592 |
|
|
85,231 |
|
|
56,161 |
|
|
Equity earnings in
unconsolidated investments, net |
47 |
|
|
52 |
|
|
295 |
|
|
262 |
|
|
Net income |
$ |
59,174 |
|
|
$ |
18,024 |
|
|
$ |
366,738 |
|
|
$ |
261,575 |
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
Basic |
$ |
1.47 |
|
|
$ |
0.45 |
|
|
$ |
9.14 |
|
|
$ |
6.57 |
|
|
Diluted |
$ |
1.45 |
|
|
$ |
0.44 |
|
|
$ |
8.97 |
|
|
$ |
6.40 |
|
|
Weighted average shares
outstanding: |
|
|
|
|
|
|
|
|
Basic |
40,202 |
|
|
40,047 |
|
|
40,106 |
|
|
39,833 |
|
|
Diluted |
40,873 |
|
|
40,952 |
|
|
40,865 |
|
|
40,865 |
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per
common share |
$ |
0.58 |
|
|
$ |
0.55 |
|
|
$ |
2.29 |
|
|
$ |
2.10 |
|
|
(1) Derived from audited financial statements.
POOL
CORPORATIONCondensed Consolidated Balance
Sheets(In thousands)
|
December 31, |
|
December 31, |
|
Change |
|
2020 |
|
2019 (1) |
|
$ |
|
% |
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
34,128 |
|
|
$ |
28,583 |
|
|
$ |
5,545 |
|
|
19 |
% |
Receivables, net (2) |
122,252 |
|
|
76,648 |
|
|
45,604 |
|
|
59 |
|
Receivables pledged under receivables facility |
166,948 |
|
|
149,891 |
|
|
17,057 |
|
|
11 |
|
Product inventories, net (3) |
780,989 |
|
|
702,274 |
|
|
78,715 |
|
|
11 |
|
Prepaid expenses and other current assets |
17,610 |
|
|
16,172 |
|
|
1,438 |
|
|
9 |
|
Total current assets |
1,121,927 |
|
|
973,568 |
|
|
148,359 |
|
|
15 |
|
|
|
|
|
|
|
|
|
Property and equipment,
net |
108,241 |
|
|
112,246 |
|
|
(4,005 |
) |
|
(4 |
) |
Goodwill |
268,167 |
|
|
188,596 |
|
|
79,571 |
|
|
42 |
|
Other intangible assets,
net |
12,181 |
|
|
11,038 |
|
|
1,143 |
|
|
10 |
|
Equity interest
investments |
1,292 |
|
|
1,227 |
|
|
65 |
|
|
5 |
|
Operating lease assets |
205,875 |
|
|
176,689 |
|
|
29,186 |
|
|
17 |
|
Other assets |
21,987 |
|
|
19,902 |
|
|
2,085 |
|
|
10 |
|
Total
assets |
$ |
1,739,670 |
|
|
$ |
1,483,266 |
|
|
$ |
256,404 |
|
|
17 |
% |
|
|
|
|
|
|
|
|
Liabilities and
stockholders’ equity |
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
Accounts payable |
$ |
266,753 |
|
|
$ |
261,963 |
|
|
$ |
4,790 |
|
|
2 |
% |
Accrued expenses and other current liabilities |
143,694 |
|
|
60,813 |
|
|
82,881 |
|
|
136 |
|
Short-term borrowings and current portion of long-term debt |
11,869 |
|
|
11,745 |
|
|
124 |
|
|
1 |
|
Current operating lease liabilities |
60,933 |
|
|
56,325 |
|
|
4,608 |
|
|
8 |
|
Total current liabilities |
483,249 |
|
|
390,846 |
|
|
92,403 |
|
|
24 |
|
|
|
|
|
|
|
|
|
Deferred income taxes |
27,653 |
|
|
32,598 |
|
|
(4,945 |
) |
|
(15 |
) |
Long-term debt, net |
404,149 |
|
|
499,662 |
|
|
(95,513 |
) |
|
(19 |
) |
Other long-term liabilities |
38,261 |
|
|
27,970 |
|
|
10,291 |
|
|
37 |
|
Non-current operating lease
liabilities |
146,888 |
|
|
122,010 |
|
|
24,878 |
|
|
20 |
|
Total liabilities |
1,100,200 |
|
|
1,073,086 |
|
|
27,114 |
|
|
3 |
|
Total stockholders’
equity |
639,470 |
|
|
410,180 |
|
|
229,290 |
|
|
56 |
|
Total liabilities and
stockholders’ equity |
$ |
1,739,670 |
|
|
$ |
1,483,266 |
|
|
$ |
256,404 |
|
|
17 |
% |
(1) Derived from audited financial
statements.
(2) The allowance for doubtful accounts was
$4.8 million at December 31, 2020 and $5.5 million at
December 31, 2019.
(3) The inventory reserve was $11.4 million at
December 31, 2020 and $9.0 million at December 31,
2019.
POOL
CORPORATIONCondensed Consolidated Statements of
Cash Flows(In thousands)
|
Year Ended |
|
|
|
December 31, |
|
|
|
2020 |
|
2019 (1) |
|
Change |
Operating
activities |
|
|
|
|
|
Net income |
$ |
366,738 |
|
|
$ |
261,575 |
|
|
$ |
105,163 |
|
Adjustments to reconcile net
income to net cash provided by operating activities: |
|
|
|
|
|
Depreciation |
27,967 |
|
|
27,885 |
|
|
82 |
|
Amortization |
1,431 |
|
|
1,389 |
|
|
42 |
|
Share-based compensation |
14,516 |
|
|
13,472 |
|
|
1,044 |
|
Equity earnings in unconsolidated investments, net |
(295 |
) |
|
(262 |
) |
|
(33 |
) |
Net losses on foreign currency transactions |
1,748 |
|
|
1,347 |
|
|
401 |
|
Impairment of goodwill and other assets |
6,944 |
|
|
— |
|
|
6,944 |
|
Other |
(396 |
) |
|
7,551 |
|
|
(7,947 |
) |
Changes in operating assets
and liabilities, net of effects of acquisitions: |
|
|
|
|
|
Receivables |
(38,688 |
) |
|
(15,691 |
) |
|
(22,997 |
) |
Product inventories |
(42,447 |
) |
|
(14,165 |
) |
|
(28,282 |
) |
Prepaid expenses and other assets |
(13,744 |
) |
|
(4,218 |
) |
|
(9,526 |
) |
Accounts payable |
(9,212 |
) |
|
16,860 |
|
|
(26,072 |
) |
Accrued expenses and other current liabilities |
83,019 |
|
|
3,033 |
|
|
79,986 |
|
Net cash provided by operating
activities |
397,581 |
|
|
298,776 |
|
|
98,805 |
|
|
|
|
|
|
|
Investing
activities |
|
|
|
|
|
Acquisition of businesses, net
of cash acquired |
(124,587 |
) |
|
(8,901 |
) |
|
(115,686 |
) |
Purchase of property and
equipment, net of sale proceeds |
(21,702 |
) |
|
(33,362 |
) |
|
11,660 |
|
Net cash used in investing
activities |
(146,289 |
) |
|
(42,263 |
) |
|
(104,026 |
) |
|
|
|
|
|
|
Financing
activities |
|
|
|
|
|
Proceeds from revolving line
of credit |
1,053,968 |
|
|
1,066,529 |
|
|
(12,561 |
) |
Payments on revolving line of
credit |
(1,145,616 |
) |
|
(1,415,988 |
) |
|
270,372 |
|
Proceeds from asset-backed
financing |
326,700 |
|
|
189,000 |
|
|
137,700 |
|
Payments on asset-backed
financing |
(321,700 |
) |
|
(182,500 |
) |
|
(139,200 |
) |
Proceeds from term
facility |
— |
|
|
185,000 |
|
|
(185,000 |
) |
Payments on term facility |
(9,250 |
) |
|
— |
|
|
(9,250 |
) |
Proceeds from short-term
borrowings and current portion of long-term debt |
13,822 |
|
|
30,863 |
|
|
(17,041 |
) |
Payments on short-term
borrowings and current portion of long-term debt |
(13,698 |
) |
|
(28,286 |
) |
|
14,588 |
|
Payments of deferred
acquisition consideration |
(281 |
) |
|
(312 |
) |
|
31 |
|
Payments of deferred financing
costs |
(12 |
) |
|
(406 |
) |
|
394 |
|
Proceeds from stock issued
under share-based compensation plans |
19,824 |
|
|
18,574 |
|
|
1,250 |
|
Payments of cash
dividends |
(91,929 |
) |
|
(83,772 |
) |
|
(8,157 |
) |
Purchases of treasury
stock |
(76,199 |
) |
|
(23,188 |
) |
|
(53,011 |
) |
Net cash used in financing
activities |
(244,371 |
) |
|
(244,486 |
) |
|
115 |
|
Effect of exchange rate
changes on cash and cash equivalents |
(1,376 |
) |
|
198 |
|
|
(1,574 |
) |
Change in cash and cash
equivalents |
5,545 |
|
|
12,225 |
|
|
(6,680 |
) |
Cash and cash equivalents at
beginning of period |
28,583 |
|
|
16,358 |
|
|
12,225 |
|
Cash and cash equivalents at
end of period |
$ |
34,128 |
|
|
$ |
28,583 |
|
|
$ |
5,545 |
|
(1) Derived from audited financial statements.
ADDENDUM
Base Business
The following tables break out our consolidated results into the
base business component and the excluded components (sales centers
excluded from base business):
(Unaudited) |
Base Business |
|
Excluded |
|
Total |
(in thousands) |
Three Months Ended |
|
Three Months Ended |
|
Three Months Ended |
|
December 31, |
|
December 31, |
|
December 31, |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Net sales |
$ |
807,156 |
|
|
$ |
581,817 |
|
|
$ |
32,105 |
|
|
$ |
417 |
|
|
$ |
839,261 |
|
|
$ |
582,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
232,247 |
|
|
162,312 |
|
|
6,848 |
|
|
(262 |
) |
|
239,095 |
|
|
162,050 |
|
Gross margin |
28.8 |
% |
|
27.9 |
% |
|
21.3 |
% |
|
(62.8 |
)% |
|
28.5 |
% |
|
27.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
154,335 |
|
|
136,004 |
|
|
10,409 |
|
|
248 |
|
|
164,744 |
|
|
136,252 |
|
Expenses as a % of net
sales |
19.1 |
% |
|
23.4 |
% |
|
32.4 |
% |
|
59.5 |
% |
|
19.6 |
% |
|
23.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
77,912 |
|
|
26,308 |
|
|
(3,561 |
) |
|
(510 |
) |
|
74,351 |
|
|
25,798 |
|
Operating margin |
9.7 |
% |
|
4.5 |
% |
|
(11.1 |
)% |
|
(122.3 |
)% |
|
8.9 |
% |
|
4.4 |
% |
(Unaudited) |
Base Business |
|
Excluded |
|
Total |
(in thousands) |
Year Ended |
|
Year Ended |
|
Year Ended |
|
December 31, |
|
December 31, |
|
December 31, |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Net sales |
$ |
3,886,079 |
|
|
$ |
3,183,940 |
|
|
$ |
50,544 |
|
|
$ |
15,577 |
|
|
$ |
3,936,623 |
|
|
$ |
3,199,517 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
1,117,303 |
|
|
922,193 |
|
|
13,599 |
|
|
2,732 |
|
|
1,130,902 |
|
|
924,925 |
|
Gross margin |
28.8 |
% |
|
29.0 |
% |
|
26.9 |
% |
|
17.5 |
% |
|
28.7 |
% |
|
28.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses (1) |
650,020 |
|
|
579,068 |
|
|
16,855 |
|
|
4,611 |
|
|
666,875 |
|
|
583,679 |
|
Expenses as a % of net
sales |
16.7 |
% |
|
18.2 |
% |
|
33.3 |
% |
|
29.6 |
% |
|
16.9 |
% |
|
18.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
(1) |
467,283 |
|
|
343,125 |
|
|
(3,256 |
) |
|
(1,879 |
) |
|
464,027 |
|
|
341,246 |
|
Operating margin |
12.0 |
% |
|
10.8 |
% |
|
(6.4 |
)% |
|
(12.1 |
)% |
|
11.8 |
% |
|
10.7 |
% |
(1) Base business and
total include $6.9 million of impairment from goodwill and other
assets.
We have excluded the results of the following
acquisitions from base business for the periods identified:
Acquired |
|
AcquisitionDate |
|
NetSales Centers
Acquired |
|
PeriodsExcluded |
TWC Distributors, Inc. (1) |
|
December 2020 |
|
10 |
|
December 2020 |
Jet Line Products, Inc. |
|
October 2020 |
|
9 |
|
October - December 2020 |
Northeastern Swimming Pool
Distributors, Inc. (1) |
|
September 2020 |
|
2 |
|
September - December 2020 |
Master Tile Network LLC
(1) |
|
February 2020 |
|
4 |
|
February - December 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 centers
during 2020.
December 31, 2019 |
373 |
|
Acquired locations |
25 |
|
New locations |
3 |
|
Closed/consolidated locations |
(3 |
) |
December 31, 2020 |
398 |
|
Adjusted EBITDA
We define Adjusted EBITDA as net income or net
loss plus interest and other non-operating expense, income taxes,
depreciation, amortization, share-based compensation, goodwill and
other non-cash impairments and equity earnings or losses 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) |
Year Ended December 31, |
(in thousands) |
2020 |
|
2019 |
|
|
|
|
Adjusted EBITDA |
$ |
512,738 |
|
|
$ |
382,212 |
|
Add: |
|
|
|
Interest and other non-operating expenses, net of interest income
(1) |
(10,206 |
) |
|
(21,992 |
) |
Provision for income taxes |
(85,231 |
) |
|
(56,161 |
) |
Net losses on foreign currency transactions |
1,748 |
|
|
1,347 |
|
Other |
(396 |
) |
|
7,551 |
|
Change in operating assets and liabilities |
(21,072 |
) |
|
(14,181 |
) |
Net cash provided by operating
activities |
$ |
397,581 |
|
|
$ |
298,776 |
|
(1) Shown net of net losses on
foreign currency transactions and excludes amortization of deferred
financing costs as discussed below.
The table below presents a reconciliation of net
income to Adjusted EBITDA.
(Unaudited) |
Year Ended December 31, |
(in thousands) |
2020 |
|
2019 |
|
|
|
|
Net income |
$ |
366,738 |
|
|
$ |
261,575 |
|
Add: |
|
|
|
Interest and other non-operating expenses (1) |
10,605 |
|
|
22,425 |
|
Provision for income taxes |
85,231 |
|
|
56,161 |
|
Share-based compensation |
14,516 |
|
|
13,472 |
|
Equity earnings in unconsolidated investments, net |
(295 |
) |
|
(262 |
) |
Impairment of goodwill and other assets |
6,944 |
|
|
— |
|
Depreciation |
27,967 |
|
|
27,885 |
|
Amortization (2) |
1,032 |
|
|
956 |
|
Adjusted EBITDA |
$ |
512,738 |
|
|
$ |
382,212 |
|
(1) Shown net of interest income and net losses
on foreign currency transactions and includes amortization of
deferred financing costs as discussed below.
(2) Excludes amortization of deferred financing
costs of $399 for 2020 and $433 for 2019. This non-cash expense is
included in Interest and other non-operating expenses, net on the
Consolidated Statements of Income.
Return on Invested Capital
We calculate Return on Invested Capital (ROIC)
using trailing four quarter results. We define ROIC as Net income
adjusted for Interest and other non-operating expenses, net (net of
taxes at the effective tax rate), divided by the sum of average
Long-term debt, net, average Short-term borrowings and the current
portion of long-term debt and average Total stockholders’ equity
from our financial statements. We have included ROIC as
a supplemental disclosure, because we believe that it may be used
by our investors, industry analysts and others as a measure of the
efficiency and effectiveness of our use of capital.
ROIC is not a measure of financial performance
under GAAP. We believe ROIC 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, balance sheet or
cash flow statement line items reported in accordance with GAAP.
Other companies may calculate ROIC differently than we do, which
may limit its usefulness as a comparative measure.
The table below presents our calculation of ROIC
at December 31, 2020 and 2019.
(Unaudited) |
Year Ended December 31, |
(in thousands) |
2020 |
|
2019 |
Numerator (trailing
four quarters total): |
|
|
|
Net income |
$ |
366,738 |
|
|
$ |
261,575 |
|
Interest and other
non-operating expenses, net |
12,353 |
|
|
23,772 |
|
Less: taxes on Interest and
other non-operating expenses, net at 18.9% and 17.7%,
respectively |
(2,335 |
) |
|
(4,208 |
) |
|
$ |
376,756 |
|
|
$ |
281,139 |
|
Denominator (average
of trailing four quarters): |
|
|
|
Long-term debt, net |
$ |
432,829 |
|
|
$ |
595,247 |
|
Short-term borrowings and
current portion of long-term debt |
12,373 |
|
|
17,323 |
|
Total stockholders’
equity |
516,040 |
|
|
346,049 |
|
|
$ |
961,242 |
|
|
$ |
958,619 |
|
|
|
|
|
Return on invested
capital |
39.2 |
% |
|
29.3 |
% |
Adjusted Diluted EPS and Adjusted 2021 Diluted EPS
Guidance
We have included adjusted diluted EPS, which is
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 and tax
benefits from ASU 2016-09 on our 2020 and 2019 diluted EPS and to
provide investors and others with additional information about our
potential future operating performance. We believe
adjusted diluted EPS should be considered in addition to, not as a
substitute for, 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 diluted EPS to
adjusted diluted EPS.
(Unaudited) |
Year Ended December 31, |
|
2020 |
|
2019 |
Diluted EPS |
$ |
8.97 |
|
|
$ |
6.40 |
|
After-tax non-cash impairment charges |
0.15 |
|
|
— |
|
ASU 2016-09 tax benefit |
(0.70 |
) |
|
(0.57 |
) |
Adjusted Diluted EPS |
$ |
8.42 |
|
|
$ |
5.83 |
|
Please see page 3 for a reconciliation of
projected 2021 diluted EPS to adjusted projected 2021 diluted EPS.
We have included adjusted projected 2021 diluted EPS, which is a
non-GAAP financial measure, in this press release as a supplemental
disclosure to demonstrate the impact of projected tax benefits from
ASU 2016-09 on our projected 2021 diluted EPS and to provide
investors and others with additional information about our
potential future operating performance. We believe
adjusted projected 2021 diluted EPS should be considered in
addition to, not as a substitute for, projected 2021 diluted EPS
presented in accordance with GAAP and in the context of our other
forward-looking and cautionary statements in this press
release.
Adjusted Income Statement
Information
We have included adjusted operating income and
adjusted net income, 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 and net income 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) |
Year Ended December 31, |
(in thousands) |
2020 |
Operating income |
$ |
464,027 |
|
Impairment of goodwill and other assets |
6,944 |
|
Adjusted operating income |
$ |
470,971 |
|
The table below presents a reconciliation of net income to
adjusted net income.
|
|
(Unaudited) |
Year Ended December 31, |
(in thousands) |
2020 |
Net income |
$ |
366,738 |
|
Impairment of goodwill and other assets |
6,944 |
|
Tax impact on impairment of long-term note (1) |
(654 |
) |
Adjusted net income |
$ |
373,028 |
|
(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 2016-09 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.
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