Highlights include:

•      Record annual sales of $2.79 billion up 8% from 2016 including 15% growth in Q4 2017
•      Record 2017 operating margin of 10.2% with base business operating margin up 40 bps for the year
•      Record 2017 diluted EPS of $4.51, an increase of 30% over 2016, 15% excluding tax-related benefits
•      2018 diluted EPS guidance range of $5.36 to $5.61, an increase of 27% to 33% over 2017

COVINGTON, La., Feb. 15, 2018 (GLOBE NEWSWIRE) --  Pool Corporation (NASDAQ:POOL) today announced fourth quarter and full year 2017 results.

“We experienced our fair share of opportunities and challenges in 2017 to generate diluted earnings per share growth of 15% over last year, on a comparable tax basis. We produced sales growth of 8% in 2017 on top of sales growth of 9% in 2016 and converted this into solid earnings growth, primarily due to executing our strategies in pursuit of our mission every day,” commented Manuel Perez de la Mesa, President and CEO.

Net sales increased 8% to a record high of $2.79 billion for the year ended December 31, 2017 compared to $2.57 billion in 2016.  Pool remodeling, equipment replacement and the expansion of building materials and commercial products were the major contributors to base business sales growth of 7% for the year.

Gross profit reached a record $805.3 million for the year ended December 31, 2017, a 9% increase over gross profit of $741.1 million in 2016.  Gross profit as a percentage of net sales (gross margin) grew 10 basis points to 28.9% for 2017 compared to 28.8% in 2016.

Selling and administrative expenses (operating expenses) increased 7% to $520.9 million for 2017, up from $485.2 million in 2016, with base business operating expenses up 5% over last year.  The increase in base business operating expenses was primarily due to higher growth-driven labor and freight expenses, as well as greater employee benefit costs, equity-based compensation, and technology spending.  As a percentage of net sales, operating expenses declined 20 basis points and 30 basis points on base business results.

Operating income for the year increased 11% to $284.4 million, up from $255.9 million in 2016.  Operating income as a percentage of net sales (operating margin) increased to a record 10.2% in 2017 compared to 10.0% in 2016, with a 40 basis point increase on base business results.

Our provision for income taxes for 2017 was impacted by both U.S. tax reform and Accounting Standards Update (ASU) 2016-09, Improvements to Employee Share-Based Payment Accounting.  As a result of the recently enacted tax legislation, we recorded a provisional tax benefit of $12.0 million in the fourth quarter of 2017, which reflects remeasurement of our net deferred tax liability.  Going forward we expect our effective tax rate to approximate 25.5%, which is an improvement over our historical rate of approximately 38.5%, both of which exclude the impact of ASU 2016-09.  We have not finalized our accounting for the tax effects of tax reform; however our net benefit is based on reasonable estimates for those tax effects.  In addition to the impact from tax reform, we recorded a $12.6 million benefit in our provision for income taxes for the year ended December 31, 2017 related to ASU 2016-09, which positively impacted our net income and earnings per share, but was partially offset by an increase of approximately 550,000 diluted weighted average shares outstanding.  The combination of both tax reform and ASU 2016-09 resulted in a total net benefit of $0.52 to our diluted earnings per share in 2017.

Net income attributable to Pool Corporation increased 29% to a record $191.6 million in 2017 compared to $149.0 million in 2016.  Earnings per share increased 30% to a record $4.51 per diluted share compared to $3.47 per diluted share in 2016.  Excluding the $0.28 per diluted share impact of tax reform and the $0.24 per diluted share impact of ASU 2016-09, diluted earnings per share increased 15% over last year.  Adjusted EBITDA (as defined in the addendum to this release) increased 12% to $322.2 million in 2017 compared to $286.4 million in 2016, or 11.6% of net sales in 2017 compared to 11.2% of net sales in 2016.

On the balance sheet at December 31, 2017, total net receivables, including pledged receivables, increased 18% over the prior year, reflective of fourth quarter sales growth and two acquisitions completed in December.  Inventory levels grew 10% to $536.5 million compared to $486.1 million last year.  Total debt outstanding was $519.7 million, an increase of $81.6 million or 19% over last year’s balance, primarily to fund share repurchases and working capital growth.

Cash provided by operations was $175.3 million in 2017.  Compared to 2016, cash provided by operations was $9.9 million higher primarily due to the increase in net income, partially offset by changes in working capital.  Excluding the net income benefit from tax changes, cash provided by operations approximates net income for 2017.

Net sales increased 15% to $510.2 million for the fourth quarter of 2017 up from $445.2 million in the fourth quarter of 2016.  Gross margin declined 20 basis points to 28.5% in the fourth quarter of 2017.  Operating income for the fourth quarter of 2017 was $17.3 million compared to $9.7 million in the same period last year.  Operating margin increased 120 basis points in the quarter, including a 140 basis point increase in base business operating margin.  This improvement is on top of the 80 basis point operating margin growth for base business in the fourth quarter of 2016.  Base business operating expenses as a percentage of net sales declined 160 basis points in the fourth quarter of 2017.  Net income attributable to Pool Corporation for the fourth quarter of 2017 was $25.7 million compared to $2.6 million in the comparable 2016 period.  Earnings per diluted share was $0.62 for the fourth quarter of 2017, or $0.21 excluding the $0.29 per diluted share impact from tax reform and the $0.12 per diluted share impact from the new accounting pronouncement, compared to $0.06 for the same period last year.

“We are optimistic about the opportunities available to us given the attractive long term attributes of our industry to enhance the quality of outdoor home life.  Based on our continued investments in our people, tools and resources, and considering our very strong finish to 2017, we expect earnings for 2018 will be in the range of $5.36 to $5.61 per diluted share, including an estimated $0.13 favorable impact from ASU 2016-09.  This range also reflects our expected 2018 tax rate including tax reform legislation,” said Perez de la Mesa.

Based on our December 31, 2017 stock price, we estimate that we have approximately $5.4 million in unrealized excess tax benefits related to stock options that will expire in the first quarter of 2018 and restricted awards that will vest in 2018, which we have included in our earnings guidance range.  Additional tax benefits could be recognized related to stock option exercises in 2018 from grants that expire in years after 2018, 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, 2017, POOLCORP operates 351 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.  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.

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

POOL CORPORATION
Consolidated Statements of Income
 (In thousands, except per share data)
     
 Three Months Ended Year Ended 
 December 31, December 31, 
 2017 2016 2017 2016 (1) 
         
Net sales$510,183  $445,235  $2,788,188  $2,570,803  
Cost of sales364,785  317,458  1,982,899  1,829,716  
Gross profit145,398  127,777  805,289  741,087  
Percent28.5 %28.7 %28.9 %28.8 %
         
Selling and administrative expenses128,139  118,034  520,918  485,228  
Operating income17,259  9,743  284,371  255,859  
Percent3.4 %2.2 %10.2 %10.0 %
         
Interest and other non-operating expenses, net3,581  4,527  15,189  14,481  
Income before income taxes and equity earnings13,678  5,216  269,182  241,378  
Provision for income taxes (2) (3)(11,969) 2,687  77,982  92,931  
Equity earnings in unconsolidated investments, net18  43  139  156  
Net income25,665  2,572  191,339  148,603  
Net loss attributable to noncontrolling interest  43  294  352  
Net income attributable to Pool Corporation$25,665  $2,615  $191,633  $148,955  
         
Earnings per share:        
Basic$0.64  $0.06  $4.69  $3.56  
Diluted$0.62  $0.06  $4.51  $3.47  
Weighted average shares outstanding:        
Basic40,164  41,218  40,838  41,872  
Diluted41,715  42,310  42,449  42,984  
         
Cash dividends declared per common share$0.37  $0.31  $1.42  $1.19  

(1)       Derived from audited financial statements.

(2)     Upon adoption of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, 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.

(3)     Our income tax provision reflects a benefit realized in the fourth quarter of 2017 related to the enactment of the Tax Cuts and Jobs Act.


POOL CORPORATION
Condensed Consolidated Balance Sheets
(In thousands)
       
  December 31, December 31, Change
   2017  2016 (1)  $  %
         
Assets       
Current assets:       
 Cash and cash equivalents$29,940  $21,956  $7,984  36%
 Receivables, net (2)76,597  61,437  15,160  25 
 Receivables pledged under receivables facility119,668  104,714  14,954  14 
 Product inventories, net (3)536,474  486,116  50,358  10 
 Prepaid expenses and other current assets19,569  15,318  4,251  28 
 Deferred income taxes (4)  6,016  (6,016) (100)
Total current assets782,248  695,557  86,691  12 
         
Property and equipment, net100,939  83,290  17,649  21 
Goodwill189,435  184,795  4,640  3 
Other intangible assets, net13,223  13,326  (103) (1)
Equity interest investments1,127  1,172  (45) (4)
Other assets (4)14,090  15,955  (1,865) (12)
Total assets$1,101,062  $994,095  $106,967  11%
         
Liabilities, redeemable noncontrolling interest and stockholders’ equity       
Current liabilities:       
 Accounts payable$245,249  $230,728  $14,521  6%
 Accrued expenses and other current liabilities (4)65,482  64,387  1,095  2 
 Short-term borrowings and current portion of long-term debt10,835  1,105  9,730  881 
Total current liabilities321,566  296,220  25,346  9 
         
Deferred income taxes (4)24,585  34,475  (9,890) (29)
Long-term debt, net508,815  436,937  71,878  16 
Other long-term liabilities22,950  18,966  3,984  21 
Total liabilities877,916  786,598  91,318  12 
Redeemable noncontrolling interest  2,287  (2,287) (100)
Total stockholders’ equity223,146  205,210  17,936  9 
Total liabilities, redeemable noncontrolling interest and stockholders’ equity$1,101,062  $994,095  $106,967  11%

(1)       Derived from audited financial statements.

(2)       The allowance for doubtful accounts was $3.9 million at December 31, 2017 and $4.1 million at December 31, 2016.

(3)       The inventory reserve was $6.3 million at December 31, 2017 and $6.5 million at December 31, 2016.

(4)       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 in the first quarter of 2017 on a prospective basis, and as such, our prior year balances or classifications have not changed.


POOL CORPORATION
Condensed Consolidated Statements of Cash Flows
(In thousands)
    
 Year Ended  
 December 31,  
 2017 2016 (1) Change
Operating activities     
Net income$191,339  $148,603  $42,736 
Adjustments to reconcile net income to net cash provided by operating activities:     
 Depreciation24,157  20,338  3,819 
 Amortization1,568  1,639  (71)
 Share-based compensation12,482  9,902  2,580 
 Excess tax benefits from share-based compensation (2)  (7,370) 7,370 
 Equity earnings in unconsolidated investments, net(139) (156) 17 
 Net (gains) losses on foreign currency transactions(171) 679  (850)
 Other (3)(3,976) 7,862  (11,838)
Changes in operating assets and liabilities, net of effects of acquisitions:     
 Receivables(21,903) (5,666) (16,237)
 Product inventories(35,783) (8,050) (27,733)
 Prepaid expenses and other assets(4,096) (3,077) (1,019)
 Accounts payable5,077  (17,896) 22,973 
 Accrued expenses and other current liabilities6,756  18,570  (11,814)
Net cash provided by operating activities175,311  165,378  9,933 
      
Investing activities     
Acquisition of businesses, net of cash acquired(12,834) (19,730) 6,896 
Purchase of property and equipment, net of sale proceeds(39,390) (34,352) (5,038)
Other investments, net4  24  (20)
Payments to fund credit agreement  (5,322) 5,322 
Collections from credit agreement  3,737  (3,737)
Net cash used in investing activities(52,220) (55,643) 3,423 
      
Financing activities     
Proceeds from revolving line of credit1,067,868  1,154,090  (86,222)
Payments on revolving line of credit(1,011,977) (1,072,557) 60,580 
Proceeds from asset-backed financing161,600  155,000  6,600 
Payments on asset-backed financing(145,100) (126,500) (18,600)
Proceeds from short-term borrowings and current portion of long-term debt27,333  18,442  8,891 
Payments on short-term borrowings and current portion of long-term debt(17,603) (19,037) 1,434 
Payments of deferred acquisition consideration(324)   (324)
Payments of deferred financing costs(1,104) (69) (1,035)
Purchase of redeemable non-controlling interest(2,573)   (2,573)
Excess tax benefits from share-based compensation (2)  7,370  (7,370)
Proceeds from stock issued under share-based compensation plans11,466  11,752  (286)
Payments of cash dividends(58,029) (49,749) (8,280)
Purchases of treasury stock(146,006) (178,414) 32,408 
Net cash used in financing activities(114,449) (99,672) (14,777)
Effect of exchange rate changes on cash and cash equivalents(658) (1,344) 686 
Change in cash and cash equivalents7,984  8,719  (735)
Cash and cash equivalents at beginning of period21,956  13,237  8,719 
Cash and cash equivalents at end of period$29,940  $21,956  $7,984 

(1)       Derived from audited financial statements.
(2)       Upon adoption of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, 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.

(3)       The Tax Cuts and Jobs Act resulted in an additional $12.0 million of net income in 2017, all of which was non-cash.


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,
  2017  2016  2017  2016  2017  2016
Net sales$503,226  $444,218  $6,957  $1,017  $510,183  $445,235 
                        
Gross profit 143,447   127,469   1,951   308   145,398   127,777 
Gross margin 28.5%  28.7%  28.0%  30.3%  28.5%  28.7%
                  
Operating expenses 124,636   117,440   3,503   594   128,139   118,034 
Expenses as a % of net sales 24.8%  26.4%  50.4%  58.4%  25.1%  26.5%
                  
Operating income (loss) 18,811   10,029   (1,552)  (286)  17,259   9,743 
Operating margin 3.7%  2.3%  (22.3)%  (28.1)%  3.4%  2.2%


          
(Unaudited)  
Base Business
  Excluded
  Total
(in thousands)  Year Ended  Year Ended  Year Ended
   December 31,
  December 31,
  December 31,
   2017  2016  2017  2016  2017  2016
Net sales $2,749,672  $2,558,368  $38,516  $12,345  $2,788,188  $2,570,803 
                         
Gross profit  793,866   737,335   11,423   3,752   805,289   741,087 
Gross margin  28.9%  28.8%  29.7%  30.2%  28.9%  28.8%
                   
Operating expenses  508,273   481,924   12,645   3,304   520,918   485,228 
Expenses as a % of net sales  18.5%  18.8%  32.8%  26.6%  18.7%  18.9%
                   
Operating income (loss)  285,593   255,411   (1,222)  448   284,371   255,859 
Operating margin  10.4%  10.0%  (3.2)%  3.6%  10.2%  10.0%

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

 

 

Acquired
  

Acquisition
Date
 Net
Sales Centers
Acquired
  

Periods
Excluded
Chem Quip, Inc. (1) (2) December 2017 5 December 2017
Intermark December 2017 1 December 2017
E-Grupa October 2017 1 October - December 2017
New Star Holdings Pty. Ltd. July 2017 1 July - December 2017
Lincoln Aquatics (1) April 2017 1 May - December 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.

(2)   We completed this acquisition on December 29, 2017.  Thus we reported no results of operations in fiscal 2017 for this acquisition due to the acquisition date; however the related sales centers are included in the sales center count below.


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 2017.


December 31, 2016344
Acquired locations9
New locations1
Consolidated locations(3)
December 31, 2017351


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 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 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)Year Ended December 31,
(in thousands) 2017   2016 
        
Net income$191,339  $148,603 
 Add:   
 Interest and other non-operating expenses (1)15,360  13,802 
 Provision for income taxes77,982  92,931 
 Share-based compensation12,482  9,902 
 Goodwill impairment   
 Equity earnings in unconsolidated investments, net(139) (156)
 Depreciation24,157  20,338 
 Amortization (2)976  1,012 
Adjusted EBITDA$322,157  $286,432 

(1)       Shown net of interest income and net of gains and losses on foreign currency transactions and includes amortization of deferred financing costs as discussed below.
(2)       Excludes amortization of deferred financing costs of $592 for 2017 and $627 for 2016.  This non-cash expense is included in Interest and other non-operating expenses, net on the Consolidated Statements of Income.

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) 2017   2016 
        
Adjusted EBITDA$322,157  $286,432 
 Add:   
 Interest and other non-operating expenses, net of interest income(14,768) (13,175)
 Provision for income taxes(77,982) (92,931)
 Net (gains) losses on foreign currency transactions(171) 679 
 Excess tax benefits from share-based compensation  (7,370)
 Other(3,976) 7,862 
 Change in operating assets and liabilities(49,949) (16,119)
Net cash provided by operating activities$175,311  $165,378