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Pool Corporation

Pool CorporationPOOLEarnings & Financial Report

Nasdaq · Consumer Discretionary · Distributors

Pool Corporation, doing business as POOLCORP, is the largest distributor of supplies, equipment, and machinery for swimming pools worldwide. The company is organized in Delaware and headquartered in Covington, Louisiana. It serves approximately 125,000 customers and operates 439 sales centers in North America, Europe and Australia. The company receives over half of its revenue from the California, Texas, Florida, and Arizona markets and has benefited from population shifts to warmer climates....

What changed in Pool Corporation's 10-K — 2023 vs 2024

Top changes in Pool Corporation's 2024 10-K

369 paragraphs added · 386 removed · 306 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

90 edited+13 added−18 removed37 unchanged
We also face competition, both directly and indirectly, from mass market retailers (both store-based and internet) and large pool supply retailers who primarily buy directly from manufacturers. 7 Some geographic markets we serve, particularly the four largest and higher pool density markets of California, Texas, Florida and Arizona, have a greater concentration of competition than others.
We also face competition, both directly and indirectly, from mass market retailers (both store-based and internet) and large pool supply retailers who primarily buy directly from manufacturers. 7 Some geographic markets we serve, particularly the four largest and higher pool density markets of Florida, California, Texas and Arizona have a greater concentration of competition than others.
We sell the following types of products: • maintenance products, such as chemicals, supplies and pool accessories; • repair and replacement parts for pool equipment, such as cleaners, filters, heaters, pumps and lights; • building materials, such as concrete, plumbing and electrical components, both functional and decorative pool surfaces, decking materials, tile, hardscapes and natural stone, used for pool installations and remodeling; • pool equipment and components for new pool construction and the remodeling and replacement of existing pools; • irrigation and related products, including irrigation system components and professional turf care equipment and supplies; • commercial pool products, including American Society of Material Engineers heaters, safety equipment, commercial decking equipment and commercial pumps and filters; • fiberglass pools and hot tubs and packaged pool kits including walls, liners, braces and coping for in-ground and above-ground pools; and • other pool construction and recreational products, which consist of a number of product categories and include discretionary recreational and related outdoor living products, such as grills and components for outdoor kitchens.
We sell the following types of products: • maintenance products, such as chemicals, supplies and pool accessories; • repair and replacement parts for pool equipment, such as cleaners, filters, heaters, pumps and lights; • building materials, such as concrete, plumbing and electrical components, both functional and decorative pool surfaces, decking materials, tile, hardscapes and natural stone, used for pool installations and remodeling; • pool equipment and components for new pool construction and the remodeling and replacement of existing pools; • irrigation and related products, including irrigation system components and professional turf care equipment and supplies; • commercial pool products, including American Society of Material Engineers-certified heaters, safety equipment, commercial decking equipment and commercial pumps and filters; • fiberglass pools and hot tubs and packaged pool kits including walls, liners, braces and coping for in-ground and above-ground pools; and • other pool construction and recreational products, which consist of a number of product categories and include discretionary recreational and related outdoor living products, such as grills and components for outdoor kitchens.
Weather Possible Effects Hot and dry • Increased purchases of chemicals and supplies for existing swimming pools • Increased purchases of above-ground pools and irrigation and lawn care products Unseasonably cool weather or extraordinary amounts • Fewer pool and irrigation and landscaping of rain installations • Decreased purchases of chemicals and supplies • Decreased purchases of impulse items such as above-ground pools and accessories Unseasonably early warming trends in spring/late cooling • A longer pool and landscape season, thus positively trends in fall impacting our sales (primarily in the northern half of the U.S. and Canada) Unseasonably late warming trends in spring/early cooling • A shorter pool and landscape season, thus negatively trends in fall impacting our sales (primarily in the northern half of the U.S. and Canada) For discussion regarding the effects seasonality and weather had on our results of operations in 2023 and 2022, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Seasonality and Quarterly Fluctuations,” of this Form 10-K. 10 Government Regulations Our business is subject to a wide variety of regulations, principally under local fire codes and international, federal, state and local environmental and health and safety requirements, including regulation by the Environmental Protection Agency, the Consumer Product Safety Commission, the Department of Transportation, the Occupational Safety and Health Administration, the National Fire Protection Agency and the International Maritime Organization.
Weather Possible Effects Hot and dry • Increased purchases of chemicals and supplies for existing swimming pools • Increased purchases of above-ground pools and irrigation and lawn care products Unseasonably cool weather or extraordinary amounts • Fewer pool and irrigation and landscaping of rain installations • Decreased purchases of chemicals and supplies • Decreased purchases of impulse items such as above-ground pools and accessories Unseasonably early warming trends in spring/late cooling • A longer pool and landscape season, thus positively trends in fall impacting our sales (primarily in the northern half of the U.S. and Canada) Unseasonably late warming trends in spring/early cooling • A shorter pool and landscape season, thus negatively trends in fall impacting our sales (primarily in the northern half of the U.S. and Canada) For discussion regarding the effects seasonality and weather had on our results of operations in 2024 and 2023, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Seasonality and Quarterly Fluctuations,” of this Form 10-K. 10 Government Regulations Our business is subject to a wide variety of regulations, principally under local fire codes and international, federal, state and local environmental and health and safety requirements, including regulation by the Environmental Protection Agency, the Consumer Product Safety Commission, the Department of Transportation, the Occupational Safety and Health Administration, the National Fire Protection Agency and the International Maritime Organization.
Sun Wholesale Supply also owns and operates a specialty chemical re-packaging plant providing pool chemical products to the Pinch A Penny franchised store network and a portion of the chemical products sold through our SCP and Superior sales centers. 6 We evaluate our sales centers based on their performance relative to predetermined standards that include both financial and operational measures.
Sun Wholesale Supply also owns and operates a specialty chemical re-packaging plant providing pool chemical products to the Pinch A Penny franchised store network and a portion of the chemical products sold through our SCP and Superior networks. 6 We evaluate our sales centers based on their performance relative to predetermined standards that include both financial and operational measures.
We regularly evaluate the possibility of acquiring additional companies, and at any given time may be engaged in discussions or negotiations regarding these transactions. We generally do not announce our acquisitions until they are completed, unless it is required by regulatory or other rules to announce when a definitive agreement is reached.
We regularly evaluate the possibility of acquiring additional companies or assets, and at any given time may be engaged in discussions or negotiations regarding these transactions. We generally do not announce our acquisitions until they are completed, unless it is required by regulatory or other rules to announce when a definitive agreement is reached.
Customers may pick up products at any sales center location, or we may deliver products to their premises or job sites via our trucks or third-party carriers. For additional information on our sales centers, see Item 2, “Properties,” of this Form 10-K. Our sales centers maintain well-stocked inventories to meet our customers’ immediate needs.
Customers may pick up products at any sales center location, or we may deliver products to their premises or job sites via our trucks or third-party carriers. For additional information on our sales centers, see Item 2, “Properties,” of this Form 10-K. Our sales centers generally maintain well-stocked inventories to meet our customers’ immediate needs.
We have not independently verified data from industry or other third-party sources and cannot guarantee its accuracy or completeness. In this annual report and other of our public disclosures, we estimate the impact that favorable or unfavorable weather had on our operating results. In connection with these estimates, we make several assumptions and rely on various third-party sources.
We have not independently verified data from industry or other third-party sources and cannot guarantee its accuracy or completeness. In this annual report and other of our public disclosures, we may estimate the impact that favorable or unfavorable weather had on our operating results. In connection with these estimates, we make several assumptions and rely on various third-party sources.
Our corporate support groups provide our field operations with various services, such as developing and coordinating customer and vendor related programs, services from our real estate support function to find appropriate locations for our sales centers, human resources support, information systems support, support from our logistics and fleet teams, accounting and financial analysis support and expert resources to help them achieve their goals.
Our corporate support groups provide our field operations with various services, such as developing and coordinating customer and vendor related programs, real estate support services to find appropriate locations for our sales centers, human resources support, information systems support, support from our logistics and fleet teams, accounting and financial analysis support and expert resources to help them achieve their goals.
As more consumers create and enhance outdoor living areas and invest more in their outdoor environment, we believe we can focus our resources to address such demand by leveraging our existing pool and irrigation and landscape maintenance customer base. We feel the development of our NPT network is a natural extension of our distribution model.
As consumers create and enhance outdoor living areas and invest more in their outdoor environment, we believe we can focus our resources to address such demand by leveraging our existing pool and irrigation and landscape maintenance customer base. We believe the development of our NPT network is a natural extension of our distribution model.
Our Industry We believe that the swimming pool industry will continue to grow with the increased penetration of new pools into households with the discretionary income and physical capacity to install a swimming pool.
We believe that the pool industry will continue to grow with the increased penetration of new pools into households with the discretionary income and physical capacity to install a swimming pool.
We believe our incentive programs and feedback tools, along with the competitive nature of our sales center network, stimulate and enhance employee performance. Distribution Our sales centers are located within population centers near customer concentrations, typically in industrial, commercial or mixed-use zones.
We believe our incentive programs and feedback tools, along with the competitive nature of our sales center network, stimulate and enhance the performance of our employees. Distribution Our sales centers are located within population centers near customer concentrations, typically in industrial, commercial or mixed-use zones.
Our total compensation package includes cash compensation (base salary and performance-based incentive or bonus payments), company contributions toward additional benefits (such as health and disability plans), retirement plans with a company match and paid time off. We also offer the opportunity to become a shareholder through equity grants for management and our employee stock purchase plan.
Our total compensation package includes cash compensation (base salary and performance-based incentive or bonus payments), company contributions toward additional benefits (such as health and disability plans), retirement plans with a company match and paid time off. We also offer the opportunity to become a shareholder through equity grants for certain roles and our employee stock purchase plan.
References to product line and product category data throughout this Form 10-K generally reflect data related to the North American swimming pool market, as it is more readily available for analysis and represents the largest component of our operations. Our goal is to be a trusted resource for both industry professionals, retailers and consumers in the outdoor living industry.
References to product line and product category data throughout this Form 10-K generally reflect data related to our North America swimming pool market, as it is more readily available for analysis and represents the largest component of our operations. Our goal is to be a trusted resource for industry professionals, retailers and consumers in the outdoor living industry.
In addition to our efforts aimed at promoting industry and customer growth, we strive to operate more effectively by continuously focusing on improvements in our operations, which we define as capacity creation. We create capacity with business to business development tools and execution aimed at ensuring best-in-class service and value creation for our customers and suppliers.
In addition to our efforts aimed at promoting industry and customer growth, we strive to operate more effectively by continuously focusing on improvements in our operations, which we define as capacity creation. We create capacity with business-to-business (B2B) development tools and execution aimed at developing best-in-class service and value creation for our customers and suppliers.
New product technology provides opportunities not only for improved energy-efficiency but also expanded control and convenience in enjoying leisure activities. We offer a growing selection of energy-efficient and environmentally preferred products, which support sustainability and can help pool owners save energy, water, time and money.
New product technology provides opportunities not only for improved energy-efficiency but also expanded control and convenience in enjoying leisure activities. We offer a growing selection of energy-efficient and environmentally friendly products, which support sustainability and can help pool owners save energy, water, time and money over time.
We provide in depth product training that allows our customers to expand the scope of their product offerings. We also provide uniquely tailored advertising programs that include such features as digital marketing, customer lead generation, personalized websites, brochures, direct mail, marketing campaigns and business development training.
We provide in depth product training that allows our customers to expand the scope of their product offerings. We also provide uniquely tailored advertising programs through our EDGE Marketing Portal that include such features as digital marketing, customer lead generation, personalized websites, brochures, direct mail, marketing campaigns and business development training.
In addition to these programs, we feature consumer showrooms in over 100 of our sales centers and host our annual Retail Summit to educate our customers about product offerings and the overall industry. We also function as a day-to-day resource by offering product and market expertise to serve our customers’ unique needs.
In addition to these programs, we feature consumer showrooms in many of our sales centers and host our annual Retail Summit to educate our customers about product offerings and the overall industry. We also function as a day-to-day resource by offering product and market expertise to serve our customers’ unique needs.
We also endeavor to handle, distribute, transport and dispose of all products in a responsible manner, particularly the chemicals and fertilizers that we sell. Social - Human Capital Management We employed approximately 6,000 people at December 31, 2023 and approximately 90% of our employees were located in the U.S.
We also endeavor to handle, distribute, transport and dispose of our products in a responsible manner, particularly the chemicals and fertilizers that we sell. Social - Human Capital Management We employed approximately 6,000 people at December 31, 2024 and approximately 90% of our employees were located in the U.S.
We closely monitor employee turnover and conduct exit interviews to gain relevant information and adapt our engagement and retention strategy as appropriate. 9 Governance Our employees, managers and officers conduct our business under the direction of our CEO and the oversight of our Board of Directors (our Board) to enhance our long-term value for our stockholders.
We closely monitor employee turnover and conduct exit interviews to gain relevant information and adapt our engagement and retention strategy as appropriate. 9 Governance Our employees, managers and officers conduct our business under the direction of our Chief Executive Officer (CEO) and the oversight of our Board of Directors (our Board) to enhance our long-term value for our stockholders.
We believe that the principal competitive factors in swimming pool and irrigation and landscape supply distribution are: • the breadth and availability of products offered; • the quality and level of customer service, including ease of ordering and speed of product delivery; • the breadth and depth of sales and marketing programs; • consistency and stability of business relationships with customers and suppliers; • competitive product pricing; and • geographic proximity to the customer.
We believe that the principal competitive factors in swimming pool and irrigation and landscape supply distribution are: • the breadth and availability of products offered; • the quality and level of customer service, including online communications and access, ease of ordering and speed of product delivery; • the availability of sales and marketing programs; • consistency and stability of business relationships with customers and suppliers; • competitive product pricing; and • geographic proximity to the customer.
We also operate four centralized shipping locations (CSLs) in the United States that redistribute products we purchase in bulk quantities to our sales centers or, in some cases, directly to customers. Our CSLs are regional locations that carry a wide range of outdoor living products.
We also operate four centralized shipping locations (CSLs) in the United States and one CSL in Europe that redistribute products we purchase in bulk quantities to our sales centers or, in some cases, directly to customers. Our CSLs are regional locations that carry a wide range of outdoor living products.
In general, sales and operating income are highest during the second and third quarters, which represent the peak months of swimming pool use, pool and irrigation installation and remodeling and repair activities. Sales are lower during the first and fourth quarters.
In general, sales and operating income are highest during the second and third quarters, which represent the peak months of swimming pool use, pool and irrigation installation and maintenance activities. Sales are lower during the first and fourth quarters.
In 2023, we generated approximately 60% of our net sales and 70% of our operating income in the second and third quarters of the year. We typically experience a build-up of product inventories and accounts payable during the winter months in anticipation of the peak selling season.
In 2024, we generated approximately 60% of our net sales and 73% of our operating income in the second and third quarters of the year. We typically experience a build-up of product inventories and accounts payable during the winter months in anticipation of the peak selling season.
Our industry is highly fragmented, and as such, we believe we add considerable value to the industry by purchasing products from a large number of manufacturers and then efficiently distributing the products to our customer base on conditions that are more favorable than our customers could obtain on their own.
We believe that our industry is fragmented, and as such, we add considerable value to the industry by purchasing products from a large number of manufacturers and then efficiently distributing the products with high levels of service to our customer base on conditions that are more favorable than our customers could obtain on their own.
It is possible that others assessing the same data could reach conclusions that differ from ours. 12
It is possible that others assessing the same data could reach conclusions that differ from ours. 11
We conduct our operations through 439 sales centers in North America, Europe and Australia. Our primary markets, with the highest concentration of swimming pools, are California, Texas, Florida and Arizona, collectively representing approximately 54% of our 2023 net sales.
We conduct our operations through 448 sales centers in North America, Europe and Australia. Our primary markets, those with the highest concentration of swimming pools, are Florida, California, Texas and Arizona, collectively representing approximately 54% of our 2024 net sales.
We also offer virtual tools for homeowners to select and design their pool and outdoor environments, collaborating with their chosen contractors to install these products. Our NPT® Backyard mobile app and www.nptpool.com ® allow our customers to virtually design, customize and view a pool in their own backyard within seconds.
We also offer virtual tools for homeowners to select and design their pool and outdoor environments, collaborating with their chosen contractors to install these products. Our NPT® Backyard mobile app and www.nptpool.com ® allow our customers to virtually design, customize and view a pool in their own backyard in a short amount of time.
We promote the growth of our industry through various advertising and promotional programs intended to raise consumer awareness of the benefits and affordability of pool ownership, the ease of pool maintenance and the many ways in which a pool and the surrounding spaces may be enjoyed beyond swimming.
We promote the growth of our industry through various advertising and promotional programs intended to raise consumer awareness of new and existing product offerings by our vendors, the benefits and affordability of pool ownership, the ease of pool maintenance and the many ways in which a pool and the surrounding spaces may be enjoyed beyond swimming.
See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates - Allowance for Doubtful Accounts” for additional information.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates - Allowance for Doubtful Accounts” for additional information.
In 2023, we generated approximately 95% of our sales in North America (including Canada and Mexico), 4% in Europe and 1% in Australia. While we continue to expand both domestically and internationally, we expect this geographic mix to be similar over the next few years.
In 2024, we generated approximately 96% of our sales in North America (including Canada and Mexico), 4% in Europe and less than 1% in Australia. While we continue to expand both domestically and internationally, we expect this geographic mix to be similar over the next few years.
Sun Wholesale Supply, which we acquired in December 2021, distributes swimming pool supplies, equipment and related leisure products, primarily servicing independently owned and operated Pinch A Penny, Inc. franchise locations. Since December 2021, we have expanded Pinch A Penny franchise operations through additional locations of Pinch A Penny franchised stores and expect to continue these expansion initiatives.
Sun Wholesale Supply distributes swimming pool supplies, equipment and related leisure products, primarily servicing independently owned and operated Pinch A Penny franchise locations. Since our acquisition in December 2021, we have expanded Pinch A Penny franchise operations through additional locations of Pinch A Penny franchised stores and plan to continue these expansion initiatives.
We believe our showrooms, local stocking of products and virtual support provide us with a competitive advantage in these categories. Given the more discretionary nature of these products, this business is more sensitive to external market factors compared to our business overall.
We believe our showrooms, local stocking of products, specialized delivery equipment and virtual support provide us with a competitive advantage in these categories. Given the more discretionary nature of these products, this business tends to be more sensitive to external market factors compared to our business overall.
Our local employees and partners have also donated their time and energy to make these events a success. Employee Compensation and Benefits We strive to provide market-competitive compensation, benefits and services to our employees. Our performance-based compensation philosophy rewards each employee’s individual contributions regardless of gender, race or ethnicity.
Our local employees and partners have also donated their time and energy to make these events a success. Employee Compensation and Benefits We strive to provide market-competitive compensation, benefits and services to our employees, and our performance-based compensation philosophy rewards each employee’s individual contributions.
We believe that we are well positioned to benefit from the inherent long-term growth opportunities in our industry fueled by favorable population migration trends, strong housing demand dynamics and product developments and technological advancements as consumers focus on more environmentally sustainable and energy-efficient products. Historically, annual price inflation averaged 1% to 2% in our industry.
We believe that we are well positioned to benefit from the inherent long-term growth opportunities in our industry fueled by favorable population migration trends, strong housing demand dynamics and product developments and technological advancements as consumers focus on more sustainable and energy-efficient products.
Among other factors such as the southern population migration and housing shortage trends, the timing of these types of expenditures is more sensitive to economic factors including home values, single-family home sales and consumer confidence that impact consumer spending compared to the maintenance and minor repair market.
Among other factors such as the southern population migration and housing shortage trends, the timing of these types of expenditures is more sensitive to economic factors including home values, existing single-family home sales and consumer confidence as compared to the non-discretionary demand of the maintenance and minor repair market.
Excluding borrowings to finance acquisitions, dividend payments and share repurchases, our peak borrowing usually occurs during the late spring and summer, primarily because extended terms offered by certain of our suppliers are typically payable during the second quarter of each year, while our peak accounts receivable collections typically occur in June, July and August.
Excluding borrowings to finance acquisitions, dividend payments and share repurchases, our peak borrowing usually occurs during the second quarter, primarily because extended payment terms offered by certain of our suppliers are typically payable in April, May and June, while our peak accounts receivable collections typically occur in June, July and August.
The desire for consumers to enhance their outdoor living spaces with hardscapes, lighting and other outdoor living-related products provides us with additional future growth opportunities in this area. Over the past several years, favorable demographic and socioeconomic trends have positively impacted our industry, and we believe these trends will continue over the long term.
Further, we believe the desire for consumers to enhance their outdoor living spaces with water-sensing and battery-powered alternatives, hardscapes, lighting and other outdoor living-related products provides us with additional future growth opportunities. Over the past several years, favorable demographic and socioeconomic trends have positively impacted our industry, and we believe these trends will continue over the long term.
These favorable trends include the following: • long-term growth in housing units in warmer climate markets due to the population migration toward the southern United States, where use of the outdoor home environment is more prevalent and extends longer throughout the year; • increased homeowner spending on outdoor living spaces for relaxation and entertainment; • consumers bundling the purchase of a swimming pool and other products, with new irrigation systems, landscaping and improvements to outdoor living spaces often being key components to both pool installations and remodels; • consumers using more automation and control products, higher quality materials and other pool features that add to our sales opportunities over time; • consumers increasing focus on environmentally sustainable, energy-efficient products; and • remote and hybrid work trends as homeowners seek to create attractive areas in their backyards as an extension of their home space.
These favorable trends include the following: • long-term growth in housing units in warmer climate markets due to the population migration toward the southern United States, where outdoor home entertainment is more prevalent and extends longer throughout the year; • increased homeowner spending on outdoor living spaces for relaxation and entertainment as lower housing turnover encourages consumers to renovate their existing homes; • consumers bundling the purchase of a swimming pool and other products, with new irrigation systems, landscaping and improvements to outdoor living spaces often being key components to both pool installations and remodels; • consumers using more automation and control products, higher quality materials and other pool features that add to our sales opportunities over time; and • consumers increasing focus on sustainable, energy-efficient products.
In particular, our Pool360 and Horizon 24/7 internet and mobile platforms help our customers be more productive by allowing them to digitally receive pricing and product availability information, and enter orders, while leveraging our customer service staff resources, particularly during peak business periods.
In particular, our POOL360 and Horizon 24/7 B2B internet and mobile platforms help our customers be more productive by allowing them to digitally review and order our products, while leveraging our customer service staff resources, particularly during peak business periods.
In addition to our 21 standalone NPT sales centers, we currently have over 100 SCP and Superior sales centers that feature consumer showrooms where landscape and swimming pool contractors, as well as homeowners, can view and select pool components including pool tile, decking materials and interior pool finishes in various styles and grades, and serve as stocking locations for our NPT brand products.
In addition to our 18 stand-alone NPT sales centers, we currently have 117 SCP and Superior sales centers that feature consumer showrooms where swimming pool and landscape contractors, as well as homeowners, can view and select pool components including pool tile, decking materials and interior pool finishes in various styles and grades.
To the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not our responsibility. 11 Unless otherwise indicated, information contained in this report and other documents filed by us under the federal securities laws concerning our views and expectations regarding the industries in which we operate are based on estimates made by us using data from industry sources and making assumptions based on our industry knowledge and experience.
Unless otherwise indicated, information contained in this report and other documents filed by us under the federal securities laws concerning our views and expectations regarding the industries in which we operate are based on estimates made by us using data from industry sources and making assumptions based on our industry knowledge and experience.
We believe significant growth opportunities also reside with pool remodel and pool equipment replacement activities due to the aging of the installed base of swimming pools, technological advancements and the development of environmentally sustainable, energy-efficient and more aesthetically attractive products.
These pools require routine maintenance throughout their lifetime, and we believe significant growth opportunities reside with pool remodel and pool equipment replacement activities due to the aging of the installed base of swimming pools. We continue to add products to take advantage of technological advancements and the development of sustainable, energy-efficient and more aesthetically attractive products.
These early buy purchases typically allow us to place orders in the fall at a modest discount, take delivery of product during the off-season months and pay for these purchases in the spring or early summer. Due to vendor backlogs resulting in product availability constraints, these early buy opportunities were generally not available in 2021 or 2020.
These early buy purchases typically allow us to place orders in the fall at a modest discount, take delivery of product during the off-season months and pay for these purchases in the spring or early summer.
We believe that ongoing investments in digital transformation and technology help us provide best-in-class service to our customers by improving the customer experience, enhancing our existing customer relationships and expanding our customer base.
Similarly, we employ velocity slotting technology and other processes to enhance the operational efficiencies of our sales centers and warehouses. We believe that ongoing investments in digital transformation and technology help us provide best-in-class service to our customers by improving the customer experience, enhancing our existing customer relationships and expanding our customer base.
Similar to other discretionary purchases, replacement and renovation activities are more heavily impacted by economic factors such as consumer confidence, GDP and employment levels. Contractor labor availability has also become an issue in recent years, limiting our customers’ ability to fully meet consumer construction and renovation demand.
Similar to other discretionary purchases, replacement and renovation activities are more heavily impacted by economic factors such as consumer confidence, GDP and employment levels. During periods of high demand, contractor labor availability can limit our customers’ ability to fully meet consumer construction and renovation demand.
As a customer service, we also provide certain customers assistance with all aspects of their business, including site selection, store layout and design, product merchandising, comprehensive product offering selections and efficient ordering and inventory management processes.
We assist certain customers with aspects of their businesses, including site selection, store layout and design, product merchandising, comprehensive product offering selections and efficient ordering and inventory management processes.
We face intense competition from many regional and local distributors in our markets and from three national wholesale distributors of irrigation and landscape supplies.
We face intense competition from many regional and local distributors in our markets and from a limited number of other national wholesale distributors.
We currently have over 650 product lines and approximately 50 product categories. Based on our 2023 product classifications, sales for our pool and hot tub chemicals product category represented approximately 14% of total net sales for 2023, 13% of total net sales in 2022 and 9% of total net sales in 2021.
Based on our 2024 product classifications, sales for our pool and hot tub chemicals product category represented approximately 15% of total net sales for 2024, 14% of total net sales in 2023 and 13% of total net sales in 2022.
We estimate about 60% of consumer spending in the pool industry is for maintenance and minor repair of existing swimming pools. Maintaining a safe and consistent water chemistry and the related upkeep and repair of swimming pool equipment, such as pumps, heaters, filters and safety equipment, creates non-discretionary demand for pool chemicals, equipment and other related parts and supplies.
Maintaining a safe and consistent water chemistry as well as necessary upkeep and repair of swimming pool equipment, such as pumps, heaters, filters and safety equipment, creates non-discretionary demand for pool chemicals, equipment and other related parts and supplies.
In 2023, the sale of maintenance and minor repair products (non-discretionary) accounted for approximately 62% of our sales, while approximately 24% of our sales were derived from partially discretionary products used in the remodel, renovation, upgrade of pools and approximately 14% of our sales were derived from discretionary products used in the construction and installation (equipment, materials, plumbing, electrical, etc.) of swimming pools.
In 2024, we estimate that the sale of maintenance and minor repair products (non-discretionary) accounted for approximately 64% of our sales, while approximately 22% of our sales were derived from partially discretionary products used in the remodel, renovation and upgrading of pools, and approximately 14% of our sales were derived from discretionary products used in the construction and installation of swimming pools.
The irrigation and landscape maintenance industry shares many characteristics with the pool industry, and we believe that it exhibits similar long-term growth rates. Irrigation system installations often occur in tandem with new single-family home construction making them more susceptible to economic variables that drive new home sales.
Irrigation system installations often occur in tandem with new single-family home construction making them more susceptible to economic variables that drive new home sales. However, the landscape industry offers similar maintenance-related growth opportunities as the swimming pool industry.
Environmental, Social and Governance (ESG) Environmental We are committed to sustainable business practices, which includes offering eco-friendly products to our customers, closely monitoring our sourcing activities, and being good stewards within the communities we serve. We are taking steps to reduce our carbon footprint and to improve product choices that allow pool and homeowners to reduce their environmental impact.
Environmental, Social and Governance (ESG) Environmental We are committed to sustainable business practices, which includes offering energy-efficient and environmentally-friendly products to our customers, closely monitoring our sourcing activities, and being good stewards within the communities we serve.
We have grown our distribution networks through new sales center openings, acquisitions and the expansion of existing sales centers depending on our market presence and capacity.
Going forward, we plan to continue growing our suite of POOL360 technologies with additional resources for our customers. We have grown our distribution networks through new sales center openings, acquisitions and the expansion of existing sales centers depending on our market presence and capacity.
Major equipment manufacturers have developed and will continue to develop more retrofit kits that allow homeowners to interact with their pools or hot tubs through their smartphones. Also, robotic cleaners offer consumers a more efficient option for maintaining their swimming pools. We see each of these developments as significant growth opportunities.
Major equipment manufacturers have developed and will continue to develop more retrofit kits that allow homeowners to interact with their pools or hot tubs through their smartphones. We see each of these developments as significant growth opportunities for our business. Over the last several years, we have increased our product offerings and service abilities related to commercial swimming pools.
Going forward, we expect to continue to realize sales growth through market share gains and continued expansion of our product offerings with a focus on our proprietary and exclusive brand products. Customers and Products We serve roughly 125,000 customers. No single customer accounted for 10% or more of our sales in 2023.
Going forward, we expect to continue to realize sales growth through market share gains and continued expansion of our product offerings with a focus on our proprietary and exclusive brand products. Customers and Products We serve roughly 125,000 customers, most of which are small, family-owned businesses with relatively limited capital resources.
We estimate that new swimming pool construction comprises approximately 17% to 18% of consumer spending in the pool industry. The demand for new pools is driven by the perceived benefits of pool ownership including enhanced property value, relaxation, entertainment, family activity, exercise and convenience.
We estimate that new swimming pool construction comprised almost 15% of 2024 sales. The demand for new pools is generally driven by the perceived benefits of pool ownership including increased use of outdoor space, enhanced property value, relaxation, entertainment, family activity, exercise and convenience.
However, the landscape industry offers similar maintenance-related growth opportunities as the swimming pool industry. Product offerings such as chemicals and fertilizers, power equipment and related repair and maintenance services offer recurring revenue streams in an industry otherwise closely tied to the new housing market.
Product offerings such as chemicals and fertilizers, power equipment and related repair and maintenance services offer recurring revenue streams in an industry otherwise closely tied to the new housing market. The irrigation and landscape maintenance distribution business serves both residential and commercial markets, with the majority of sales related to the residential market.
Over the last several years, we have increased our product offerings and service abilities related to commercial swimming pools. We consider the commercial market to be a key growth opportunity as we focus more attention on providing products to customers who operate and service large commercial installations such as hotels, condominiums, apartment complexes, universities and community recreational facilities.
We consider the commercial market to be a key growth opportunity as we focus more attention on providing products to customers who operate and service large commercial installations such as hotels, condominiums, apartment complexes, universities and community recreational facilities. We continue to leverage our existing sales center networks and customer and vendor relationships to grow this market.
We also believe cosmetic considerations such as a pool’s appearance and the overall look of backyard environments create ongoing demand for other maintenance-related goods and certain discretionary products that we supply.
As the installed base of in-ground swimming pools ages, we also believe cosmetic considerations such as a pool’s 1 appearance and the overall look of backyard environments create ongoing demand for our other discretionary and non-discretionary products.
We focus on the following factors in implementing and developing our human capital strategy: • employee health, safety and wellness; • diversity, equity and inclusion; • employee growth and development; and • employee compensation and benefits.
We focus on the following factors in implementing and developing our human capital strategy: • employee health, safety and wellness; • talent management; • employee growth and development; and • employee compensation and benefits. Employee Health, Safety and Wellness Our commitment to the health, safety and wellness of our employees ranks at the top of our core operating priorities.
These customers also buy products from other distributors, mass merchants, home stores and certain specialty and internet retailers. 4 We provide extended payment terms to qualified customers for sales under pre-season early buy programs, which typically occur during the fourth and first quarters. The extended terms usually require payments in equal installments during the second quarter of each year.
No single customer accounted for 10% or more of our sales in 2024. 4 We provide extended payment terms to qualified customers for sales under pre-season early buy programs, which typically occur during the fourth and first quarters. The extended terms usually require payments in equal installments during the second quarter of each year. See Item 7.
Economic Environment Certain trends in the housing market, the availability of consumer credit and general economic conditions (as commonly measured by Gross Domestic Product or GDP) affect our industry, particularly new pool and irrigation system starts as well as the timing and extent of pool remodels, equipment replacements, landscaping projects and outdoor living space renovations.
Within the United States market, we believe that residential and commercial irrigation systems, landscape maintenance products, power equipment, hardscapes and specialty outdoor products and accessories offer a total addressable market value of approximately $19.0 billion. 2 Economic Environment Certain trends in the housing market, the cost and availability of consumer credit and general economic conditions (as commonly measured by Gross Domestic Product or GDP) affect our industry, particularly the installation of new pools and irrigation systems, as well as the timing and extent of pool remodels, equipment replacements, landscaping projects and outdoor living space renovations.
Investors should also be aware that while we may answer questions raised by securities analysts, it is against our policy to disclose any material non-public information or other confidential information. Accordingly, investors should not assume that we agree with any statement or report issued by an analyst with respect to our past or projected performance.
Investors should also be aware that while we customarily provide high-level sales and earnings guidance and may answer questions raised by securities analysts, it is against our policy to disclose any material non-public information or other confidential information.
We offer our customers more than 200,000 manufacturer and proprietary and exclusive brand products. We believe that our selection of pool equipment, supplies, chemicals, replacement parts, irrigation and related products and other pool construction and recreational products is the most comprehensive in the industry.
We believe that our selection of pool equipment, supplies, chemicals, replacement parts, irrigation and related products and other pool construction and recreational products is the most comprehensive in the industry. We currently have over 650 product lines and approximately 45 product categories.
To that end, a part of our growth strategy includes investing in technology that allows us to better serve our customers and using this information to make better data-driven decisions for our business. We recently launched Pool360 WaterTest and are in the process of rolling out Pool360 PoolService under our Pool360 platform of technologies.
To that end, a part of our growth strategy includes investing in technology that allows us to better serve our customers and using this information to make better data-driven decisions for our business. Our POOL360 digital ecosystem is a suite of SaaS products transforming the way pool professionals do business.
When our employees succeed, the company succeeds. To help our employees achieve success in their roles, we emphasize continuous training and career development opportunities. These opportunities include annual performance reviews, succession planning, promotion and advancement opportunities, ongoing training in safety and security protocols, updates on new products and service offerings and deployment of technologies.
These opportunities include annual performance reviews, succession planning, promotion and advancement opportunities, ongoing training in safety and security protocols, updates on new products and service offerings and deployment of technologies. We also provide a series of managerial training to our field and departmental leaders.
We also promote the growth of our industry by offering a growing selection of energy-efficient and environmentally preferred products, which support sustainability and can help pool owners save energy, water, time and money. Our environmentally friendly technology products include variable speed pumps, LED pool and hot tub lights and high-efficiency heat pumps.
We use these programs as tools to educate consumers and lead prospective pool owners to our customers. We also promote the growth of our industry by offering a growing selection of energy-efficient and environmentally friendly products, which support sustainability and can help pool owners save energy, water, time and money.
Our largest suppliers include Pentair plc, Hayward Pool Products, Inc. and Zodiac Pool Systems, Inc., which accounted for approximately 19%, 10% and 10%, respectively, of the cost of products we sold in 2023.
We regularly evaluate supplier relationships and consider alternate sourcing to ensure competitive cost, service and quality standards. Our largest suppliers include Pentair plc, Zodiac Pool Systems, Inc, and Hayward Pool Products, Inc., which accounted for approximately 20%, 12% and 11%, respectively, of the cost of products we sold in 2024.
These programs include digital and media advertising, industry-oriented website development such as www.swimmingpool.com®, www.hottubs.com® and www.nptpool.com®, social media platforms and other digital marketing initiatives, including our NPT® Backyard mobile app. We use these programs as tools to educate consumers and lead prospective pool owners to our customers.
These programs include digital and media advertising, industry-oriented website development such as www.swimmingpool.com®, www.hottubs.com® and www.nptpool.com®, social media platforms and other digital marketing initiatives, including our new, all-inclusive Regal and E-Z Clor Pool Care mobile apps that enable at-home water testing, as well as our NPT® Backyard mobile app.
We generally pass industry price increases through our supply chain and may make strategic volume inventory purchases ahead of vendor price increases in order to obtain favorable pricing. During 2021 and 2022, supply chain interruptions, production shutdowns and weather-related events resulted in increased inflation as higher costs to produce and transport finished products were passed through to consumers.
We generally pass industry price increases through our supply chain and from time to time may make strategic volume inventory purchases ahead of vendor price increases in order to obtain favorable pricing.
Business Strategy and Growth Strategy Our mission is to provide exceptional value to our customers and suppliers, creating exceptional return to our shareholders, while providing exceptional opportunities to our employees.
In 2024, inflationary product cost increases returned to our historical average of approximately 1% to 2%, which we expect to continue into 2025. Business Strategy and Growth Strategy Our mission is to provide exceptional value to our customers and suppliers, creating exceptional return to our shareholders, while providing exceptional opportunities to our employees.
As of December 31, 2023, we operated 439 sales centers in North America, Europe and Australia through our five distribution networks: • SCP Distributors (SCP); • Superior Pool Products (Superior); • Horizon Distributors (Horizon); • National Pool Tile (NPT); and • Sun Wholesale Supply (Sun Wholesale).
As of December 31, 2024, we operated 448 sales centers in North America, Europe and Australia, from which we sell swimming pool supplies, equipment and related leisure products, irrigation and landscape maintenance products and hardscape, tile and stone products to our customer base, including pool builders, retail stores, service companies, landscape contractors and others, through our five distribution networks listed below: • SCP Distributors (SCP); • Superior Pool Products (Superior); • Horizon Distributors (Horizon); • National Pool Tile (NPT); and • Sun Wholesale Supply (Sun Wholesale).
We also provide an entry level training program to prepare Manager Trainees (MITs) for sales and operations management opportunities and build our pipeline for field leadership. Our MITs are hosted at either our state-of-the-art EDGEucation Center or in a virtual classroom. They gain valuable experience during their training program through field-based interaction with customers and operating management.
This coursework covers topics such as recruitment best practices, effective communications, leading and empowering others and managing employee performance. We provide an entry level training program to prepare Manager Trainees (MITs) for sales and operations management opportunities and build our pipeline for field leadership. Our MITs are hosted at either our EDGEucation Center or in a virtual classroom.
Our program includes interaction with subject matter experts, hands-on projects and role play to provide MITs with practical industry knowledge, leadership skills and the tools necessary to succeed within our organization. Our employees are also involved in a multitude of volunteer efforts that positively impact our communities through support of charitable organizations.
They gain valuable experience during their training program through field-based interaction with customers and operating management. Our program includes interaction with subject matter experts, hands-on projects and role play to provide MITs with practical industry knowledge, leadership skills and the tools necessary to succeed within our organization.
Employee Health, Safety and Wellness Our commitment to the health, safety and wellness of our employees ranks at the top of our core operating priorities. Our ultimate goal is to send every employee home each night in the same condition in which they came to work that morning.
Our ultimate goal is to send every employee home each night in the same condition in which they came to work that morning. We aim to achieve zero serious injuries through continued investment in, and focus on, our core safety programs and injury-reduction initiatives.
Pool360 WaterTest is a professional water testing software available to our retail customers that works with our complete line of proprietary brand pool and hot tub chemicals. Our Pool360 PoolService app is a mobile tool that allows pool professionals to better manage their service business and improve their customers’ experience.
POOL360 WaterTest is a professional water testing software available to our retail customers that incorporates our complete line of proprietary-branded pool and hot tub chemicals into pool owners’ water chemistry maintenance requirements.
We also support our employees with training and development opportunities, which includes content aimed at creating and sustaining an inclusive environment. Employee Growth and Development We strive to be an Employer of Choice by investing in our employees.
To create connection and community within our workforce, we have established a mentoring program to cultivate the growth and development of our high potential employees. We also support our employees with training and development opportunities, which include content aimed at creating and sustaining an inclusive environment.
Consumers typically spend more on new pools, new irrigation systems, renovations and replacement when general economic conditions are strong. 2 We believe that over the long term, home value appreciation and single-family housing turnover correlate with demand for new pool construction, with higher rates of home appreciation and turnover having a positive impact on new pool installations over time.
Nonetheless, new home construction grew versus a decline in new pool construction, creating more available backyards for swimming pools when economic conditions stabilize. We believe that over the long term, higher rates of home appreciation and turnover have a positive impact on new pool installations.
Our goal is to attract, develop and retain a talented team of diverse people inspired by our mission to provide exceptional value to our customers and suppliers and create exceptional return to our shareholders, while providing exceptional opportunities for our employees. Our success depends on our employees understanding how their work contributes to the company’s overall strategy.
Employee Growth and Development We strive to be an Employer of Choice by investing in our employees. Our goal is to attract, develop and retain a talented team inspired by our mission to maintain exceptional relationships with our customers and suppliers and create exceptional return to our shareholders, while providing exceptional opportunities for our employees.
To achieve this, our approach to DEI is as follows: • Diversity: Recruit, develop and retain a diverse workforce and provide developmental opportunities for career advancement for all employees; • Equity: Ensure that our policies, practices and procedures are fair and enable equal employment opportunity for prospective candidates and employees; and • Inclusion: Communicate that we, as an Employer of Choice, are committed to DEI with action-oriented programs that produce results and employee engagement.
Our commitment to fostering a welcoming workplace goes beyond hiring; it’s about ensuring every voice is heard and valued. 8 We are committed to supporting our workforce through the hiring, retention and advancement of top-tier talent through the following: • Recruiting, developing and retaining a dynamic workforce and providing developmental opportunities for career advancement for all employees; • Ensuring that our policies, practices and procedures are fair and provide equal employment opportunity for a wide range of prospective candidates and employees; and • Communicating that we, as an Employer of Choice, are committed to a culture with action-oriented programs that produce results and employee engagement.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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To succeed, we must continue to maintain effective business relationships with qualified suppliers who can timely and efficiently supply us with high quality products. As we increase the number of our proprietary and exclusive brand products. we distribute, our exposure to potential liability claims may increase.
To succeed, we must continue to maintain effective business relationships with qualified suppliers who can timely and efficiently supply us with high quality products. As we increase the number of proprietary and exclusive brand products we distribute, our exposure to potential liability claims may increase.
Hiring and retaining such qualified individuals may be adversely impacted by several factors, including (i) uncertainties regarding general economic conditions or our industry, (ii) our failure to offer competitive compensation and (iii) increased competition for qualified individuals. If we are unable to attract and retain key personnel, our operating results could be adversely affected.
Hiring and retaining such qualified individuals may be adversely impacted by several factors, including (i) uncertainties regarding general economic conditions or industry conditions, (ii) our failure to offer competitive compensation and (iii) increased competition for qualified individuals. If we are unable to attract and retain key personnel, our operating results could be adversely affected.
Investors should carefully consider the risks described below in addition to the other information set forth in this Annual Report on Form 10-K. The risks discussed below are not the only risks we face. Other risks or uncertainties not presently known to us, or that we currently believe are immaterial, may materially affect our business if they occur.
Investors should carefully consider the risks described below in addition to the other information set forth in this Annual Report on Form 10-K. The risks discussed below are not the only risks we face. Other risks or uncertainties not presently known to us, or that we currently believe are immaterial, may emerge or materially affect our business if they occur.
We maintain disclosure controls and procedures designed to provide reasonable assurances regarding the accuracy and completeness of our SEC reports and internal control over financial reporting designed to provide reasonable assurance regarding the reliability and compliance with U.S. generally accepted accounting principles (GAAP) of our financial statements. We cannot assure you these measures will be effective.
We maintain disclosure controls and procedures designed to provide reasonable assurances regarding the accuracy and completeness of our SEC reports and internal control over financial reporting designed to provide reasonable assurance regarding the reliability and compliance with U.S. generally accepted accounting principles (GAAP) of our financial statements. We cannot assure you these measures will be effective. 19
Certain extreme weather events and natural disasters, such as hurricanes, tornadoes, earthquakes, tropical storms, floods, drought and wildfires, may adversely impact us in several ways, including interfering with our ability to deliver our products and services, interfering with our receipt of supplies from our vendors, reducing demand for our products and services, and damaging our facilities.
Certain extreme weather events and natural disasters, such as hurricanes, tornadoes, earthquakes, tropical storms, floods, intense storms, drought and wildfires, may adversely impact us in several ways, including interfering with our ability to deliver our products and services, interfering with our receipt of supplies from our vendors, reducing demand for our products and services, and damaging our facilities.
An outbreak of disease or similar public health threat, such as the recent COVID-19 pandemic, could adversely impact our business and results of operations. An outbreak of disease or similar public health threat, such as the recent COVID-19 pandemic and its negative impact on the worldwide economy, could have an adverse impact on our workforce, supply chain or operations.
An outbreak of disease or similar public health threat could adversely impact our business and results of operations. An outbreak of disease or similar public health threat, such as the COVID-19 pandemic and its negative impact on the worldwide economy, could have an adverse impact on our workforce, supply chain or operations.
A decision by our largest suppliers, acting individually or in concert, to sell their products directly to retailers or other end users of their products, bypassing distribution companies like ours, would have an adverse effect on our business.
A decision by our largest suppliers, acting individually or in concert, to sell their products directly to retailers or other end users, bypassing distribution companies like ours, would have an adverse effect on our business.
Similar concerns impacting our competitors could damage the reputation of our industry and indirectly have an unfavorable impact on our operations. We face intense competition both from within our industry and from other leisure product alternatives. Within our industry, we directly compete against various regional and local distributors for the business of pool owners and other end-use customers.
Similar concerns impacting our competitors could damage the reputation of our industry and indirectly have an unfavorable impact on our operations. We face intense competition both from within our industry and from other leisure product alternatives. Within our industry, we directly compete against national, regional and local distributors for the business of pool owners and other end-use customers.
Historically, we have experienced substantial sales growth through organic market share gains, new sales center openings, expanded product offerings and acquisitions that have increased our size, scope and geographic distribution. Our various business strategies and initiatives, including our growth initiatives, are subject to business, economic and competitive uncertainties and contingencies, many of which are beyond our control.
Historically, we have experienced substantial sales growth through organic market share gains, new sales center openings, expanded product offerings and acquisitions that have increased our size, scope and geographic footprint. Our various business strategies and initiatives, including our growth initiatives, are subject to business, economic and competitive uncertainties and contingencies, many of which are beyond our control.
Given the density and demand for pool products, some geographic markets that we serve also tend to have a higher concentration of competitors than others, particularly California, Texas, Florida and Arizona. These states encompass our four largest markets and represented approximately 54% of our net sales in 2023.
Given the density and demand for pool products, some geographic markets that we serve also tend to have a higher concentration of competitors than others, particularly Florida, California, Texas and Arizona. These states encompass our four largest markets and represented approximately 54% of our net sales in 2024.
For additional information regarding our interest rate risk, see Item 7A, “Quantitative and Qualitative Disclosures about Market Risk” of this Form 10-K. General Risks Changes in tax laws and accounting standards related to tax matters have caused, and may in the future cause, fluctuations in our effective tax rate.
For additional information regarding our interest rate risk, see Item 7A, “Quantitative and Qualitative Disclosures about Market Risk” of this Form 10-K. Changes in tax laws and accounting standards related to tax matters have caused, and may in the future cause, fluctuations in our effective tax rate.
Our international operations, including Canada and Mexico, which accounted for 7% of our total net sales in 2023, expose us to certain additional risks, including: • difficulty in staffing international subsidiary operations; • different political, economic and regulatory conditions; • local laws and customs; • currency fluctuations (including the current strength of the U.S. dollar compared to foreign currencies), exchange controls and repatriation restrictions; • adverse tax consequences; and • adverse consequences for violating anti-corruption, anti-competition, economic sanctions, immigration and other laws governing international commerce.
Our international operations, including Canada and Mexico, accounted for 7% of our total net sales in 2024 and expose us to certain additional risks, including: • difficulty in staffing international subsidiary operations; • different political, economic and regulatory conditions; • local laws and customs; • currency fluctuations (including the current strength of the U.S. dollar compared to foreign currencies), exchange controls and repatriation restrictions; • adverse tax consequences; and • adverse consequences for violating anti-corruption, anti-competition, economic sanctions, immigration and other laws governing international commerce.
Our business could be adversely impacted if (i) consolidation of our customers leads to changes in purchasing habits, (ii) more people choose to live in urban settings or (iii) more homeowners bypass our customers by directly procuring their own supplies or undertaking their own improvement projects.
Our business could be adversely impacted if (i) consolidation of our customers leads to changes in purchasing habits, (ii) more people choose to live in urban settings or rented space or (iii) more homeowners bypass our customers by directly procuring their own supplies or undertaking their own improvement projects.
Consumer discretionary spending significantly affects our sales and is impacted by a variety of factors, including general economic conditions, the residential housing market, unemployment rates, wage levels, interest rate fluctuations, inflation, disposable income levels, consumer confidence and access to credit.
Consumer discretionary spending significantly affects our sales and is impacted by a variety of factors, including changes in general economic conditions, the housing market, unemployment rates, wage levels, interest rate fluctuations, inflation, disposable income levels, consumer confidence and access to credit.
The regulation of greenhouse gas emissions could result in additional taxes or other costs to us or require us to modify our facilities or vehicle fleet. Changes in customers’ attitudes toward the environmental impact of pools’ energy consumption or pool chemical products could reduce demand for our products.
The regulation of greenhouse gas emissions could result in additional taxes or other costs to us or require us to modify our facilities or vehicle fleet. Changes in customers’ attitudes toward the environmental impact of a pool’s energy consumption or pool chemical products could reduce demand for our products.
Because we source certain products from outside the United States, major changes in tax policy, import or export regulations or trade relations, such as the disallowance of tax deductions for imported products or the imposition of additional tariffs or duties on imported products, could adversely affect our business, results of operations, effective income tax rate, liquidity and net income.
Because we source certain products from outside the United States, major changes in tax policy, import or export regulations, other trade restrictions or trade relations, such as the imposition of additional tariffs or duties on imported products, could adversely affect our business, results of operations, effective income tax rate, liquidity and net income.
These laws and regulations, and related interpretations and enforcement activity, may change as a result of a variety of factors, including political, economic or social events.
These laws and regulations, and related enforcement levels, may change as a result of a variety of factors, including political, economic or social events.
While we contemplate continued growth through internal expansion and acquisitions, no assurance can be made as to our ability to: • penetrate new markets; • generate sufficient cash flows to support expansion plans and general operating activities; • obtain financing; • identify appropriate acquisition candidates and successfully integrate acquired businesses; • identify appropriate locations for new sales centers and successfully integrate them into our network; • maintain favorable supplier arrangements and relationships; and • identify and divest assets which do not continue to create value consistent with our objectives.
While we contemplate continued growth through internal expansion and acquisitions, no assurance can be made as to our ability to: • penetrate new markets; • generate sufficient cash flows to support expansion plans and general operating activities; • obtain financing; • identify appropriate acquisition candidates and successfully integrate acquired businesses; • identify appropriate locations for new sales centers and successfully integrate them into our network; • maintain favorable supplier arrangements and relationships; and • identify and divest assets which no longer meet our objectives.
Additionally, competition for qualified employees could require us to pay higher wages to attract and retain a sufficient number of employees. The pandemic and other events over the past few years have increased employees’ expectations regarding compensation, workplace flexibility and work-home balance. These developments have made it more difficult for us to attract and retain top talent.
Additionally, competition for qualified employees could require us to pay higher wages to attract and retain a sufficient number of employees. Inflation and other events over the past few years have increased employees’ expectations regarding compensation and benefits and workplace flexibility. These developments have made it more difficult and costly for us to attract and retain top talent.
Additionally, changes in data privacy laws and our ability to comply with them could have a material adverse effect on us. We collect and store data that is sensitive to us and our employees, customers and vendors.
Additionally, changes in data privacy laws and our ability to comply with them could have a material adverse effect on us. In the course of doing business, we collect and store data that is sensitive to us and our employees, customers and vendors.
Fluctuations in other factors relating to international trade, such as tariffs, transportation costs and inflation are additional risks for our international operations. We do not have operations in Israel, Russia or Ukraine.
Fluctuations in other factors relating to international trade, such as tariffs, trade restrictions, transportation costs and inflation are additional risks for our international operations. We do not have operations in the Middle East, Russia or Ukraine.
Our costs of doing business could increase as a result of changes in, expanded enforcement of, or adoption of new federal, state or local laws and regulations.
Changes in, expanded enforcement of, or adoption of new federal, state, local or international laws and regulations could increase our costs of doing business.
We believe that homeowners’ access to consumer credit at attractive interest rates is a critical factor enabling the purchase of new pools, irrigation systems and outdoor living products.
We believe that homeowners’ access to consumer credit at attractive interest rates is a critical factor enabling the purchase of new pools, irrigation systems and outdoor living products and to a lesser extent, major renovations and remodel projects.
However, the contributory effects of the wars in Israel or Ukraine and prolonged geopolitical conflict globally may result in higher inflation, labor costs, energy and commodity prices and costs of materials and services (together with shortages or inconsistent availability of materials and services), which could negatively affect our business (particularly our European operations), results of operations and financial condition.
However, the contributory effects of the geopolitical conflicts in these and other areas globally may result in higher inflation, labor costs, energy and commodity prices and costs of materials and services (together with shortages or inconsistent availability of materials and services), which could negatively affect our business (particularly our European operations), results of operations and financial condition.
However, the growth in this portion of our business depends on the expansion of the installed pool base, which could also be adversely affected by decreases in construction activities, similar to the trends experienced this past year. A weak economy may also cause consumers to defer discretionary replacement and renovation activity.
However, the growth in these portions of our business depends on the expansion of the installed pool base, which has been and could in the future be adversely affected by decreases in construction activities, similar to the trends experienced in 2023 and 2024. A weak economy may also cause consumers to defer discretionary replacement and renovation activity.
Our unsecured syndicated senior credit facility, term facility and receivable facility bear interest at variable rates. We have entered into interest rate swap contracts and a forward-starting interest rate swap contract to reduce our exposure to fluctuations in variable interest rates on current and future interest payments that we owe on a portion of our variable rate borrowings.
We have entered into interest rate swap contracts and a forward-starting interest rate swap contract to reduce our exposure to fluctuations in variable interest rates on current and future interest payments that we owe on a portion of our variable rate borrowings.
Concern over climate change has led to, and may in the future lead to, new or increased legal and regulatory requirements designed to reduce or mitigate the effects of climate change, which could increase our operating or capital expenses and compliance burdens. In particular, advocates of change are continuing to explore ways to reduce greenhouse gas emissions.
Concerns over changing climate patterns have led to, and may in the future lead to, new or increased legal and regulatory requirements designed to reduce or mitigate the effects of changing climate patterns, which could increase our compliance obligations. In particular, advocates of change are continuing to explore ways to reduce greenhouse gas emissions.
These initiatives reflect our current plans and aspirations, and it is possible that we may not be able to achieve such targets or our desired impact, which may cause us to suffer from legal claims, reputational damage or a loss of demand for our products.
Our initiatives aimed at reducing our impact on the environment and climate change reflect our current plans and aspirations, and it is possible that we may not be able to achieve our desired impact, which may cause us to suffer from legal claims, reputational damage or a loss of demand for our products.
A lack of sophistication or reliability of our information systems could adversely impact our operations and customer service and could require major repairs or replacements, resulting in significant costs and foregone revenue. 17 We devote significant resources to protect our systems and data from cyber-attacks.
A lack of sophistication or reliability of our information systems could adversely impact our operations and customer service and could require major repairs or replacements, resulting in significant costs and foregone revenue. Increasing complexity of technology could increase our cost of doing business. We devote significant resources to protect our systems and data from cyber-attacks. Refer to Item 1C.
We have experienced short-term impacts on our sales due to closures from weather events in recent years, including Hurricane Ian in Florida in 2022. Although these events have not had any material lasting impacts on our business or resulted in any material permanent operational challenges, similar events could adversely affect our business in the future.
We have experienced short-term impacts on our sales due to closures from weather events such as Hurricane Ian in 2022 and Hurricanes Helene, Francine and Milton in 2024. Although these events have not had any material lasting impacts on our business or resulted in any material permanent operational challenges, similar events could adversely affect our business in the future.
In addition, we may have to write down such inventory if we are unable to sell it for its recorded value. If we underestimate demand and purchase insufficient quantities of products, inventory shortages could result in delayed revenue or loss of sales opportunities altogether as potential customers turn to competitors’ products that are readily available.
If we underestimate demand and purchase insufficient quantities of products, inventory shortages could result in delayed revenue or loss of sales opportunities altogether as potential customers turn to competitors’ products that are readily available.
We depend on our ability to attract, develop and retain highly qualified personnel. We consider our employees to be the foundation for our growth and success. As such, our future success depends in large part on our ability to attract, retain and motivate qualified personnel. This includes succession planning related to our executive officers and key management personnel.
As such, our future success depends in large part on our ability to attract, retain and motivate qualified personnel. This includes succession planning related to our executive officers and key management personnel.
While warmer weather conditions generally impact our sales favorably, global warming trends and other significant climate changes can create more variability in the short term or lead to other unfavorable weather conditions that could adversely impact our sales or operations. Drought conditions or water management initiatives may lead to government-imposed water use restrictions.
While warmer weather conditions generally impact our sales favorably, natural disasters and other significant weather events can create more variability in our reported results in the short term or otherwise adversely impact our sales or operations. Drought conditions or water management initiatives may lead to government-imposed water use restrictions.
Product and service quality issues could negatively impact customer confidence in our brands and our business. If our product and service offerings do not meet applicable safety standards or our customers’ expectations regarding safety or quality, we could experience lost sales and increased costs and be exposed to legal, financial and reputational risks, as well as governmental enforcement actions.
If our product and service offerings do not meet applicable safety standards or our customers’ expectations regarding safety or quality, we could experience lost sales, increased costs and be exposed to legal, financial and reputational risks, including litigation, governmental enforcement actions and costly product recalls.
In economic downturns or recessions, the demand for swimming pool, irrigation, landscape and related outdoor living products typically declines, often corresponding with declines in discretionary consumer spending, the growth rate of pool eligible households and swimming pool construction.
In times of economic uncertainty, the demand for swimming pool, irrigation, landscape and related outdoor living products typically declines, often corresponding with declines in discretionary consumer spending.
The entry of significant new competitors into these markets could negatively impact our sales. 15 More aggressive competition by store- and internet-based mass merchants and large pool or irrigation supply retailers could adversely affect our sales.
The entry of significant new competitors into these markets could negatively impact our sales. More aggressive competition by store- and internet-based mass merchants and large pool or irrigation supply retailers could adversely affect our sales. Mass market retailers today carry a limited range of, and devote a limited amount of shelf space to, merchandise and products targeted to our industry.
Our projections of financial statement impacts related to ASU 2016-09 are subject to several assumptions which can vary significantly, including our estimated share price and the period that our employees will exercise vested stock options.
Our projections of financial statement impacts related to ASU 2016-09 are subject to several assumptions which can vary significantly, including our estimated share price and the period that our employees will exercise vested stock options. 18 Excess tax benefits or deficiencies recognized under ASU 2016-09 vary from quarter to quarter and past results may not be indicative of future results.
Although our revenues increased during the COVID-19 pandemic that began in early 2020, we cannot assure you that our revenues would increase in the event of a future public health emergency.
Although our revenues increased during the COVID-19 pandemic that began in early 2020, we cannot assure you that our revenues would increase in the event of a future public health emergency. Any future public health crises, and any corresponding governmental response, could adversely impact our business and results of operations in ways that we cannot predict.
We are making, and expect to continue to make, investments in technology to maintain and update our computer systems and to expand our ability to engage in e-commerce with our customers. We may experience delays in making these updates and may not implement these changes as quickly or successfully as our customers expect.
We are making, and expect to continue to make, investments in technology to maintain and update our computer systems and to expand our ability to engage in e-commerce with our customers.
The risk of breaches is likely to continue to increase due to several factors, including the increasing sophistication of cyber-attacks, the wider accessibility of cyber-attack tools, the expanded size, use and complexity of our systems, and our increased reliance on e-commerce, open source software, cloud computer services and work-from-home staffing.
The risk of breaches is likely to continue to increase due to several factors, including (i) the increasing use of machine learning, artificial intelligence (AI) and other sophisticated techniques to initiate cyber and phishing attacks, (ii) the wider accessibility of cyber-attack tools that can circumvent security controls and evade detection, (iii) the expanded size, use and complexity of our systems, and (iv) our increased reliance on e-commerce, open source software, cloud computer services and work-from-home staffing.
Such a breach could result in damage to our reputation and subject us to potential litigation, liability, fines and penalties and require us to incur significant expense to address and remediate or otherwise resolve these issues, resulting in a possible material adverse impact on our financial condition and results of operations.
Such a breach could result in damage to our reputation and subject us to potential litigation, liability, fines and penalties and require us to incur significant expense to address and remediate or otherwise resolve these issues, resulting in a possible material adverse impact on our financial condition and results of operations. 16 A variety of state, national, foreign and international laws and regulations apply to the collection, use, retention, protection, security, disclosure, transfer and other processing of personal and other data.
This surge abated in mid-2022, when spending on these products began to decrease. Although we expect our financial performance to match or exceed pre-pandemic levels, we do not expect our near-term sales to match the levels experienced at the height of the pandemic. 16 We are subject to inventory management risks.
This surge abated in mid-2022, when spending on these products began to decrease. We do not expect our near-term sales to match the levels experienced at the height of the pandemic. We are subject to inventory management risks. Insufficient inventory may result in lost sales opportunities or delayed revenue, while excess inventory may negatively impact our gross margin.
These laws primarily relate to labeling, annual registration and licensing. Management has processes in place to facilitate and support our compliance with these requirements. However, failure to comply with these laws and regulations may result in investigations, the assessment of administrative, civil and criminal fines, damages, seizures, disgorgements, penalties or the imposition of injunctive relief.
However, failure to comply with these laws and regulations may result in investigations, the assessment of administrative, civil and criminal fines, damages, seizures, disgorgements, penalties or the imposition of injunctive relief.
Additionally, if our suppliers experience difficulties or disruptions in their operations, if there is any material interruption in our supply chain (such as the interruptions caused by the COVID-19 pandemic and exacerbated by the war in Ukraine) or if we lose a single significant supplier due to financial failure or a decision to sell exclusively to retailers or end-use consumers, we may experience increased supply costs or delays in establishing replacement supply sources that meet our quality and control standards, which may affect our profitability.
Additionally, if our suppliers experience difficulties or disruptions in their operations, if there is any material interruption in our supply chain or if we lose any significant supplier due to financial failure or any other reason, we may experience increased supply costs or delays in establishing replacement supply sources that meet our quality and control standards, which may affect our profitability.
New competitors may emerge as there are low barriers to entry in our industry, which has led to highly competitive markets consisting of various-sized entities, ranging from small or local operators to large regional businesses.
We may not be able to compete effectively against our competitors and other leisure product alternatives, which could have an adverse impact on our business. New competitors may emerge as there are low barriers to entry in our industry, which has led to highly competitive markets consisting of various-sized entities, ranging from small or local operators to large regional businesses.
Our distribution business is highly dependent on our ability to maintain favorable and stable relationships with suppliers. As a distribution company, maintaining favorable relationships with our suppliers is critical to our success.
As a distribution company, maintaining favorable relationships with our suppliers is critical to our success.
Successful claims for which we are not fully insured may adversely affect our working capital and profitability. In addition, changes in the insurance industry have generally led to higher insurance costs and decreased availability of coverage. 19 We conduct business internationally, which exposes us to additional risks.
In addition, changes in the insurance industry have generally led to higher insurance costs and decreased availability of coverage. We conduct business internationally, which exposes us to additional risks.
Moreover, compliance with such laws and regulations in the future could prove to be costly. Although we presently do not expect to incur any capital or other expenditures relating to regulatory matters in amounts that may be material to us, we may be required to make such expenditures in the future.
Although we presently do not expect to incur any capital or other expenditures relating to regulatory matters in amounts that may be material to us, we may be required to make such expenditures in the future. These laws and regulations have changed substantially and rapidly over the years, and we anticipate that there will be continuing changes.
We believe that we currently enjoy good relationships with our suppliers, who generally offer us competitive pricing, return policies and promotional allowances. However, any failure to maintain favorable relationships with our suppliers could have an adverse effect on our business.
We believe that we currently enjoy good relationships with our suppliers, who generally offer us competitive pricing, return policies and promotional allowances.
Changes in, expanded enforcement of, or adoption of new federal, state, local or international laws and regulations, including those governing minimum wage or living wage requirements, the classification of exempt and non-exempt employees or other wage, labor or workplace regulations, could increase our costs of doing business and adversely impact our results of operations. 18 We sell algaecides and pest control products that are regulated as pesticides under the Federal Insecticide, Fungicide and Rodenticide Act and various state pesticide laws.
Changes in, expanded enforcement of, or adoption of new federal, state, local or international laws and regulations, including those governing minimum wage or living wage requirements, the classification of exempt and non-exempt employees or other wage, labor or workplace regulations, could adversely impact our results of operations.
Advances in computer and software capabilities, encryption technology and other discoveries increase the complexity of our technological environment, including how each interact with our various software platforms. Such advances could delay or hinder our ability to process transactions or could compromise the integrity of our data, resulting in a material adverse impact on our financial condition and results of operations.
Such advances could delay or hinder our ability to process transactions or could compromise the integrity of our data, resulting in a material adverse impact on our financial condition and results of operations.
Unfavorable economic conditions or a downturn in the housing market could result in a significant tightening of credit markets, which can limit the ability of consumers to access financing for new swimming pools and irrigation systems. 13 During 2022 and 2023, interest and inflation rates were higher than the three years prior to 2022, economic uncertainties increased, and consumer credit tightened, which led to a slowdown in new pool permits (signaling a decline in new construction projects).
Unfavorable economic conditions or a downturn in the housing market could result in a significant tightening of credit markets, which can limit the ability of consumers to access financing for these purchases. Over the past couple years, new pool construction projects have decreased, impacted by higher interest rates and inflation, increased economic uncertainties, and tightened consumer credit.
Excess tax benefits or deficiencies recognized from our accounting for share-based awards impact our reported earnings. In 2017, we adopted Accounting Standards Update (ASU) 2016-09, Improvements to Employee Share-Based Payment Accounting .
Changes in laws, court rulings, or differences in interpretation on product classification could lead to changes in duty and tariff rates on these or other imported products. Excess tax benefits or deficiencies recognized from our accounting for share-based awards impact our reported earnings. In 2017, we adopted Accounting Standards Update (ASU) 2016-09, Improvements to Employee Share-Based Payment Accounting .
Moreover, new risks emerge from time to time. Further, our business may also be affected by additional factors that generally apply to all companies operating in the U.S. and globally, which we have not included below.
Further, our business may also be affected by additional factors that generally apply to all companies operating in the U.S. and globally, which we have not included below. Risks Relating to Macroeconomic Conditions or Events The demand for our products may be adversely affected by unfavorable economic conditions and changes in consumer discretionary spending.
Mass market retailers today carry a limited range of, and devote a limited amount of shelf space to, merchandise and products targeted to our industry. Historically, mass market retailers have generally expanded by adding new stores and product breadth, but their product offering of pool and irrigation related products has remained relatively constant.
Historically, mass market retailers have generally expanded by adding new stores and products, but their offering of pool and irrigation related products has remained relatively constant.
The failure to maintain security over and prevent unauthorized access to our data, our customers’ personal information, including credit card information, or data belonging to our suppliers, could put us at a competitive disadvantage.
The failure to prevent unauthorized access to our data or the personal data of our customers or suppliers could put us at a competitive disadvantage.
We maintain what we believe is prudent insurance protection. However, we cannot guarantee that our insurance coverage will be adequate to cover future claims that may arise or that we will be able to maintain adequate insurance in the future at rates we consider reasonable.
However, we cannot guarantee that our insurance coverage will be adequate to cover future claims that may arise or that we will be able to maintain adequate insurance in the future at rates we consider reasonable. Successful claims for which we are not fully insured may adversely affect our working capital and profitability.
We cannot assure you we will continue paying dividends at the current rates, or at all. We cannot assure you we will continue periodic dividends on our capital stock at the current rates, or at all.
Our effective tax rate may also be impacted by changes in the geographic mix of our earnings. We cannot assure you we will continue paying dividends at the current rates, or at all. We cannot assure you we will continue periodic dividends on our capital stock at the current rates, or at all.
Additionally, because the internet facilitates competitive entry, price transparency and comparison shopping, increased internet sales by us or our competitors could increase the level of competition we face or reduce our margin. Further, we may face additional competitive pressures if large pool or irrigation supply retailers look to expand their customer base to compete more directly within the distribution channel.
Additionally, because the internet facilitates competitive entry, price transparency and comparison shopping, increased internet sales by us or our competitors could increase the level of competition we face or reduce our margin.
Taxation and tax policy changes, tax rate changes, new tax laws, revised tax law interpretations and changes in accounting standards and guidance related to tax matters may cause fluctuations in or adversely affect our effective tax rate. Our effective tax rate may also be impacted by changes in the geographic mix of our earnings.
We file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. Taxation and tax policy changes, tax rate changes, new tax laws, changes in tax law interpretations and changes in accounting standards and guidance related to tax matters may cause fluctuations in or adversely affect our effective tax rate.
Various governmental bodies in Europe and the United States, particularly in the state of California, have adopted or proposed laws or regulations increasing the obligations of companies to disclose information about their emissions and other similar data. We expect that these initiatives will increase our operating costs and expose us to additional risk.
Investors or other stakeholders could react negatively to our targets or other positions we take on ESG matters, which could negatively impact our relationships with such stakeholders or result in claims that our initiatives harmed them or us. 17 Various governmental bodies in Europe and the United States, particularly in the state of California, have adopted or proposed laws or regulations increasing the obligations of companies to disclose information about their emissions and other similar data.
In recent years we have faced, and expect to continue to face, various attempted cyber-attacks of increasing sophistication. To date, we are not aware of any cybersecurity incident or threat that materially impacted or could reasonably be anticipated to materially affect our business, results of operations or financial condition.
To date, we are not aware of any cybersecurity incident or threat that materially impacted or could reasonably be anticipated to materially affect our business, results of operations or financial condition. However, we cannot guarantee that we will not experience such an incident in the future.
These laws and regulations have changed substantially and rapidly over the last 25 years, and we anticipate that there will be continuing changes. The clear trend in environmental, health, transportation and safety regulations is to place more restrictions and limitations on activities that impact the environment, such as the use and handling of chemicals and the discharge of greenhouse gases.
The clear trend in environmental, health, transportation and safety regulations is to place more restrictions and limitations on activities that impact the environment, such as the use and handling of chemicals and the discharge of greenhouse gas emissions. It is possible that the costs of compliance with increasingly prescriptive laws and regulations will continue to increase.
In order to successfully manage our inventories, we must estimate demand from our customers and purchase products that substantially correspond to consumer demand. If we overestimate demand and purchase too much of a particular product, we face a risk that the price of that product will fall, leaving us with inventory that we cannot sell at normal profit margins.
If we overestimate demand and purchase too much of a particular product, we face a risk that the price of that product will fall, leaving us with inventory that we cannot sell at optimal profit margins. In addition, we may have to write down such inventory if we are unable to sell it for its recorded value.
The variability and complexity of tariffs and duties exposes us to the risk of higher costs and inadvertent noncompliance associated with our imported products.
The variability and complexity of tariffs and duties exposes us to the risk of higher costs and inadvertent noncompliance associated with our imported products. Moreover, in recent years the United States has generally increased its tariff rates and indicated that additional increases could be forthcoming.
We store chemicals, fertilizers and other combustible materials that involve fire, safety and casualty risks. We store chemicals and fertilizers, including certain combustibles and oxidizing compounds, at our sales centers. A fire, explosion or flood affecting one of our facilities could give rise to fire, safety and casualty losses and related liability claims.
We expect that these initiatives will expose us to additional risk. We store chemicals, fertilizers and other combustible materials that involve fire, safety and casualty risks. We store chemicals and fertilizers, including certain combustibles and oxidizing compounds, at our sales centers.
Terrorist attacks, wars, rioting, labor strife, civil disturbances, societal unrest or political instability could negatively impact us directly by interfering with our ability to operate or indirectly by depressing macroeconomic conditions. Our customers could also encounter hardships that negatively impact their ability to make timely payments to us or to continue doing business with us.
Other catastrophic events or societal unrest could adversely impact our operations. Terrorism and other acts of violence, wars, rioting, labor strife, civil disturbances, societal unrest, geopolitical tensions or political instability could negatively impact us directly by interfering with our ability to operate or indirectly by depressing macroeconomic conditions.
Risks Relating to Technology, Cybersecurity and Data Privacy We rely on information technology systems to support our business operations. A significant disruption, breach or cybersecurity attack of our technological infrastructure could adversely affect our financial condition and results of operations.
Our business, financial condition and results of operations could be negatively impacted if we fail to accurately forecast demand for our products or successfully manage our inventories. 15 Risks Relating to Technology, Cybersecurity and Data Privacy We rely on information technology systems to support our business operations.
In addition, implementing significant system changes increases the risk of computer system disruption. The potential problems and interruptions associated with implementing technology initiatives or conversions (including those contemplated under our multi-year digital transformation project), as well as providing training and support for those initiatives, could disrupt or reduce our operational efficiency.
The potential problems and interruptions associated with implementing technology initiatives or conversions, as well as providing training and support for those initiatives, could disrupt or reduce our operational efficiency. Advances in computer and software capabilities, encryption technology and other discoveries increase the complexity of our technological environment, including how each interact with our various software platforms.
In 2023, we generated approximately 60% of our net sales and 70% of our operating income in the second and third quarters of the year. These quarters represent the peak months of swimming pool use, pool and irrigation installation and remodeling and repair activities. Unfavorable weather during these quarters in our largest geographic regions can significantly affect our results.
These quarters represent the peak months of swimming pool use, pool and irrigation installation and maintenance activities. Unfavorable weather during these quarters in our largest geographic regions can significantly affect our results, as further described in “Seasonality and Weather” in Item 1 of this Form 10-K.
Our largest suppliers are Pentair plc, Hayward Pool Products, Inc. and Zodiac Pool Systems, Inc., which accounted for approximately 19%, 10% and 10%, respectively, of the costs of products we sold in 2023.
However, any failure to maintain favorable relationships with our suppliers could have an adverse effect on our business. 13 Our largest suppliers are Pentair plc, Zodiac Pool Systems, Inc., Hayward Pool Products, Inc., which accounted for 20%, 12% and 11%, respectively, of the costs of products we sold in 2024.
Governmental actions designed to address climate change or the failure to meet environmental social and governance (ESG) expectations or standards or achieve our ESG goals could adversely affect our business.
We might not be able to successfully anticipate and remain in compliance with evolving future regulatory requirements. Governmental actions designed to address changing climate patterns or the failure to meet environmental social and governance (ESG) expectations or standards or achieve our ESG commitments could adversely affect our business and increase our costs of doing business.
Interest rates over the past two years have been substantially higher than the three years prior to 2022, which has increased our debt expense. If interest rates remain elevated or increase, the cost of servicing our variable rate debt not covered by our interest rate swaps could materially reduce our profitability and cash flows.
While the Federal Reserve began cutting interest rates in the latter part of 2024, interest rates remain relatively high. If interest rates remain elevated or increase, the cost of servicing our variable rate debt not covered by our interest rate swaps could materially reduce our profitability and cash flows.
Information technology supports several aspects of our business, including among others, product sourcing, pricing, customer service, transaction processing, inventory management, financial reporting, collections and cost management. Our ability to operate effectively on a day-to-day basis, communicate with our customers and accurately report our results depends on a reliable technological infrastructure, which is inherently susceptible to internal and external threats.
A significant disruption, breach or cybersecurity attack of our technological infrastructure could adversely affect our financial condition and results of operations. Information technology supports several aspects of our business, including among others, transaction processing, customer service, pricing, product sourcing, inventory management, financial reporting, collections and cost management.
Risks Relating to Macroeconomic Conditions or Events The demand for our products may be adversely affected by unfavorable economic conditions and changes in consumer discretionary spending. Demand for our products is subject to fluctuations and is difficult to predict, often due to factors outside of our control.
Demand for our products is subject to fluctuations and is difficult to predict, often due to factors outside of our control.
Changes in import policy or trade relations, interruptions in our supply chain or increased commodity or supply chain costs could adversely affect our results of operations. Like other companies globally, we faced supply chain disruptions across our business in 2021 and the early part of 2022, which led to increased costs, delays and in some cases lost opportunities.
Changes in import policy or trade relations, interruptions in our supply chain or increased commodity or supply chain costs could adversely affect our results of operations.
The areas in which we operate, including California, Florida, Texas and other coastal areas, have experienced recent natural disasters or present increased risks of adverse weather or natural disasters.
The areas in which we operate, including Florida, California, Texas and other coastal areas, have experienced, and are expected to continue to experience, natural disasters and extreme weather events. The physical effects of changing climate patterns may increase the frequency or severity of natural disasters and extreme weather events in the future, which would increase our exposure to these risks.
Risks Relating to Our Business and Industry We are susceptible to adverse weather conditions, which could intensify as a result of climate change. Given the nature of our business, weather is one of the principal external factors affecting our business and the effect of seasonality has a significant impact on our results.
Given the nature of our business, weather is one of the principal external factors affecting our business and the effect of seasonality has a significant impact on our results. In 2024, we generated 60% of our net sales and 73% of our operating income in the second and third quarters of the year.
We are vulnerable to interruption, including by fire, natural disaster, power loss, telecommunication failures, internet failures, security breaches and other catastrophic events.
Our ability to operate effectively on a day-to-day basis, communicate with our customers and accurately report our results depends on a reliable technological infrastructure, which is inherently susceptible to internal and external threats. We are vulnerable to interruption, including by fire, natural disaster, extreme weather events, power loss, telecommunication failures, internet failures, security breaches and other catastrophic events.
Discretionary spending is often adversely affected during times of economic, social or political uncertainty, whether caused by health threats, man-made or natural disasters, or other similar events discussed below in this item 1A. These events could create uncertainties that negatively impact our business in ways that we cannot presently predict. Changes in our customer base could also impact us.
While inflation and interest rates have recently moderated, uncertainty remains, including as to the timing and magnitude of further reductions by the Federal Reserve of its overnight borrowing rate and its corresponding impact on the market. 12 Discretionary spending is often adversely affected during times of economic, social or political uncertainty, whether caused by health threats, man-made or natural disasters, or other similar events discussed below in this item 1A.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Item 1C. Cybersecurity Risk Management and Strategy Our cybersecurity program, which is primarily documented in our business interruption and incident response policy, is designed to assess, identify and manage material risks from cybersecurity threats, and is a component of our overall enterprise risk program.
Item 1C. Cybersecurity Risk Management and Strategy Our cybersecurity program, which is primarily documented in our business interruption and incident response policy, is designed to assess, identify and manage material risks from cybersecurity threats.
This policy guides the response of our global IT team, which, depending on the significance of the incident, includes activating response plans from third-party partners, escalating the issue to executive management, notifying one or more members of our Board, maintaining communication with users and notifying law enforcement and other agencies if warranted.
This policy guides the response of our global IT team, which, depending on the significance of the incident, may include escalating the issue to executive management, notifying one or more members of our Board, maintaining communication with users and notifying law enforcement and other agencies if warranted.
Our CIO, IT management group, architects and network security team members receive briefings and annual training on cybersecurity threats and response methods that provide real world threat scenarios to measure the effectiveness of our programs and technologies in protecting our systems. Our team of professionals also monitors our compliance with laws governing privacy rights, data protection and cybersecurity.
Our CIO, IT management group, architects and network security team members receive briefings and annual training on cybersecurity threats and response methods that provide real world threat scenarios to measure the effectiveness of our programs and technologies in protecting our systems.
However, we cannot guarantee that we will not experience such an incident in the future. For a further description of these risks, see “Risk Factors – Risks Relating to Technology, Cybersecurity and Data Privacy,” included in Item 1A of this Form 10-K, which should be read in conjunction with this Item 1C.
For a further description of these risks, see “Risk Factors – Risks Relating to Technology, Cybersecurity and Data Privacy,” included in Item 1A of this Form 10-K, which should be read in conjunction with this Item 1C.
In recent years we have faced, and expect to continue to face, various attempted cyber-attacks of increasing sophistication. To date, we are not aware of any cybersecurity incident or threat that materially impacted or could reasonably be anticipated to materially affect our business, results of operations or financial condition.
To date, we are not aware of any cybersecurity incident or threat that materially impacted or could reasonably be anticipated to materially affect our business, results of operations or financial condition. However, we cannot guarantee that we will not experience such an incident in the future.
Our incident response policy outlines our protocols for assessing, managing and responding to cyber incidents.
Our team of professionals also monitors our compliance with laws governing privacy rights, data protection and cybersecurity. 21 Our incident response policy outlines our protocols for assessing, managing and responding to cyber incidents.
We incorporate the lessons learned from these engagements into our cybersecurity program. Our cybersecurity program also includes controls to manage risks associated with our use of third-party service providers; however, we cannot ensure in all circumstances that their defensive efforts will be successful. Like most large organizations, we face constant and dynamic risks related to cybersecurity.
Recognizing the risks posed by external partners, we have implemented a third-party risk management program, which includes due diligence assessments, contractual safeguards, and regular monitoring of vendors and partners with access to our systems or data; however, we cannot ensure in all circumstances that their defensive efforts will be successful.
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To combat cybersecurity risk, we focus on proactive procedures such as patch management and quarterly cybersecurity training of our employees. In an effort to mitigate cyber risks for customer-facing software, we incorporate the protocols described above along with software specific programs such as a bug bounty system and partnerships with external experts.
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Our program leverages components from the National Institute of Standards and Technology Cybersecurity Framework (NIST CSF), which we use to help us identify, assess and manage cybersecurity risks relevant to our business. Our cybersecurity program is a component of our overall enterprise risk program.
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To combat cybersecurity risk, we focus on proactive procedures such as patch management and emphasize the importance of cybersecurity across our organization through quarterly trainings, which include best practices and participation in simulated phishing exercises to strengthen employee vigilance.
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We also regularly test our environment as part of our focus on identifying and eliminating vulnerabilities. We incorporate the lessons learned from these engagements into our cybersecurity program.
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Like most large organizations, we face constant and dynamic risks related to cybersecurity. In recent years we have faced, and expect to continue to face, various attempted cyber-attacks of increasing sophistication.

Item 2. Properties

Properties — owned and leased real estate

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As part of our acquisition of Porpoise Pool & Patio, Inc. in December 2021, we own the corporate headquarters, which consist of approximately 46,000 square feet, and the Sun Wholesale Supply facilities located in Florida, which consist of approximately 209,000 square feet.
As part of our 2021 acquisition of Porpoise Pool & Patio, Inc., we own the corporate headquarters, which consist of approximately 46,000 square feet and the Sun Wholesale Supply facilities located in Florida, which consist of approximately 209,000 square feet.
Item 2. Properties We lease the Pool Corporation corporate offices, which consist of approximately 60,000 square feet of office space in Covington, Louisiana, from an entity in which we have a 50% ownership interest.
Item 2. Properties We lease our corporate offices, which consist of approximately 60,000 square feet of office space in Covington, Louisiana, from an entity in which we have a 50% ownership interest.
As of December 31, 2023, we had twenty-two leases with remaining terms longer than seven years that expire between 2031 and 2036. Most of our leases contain renewal options, some of which involve rent increases. In addition to minimum rental payments, which are set at competitive rates, certain leases require reimbursement for taxes, maintenance and insurance.
As of December 31, 2024, we had sixteen leases with remaining terms longer than seven years that expire between 2032 and 2036. Most of our leases contain renewal options, some of which involve rent increases. In addition to minimum rental payments, which are set at competitive rates, certain leases require reimbursement for taxes, maintenance and insurance.
(2) In addition to the stand-alone NPT sales centers, there are over 100 SCP and Superior locations that have consumer showrooms and serve as stocking locations that feature NPT brand tile and composite finish products. 23 The tables below identify the number of sales centers in each state, territory or country by distribution network as of December 31, 2023: Location SCP Superior Horizon NPT Total United States California 29 25 19 6 79 Florida 41 5 17 1 64 Texas 27 5 22 5 59 Arizona 8 8 11 3 30 Washington 3 — 8 — 11 Georgia 7 2 — 1 10 North Carolina 5 2 2 1 10 Tennessee 6 4 — — 10 Nevada 2 3 3 1 9 New York 9 — — — 9 Alabama 5 2 — — 7 New Jersey 5 2 — — 7 Pennsylvania 5 1 — 1 7 Virginia 3 1 3 — 7 Louisiana 5 — — 1 6 Illinois 4 1 — — 5 Indiana 2 3 — — 5 Oregon 1 — 4 — 5 South Carolina 4 1 — — 5 Colorado 1 2 1 — 4 Missouri 3 1 — — 4 Ohio 2 2 — — 4 Oklahoma 2 1 — 1 4 Arkansas 3 — — — 3 Idaho 1 — 2 — 3 Massachusetts 3 — — — 3 Connecticut 2 — — — 2 Kansas 2 — — — 2 Michigan 2 — — — 2 Minnesota 1 1 — — 2 Mississippi 2 — — — 2 Wisconsin 1 1 — — 2 Hawaii 1 — — — 1 Iowa 1 — — — 1 Kentucky — 1 — — 1 Maryland 1 — — — 1 Nebraska 1 — — — 1 New Mexico 1 — — — 1 North Dakota 1 — — — 1 Puerto Rico 1 — — — 1 Utah 1 — — — 1 West Virginia 1 — — — 1 Total United States 205 74 92 21 392 24 Location SCP Superior Horizon NPT Total International Canada 17 — — — 17 France 8 — — — 8 Australia 6 — — — 6 Mexico 5 — — — 5 Portugal 3 — — — 3 Italy 2 — — — 2 Spain 2 — — — 2 Belgium 1 — — — 1 Croatia 1 — — — 1 Germany 1 — — — 1 United Kingdom 1 — — — 1 Total International 47 — — — 47 Total 252 74 92 21 439 25
(2) In addition to the stand-alone NPT sales centers, there are 117 SCP and Superior locations that have consumer showrooms and serve as stocking locations that feature NPT brand tile and composite finish products. 23 The tables below identify the number of sales centers in each state, territory or country by distribution network as of December 31, 2024: Location SCP Horizon Superior NPT Total United States California 29 20 25 7 81 Florida 44 17 5 — 66 Texas 31 20 5 3 59 Arizona 8 11 8 3 30 Georgia 8 — 2 1 11 Washington 3 8 — — 11 Tennessee 6 — 4 — 10 Nevada 2 3 3 1 9 New York 9 — — — 9 North Carolina 5 1 2 1 9 Alabama 5 — 2 — 7 New Jersey 5 — 2 — 7 Pennsylvania 6 — 1 — 7 Virginia 3 3 1 — 7 Louisiana 5 — — 1 6 Illinois 4 — 1 — 5 Indiana 2 — 3 — 5 Oregon 1 4 — — 5 South Carolina 4 — 1 — 5 Colorado 1 1 2 — 4 Missouri 3 — 1 — 4 Ohio 2 — 2 — 4 Oklahoma 2 — 1 1 4 Arkansas 3 — — — 3 Idaho 1 2 — — 3 Mississippi 3 — — — 3 Massachusetts 3 — — — 3 Michigan 3 — — — 3 Connecticut 2 — — — 2 Kansas 2 — — — 2 Kentucky 1 — 1 — 2 Minnesota 1 — 1 — 2 Utah 2 — — — 2 Wisconsin 1 — 1 — 2 Hawaii 1 — — — 1 Iowa 1 — — — 1 Maryland 1 — — — 1 Nebraska 1 — — — 1 New Mexico 1 — — — 1 North Dakota 1 — — — 1 Puerto Rico 1 — — — 1 West Virginia 1 — — — 1 Total United States 218 90 74 18 400 24 Location SCP Horizon Superior NPT Total International Canada 17 — — — 17 France 9 — — — 9 Australia 6 — — — 6 Mexico 5 — — — 5 Portugal 3 — — — 3 Italy 2 — — — 2 Spain 2 — — — 2 Belgium 1 — — — 1 Croatia 1 — — — 1 Germany 1 — — — 1 United Kingdom 1 — — — 1 Total International 48 — — — 48 Total 266 90 74 18 448 25
We own fifteen sales center facilities, which includes six sales center facilities in Florida, three in Texas, two in Alabama, and one in each of California, Georgia, Mississippi and Tennessee.
We own seventeen sales center facilities, which includes seven sales center facilities in Florida, three in Texas, two in Alabama, and one in each of California, Georgia, Mississippi, Tennessee and Virginia.
As part of this acquisition, we also acquired a chemical re-packaging plant in Florida, which is approximately 105,000 square feet. We lease all of our other properties, and the majority of our leases have three to seven year terms.
We also own a chemical re-packaging plant in Florida, which is approximately 105,000 square feet, and lease three additional properties for storage space that range in size from 39,000 square feet to 122,000 square feet. We lease all of our other properties, and the majority of our leases have three to seven year terms.
The table below summarizes the changes in our sales centers during the year ended December 31, 2023: Network 12/31/22 New Locations Closed Location Acquired Location 12/31/23 SCP (1) 196 7 — 2 205 Superior 73 1 — — 74 Horizon 88 2 — 2 92 NPT (2) 19 2 — — 21 Total Domestic 376 12 — 4 392 SCP International 44 2 — 1 47 Total 420 14 — 5 439 (1) Total includes one distribution location for Sun Wholesale Supply, which we acquired in December 2021.
The table below summarizes the changes in our sales centers during the year ended December 31, 2024: Network 12/31/23 New Locations Consolidated/Closed Locations Acquired Locations 12/31/24 SCP (1) 209 7 — 2 218 Superior 74 — — — 74 Horizon 92 1 (3) — 90 NPT (2) 17 1 — — 18 Total Domestic 392 9 (3) 2 400 SCP International 47 1 — — 48 Total 439 10 (3) 2 448 (1) At December 31, 2024, this total includes two distribution locations for Sun Wholesale Supply.
As part of the acquisition, we also acquired non-sales center properties including a chemical re-packaging plant and three Pinch A Penny, Inc. retail stores in Florida.
We also own and operate a chemical re-packaging plant and one Pinch A Penny retail store. At December 31, 2023, we owned three Pinch A Penny retail stores and sold two of these in 2024.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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The following graph compares the cumulative total shareholder return on our common stock for the last five fiscal years with the total return on the S&P 500 Index (of which we have been a member since 2020) and the Nasdaq Index for the same period, in each case assuming the investment of $100 on December 31, 2018 and the reinvestment of all dividends.
The following graph compares the cumulative total shareholder return on our common stock for the last five fiscal years with the total return on the S&P 500 Index (of which we have been a member since 2020) and the Nasdaq Index for the same period, in each case assuming the investment of $100 on December 31, 2019 and the reinvestment of all dividends.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Common Stock Our common stock is traded on the Nasdaq Global Select Market under the trading symbol “POOL.” On February 20, 2024, there were approximately 782 holders of record of our common stock and a significantly larger number of beneficial holders of our common stock.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Common Stock Our common stock is traded on the Nasdaq Global Select Market under the trading symbol “POOL.” On February 20, 2025, there were approximately 829 holders of record of our common stock and a significantly larger number of beneficial holders of our common stock.
As of February 20, 2024, $344.1 million of the authorized amount remained available for use under our current share repurchase program. Unregistered Sales of Equity Securities There were no unregistered sales of equity securities during the three months ended December 31, 2023.
As of February 20, 2025, $336.8 million remained available for use under our current share repurchase program. Unregistered Sales of Equity Securities There were no unregistered sales of equity securities during the three months ended December 31, 2024.
There were 129 shares surrendered for this purpose in the fourth quarter of 2023. (2) In May 2023, our Board authorized an additional $413.6 million under our share repurchase program for the repurchase of shares of our common stock in the open market at prevailing market prices bringing the total authorization available under the program to $600.0 million.
There were 125 shares surrendered for this purpose in the fourth quarter of 2024. (2) In May 2024, our Board approved an additional $316.2 million under our share repurchase program for the repurchase of shares of our common stock on the open market at prevailing market prices bringing the total authorization available under the program to $600.0 million.
Common Stock Dividends We initiated quarterly dividend payments to our shareholders in the second quarter of 2004 and we have continued payments in each subsequent quarter. Our Board has increased the dividend amount eighteen times, including in the fourth quarter of 2004, annually in the second quarters of 2005 through 2008 and in the second quarters of 2011 through 2023.
Common Stock Dividends We initiated quarterly dividend payments to our shareholders in the second quarter of 2004 and we have continued payments in each subsequent quarter. Our Board has increased the dividend amount nineteen times, most recently in the second quarters of 2011 through 2024.
We cannot assure shareholders or potential investors that dividends will be declared or paid any time in the future.
We cannot assure shareholders or potential investors that dividends will be declared or paid any time in the future if our Board determines that there is a better use of our funds.
Additionally, we chose the S&P 500 Index for comparison, as opposed to an industry index, because we do not believe that we can reasonably identify a peer group or a published industry or line-of-business index that contains a sufficient number of companies in a similar line of business. 27 Base Period Indexed Returns Years Ending Company / Index 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 Pool Corporation $ 100.00 $ 144.50 $ 255.71 $ 391.17 $ 211.10 $ 281.84 S&P 500 Index 100.00 131.49 155.68 200.37 164.08 207.21 Nasdaq Index 100.00 136.69 198.10 242.03 163.28 236.17 Issuer Purchases of Equity Securities The table below summarizes the repurchases of our common stock in the fourth quarter of 2023: Period Total Number of Shares Purchased (1) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plan (2) Maximum Approximate Dollar Value of Shares That May Yet be Purchased Under the Plan (2) October 1 – October 31, 2023 25,549 $ 314.68 25,420 $ 455,321,054 November 1 – November 30, 2023 91,355 $ 326.90 91,355 $ 425,457,224 December 1 – December 31, 2023 216,354 $ 375.99 216,354 $ 344,111,238 Total 333,258 $ 357.83 333,129 (1) These shares may include shares of our common stock surrendered to us by employees in order to satisfy minimum tax withholding obligations in connection with certain exercises of employee stock options or lapses upon vesting of restrictions on previously restricted share awards, and/or to cover the exercise price of such options granted under our share-based compensation plans.
Additionally, we chose the S&P 500 Index for comparison, as opposed to an industry index, because we do not believe that we can reasonably identify a peer group or a published industry or line-of-business index that contains a sufficient number of companies in a similar line of business. 27 Base Period Indexed Returns Years Ending Company / Index 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 12/31/24 Pool Corporation $ 100.00 $ 176.95 $ 270.70 $ 146.09 $ 195.04 $ 168.93 S&P 500 Index 100.00 118.40 152.39 124.79 157.59 197.02 Nasdaq Index 100.00 144.92 177.06 119.45 172.77 223.87 Issuer Purchases of Equity Securities The table below summarizes the repurchases of our common stock in the fourth quarter of 2024: Period Total Number of Shares Purchased (1) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plan (2) Maximum Approximate Dollar Value of Shares That May Yet be Purchased Under the Plan (2) October 1 – October 31, 2024 55,752 $ 363.34 55,692 $ 486,956,114 November 1 – November 30, 2024 170,615 $ 360.71 170,550 $ 425,421,246 December 1 – December 31, 2024 175,915 $ 355.58 175,915 $ 362,869,451 Total 402,282 $ 358.83 402,157 (1) These shares may include shares of our common stock surrendered to us by employees in order to satisfy minimum tax withholding obligations in connection with certain exercises of employee stock options or lapses upon vesting of restrictions on previously restricted share awards, and/or to cover the exercise price of such options granted under our share-based compensation plans.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

105 edited+33 added−45 removed69 unchanged
In evaluating the adequacy of our reserve for inventory obsolescence, we consider a combination of factors, including: • the level of inventory in relation to historical sales by product, including inventory usage by class based on product sales at both the sales center level and on a company-wide basis; • changes in customer preferences or regulatory requirements; • seasonal fluctuations in inventory levels; • geographic location; and • superseded products and new product offerings.
In evaluating the adequacy of our reserve for inventory obsolescence, we consider a combination of factors, including: • the level of inventory in relation to historical sales by product, including inventory usage based on product sales at both the sales center level and on a company-wide basis; • changes in customer preferences or regulatory requirements; • seasonal fluctuations in inventory levels; • geographic location; and • superseded products and new product offerings.
Our quarterly performance-based compensation expense and accrual balances may vary relative to actual annual bonus expense and payouts due to the following differences between estimated and actual performance and the discretionary components of the bonus plans. We generally make bonus payments at the end of February following the most recently completed fiscal year.
Our quarterly performance-based compensation expense and accrual balances may vary relative to actual annual bonus expense and payouts due to differences between estimated and actual performance and the discretionary components of the bonus plans. 34 We generally make bonus payments at the end of February following the most recently completed fiscal year.
Changes in our purchasing mix also impact our estimates, as certain program rates can vary depending on our volume of purchases from specific vendors. 33 We continually revise these estimates throughout the year to reflect actual purchase levels and identifiable trends.
Changes in our purchasing mix also impact our estimates, as certain program rates can vary depending on our volume of purchases from specific vendors. We continually revise these estimates throughout the year to reflect actual purchase levels and identifiable trends.
For a discussion of our sources and uses of cash in 2021, see the Liquidity and Capital Resources – Sources and Uses of Cash section of Management’s Discussion and Analysis included in Part II, Item 7 of our 2022 Annual Report on Form 10-K. 43 Future Sources and Uses of Cash To supplement cash from operations as our primary source of working capital, we will continue to utilize our three major credit facilities, which are the Amended and Restated Revolving Credit Facility (the Credit Facility), the Term Facility (the Term Facility) and the Receivables Securitization Facility (the Receivables Facility).
For a discussion of our sources and uses of cash in 2022, see the Liquidity and Capital Resources – Sources and Uses of Cash section of Management’s Discussion and Analysis included in Part II, Item 7 of our 2023 Annual Report on Form 10-K. 43 Future Sources and Uses of Cash To supplement cash from operations as our primary source of working capital, we will continue to utilize our three major credit facilities, which are the Amended and Restated Revolving Credit Facility (the Credit Facility), the Term Facility (the Term Facility) and the Receivables Securitization Facility (the Receivables Facility).
We believe we will remain in compliance with all covenants and financial ratio requirements throughout 2024. For additional information regarding our debt arrangements, see Note 5 of “Notes to Consolidated Financial Statements,” included in Item 8 of this Form 10-K. Future Obligations We have certain fixed contractual obligations and commitments that include future estimated payments for general operating purposes.
We believe we will remain in compliance with all covenants and financial ratio requirements throughout 2025. For additional information regarding our debt arrangements, see Note 5 of “Notes to Consolidated Financial Statements,” included in Item 8 of this Form 10-K. Future Obligations We have certain fixed contractual obligations and commitments that include future estimated payments for general operating purposes.
Changes in our business needs, fluctuating interest rates and other factors may result in actual payments differing from our estimates. We cannot provide certainty regarding the timing and amounts of these payments. The following table summarizes our obligations as of December 31, 2023 that are expected to impact liquidity and cash flow in future periods.
Changes in our business needs, fluctuating interest rates and other factors may result in actual payments differing from our estimates. We cannot provide certainty regarding the timing and amounts of these payments. The following table summarizes our obligations as of December 31, 2024 that are expected to impact liquidity and cash flow in future periods.
Based on management’s current plans, we project capital expenditures for 2024 will average 1% to 1.5% of net sales. We believe we have adequate availability of capital to fund present operations and the current capacity to finance any working capital needs that may arise. We continually evaluate potential acquisitions and hold discussions with acquisition candidates.
Based on management’s current plans, we project capital expenditures for 2025 will average 1% to 1.5% of net sales. We believe we have adequate availability of capital to fund present operations and the current capacity to finance any working capital needs that may arise. We continually evaluate potential acquisitions and hold discussions with acquisition candidates.
In June 2023, we made a prepayment on the Term Facility of $45.0 million with $32.4 million applied against the remaining quarterly installments and the remainder applied against the amount due at maturity. At December 31, 2023, the Term Facility had an outstanding balance of $109.9 million at a weighted average effective interest rate of 6.6%.
In June 2023, we made a prepayment on the Term Facility of $45.0 million with $32.4 million applied against the remaining quarterly installments and the remainder applied against the amount due at maturity. At December 31, 2024, the Term Facility had an outstanding balance of $109.9 million at a weighted average effective interest rate of 5.6%.
For more information, see Note 5 of “Notes to Consolidated Financial Statements” included in Item 8 of this Form 10-K. Compliance and Future Availability As of December 31, 2023, we were in compliance with all covenants and financial ratio requirements under our Credit Facility, our Term Facility and our Receivables Facility.
For more information, see Note 5 of “Notes to Consolidated Financial Statements” included in Item 8 of this Form 10-K. Compliance and Future Availability As of December 31, 2024, we were in compliance with all covenants and financial ratio requirements under our Credit Facility, our Term Facility and our Receivables Facility.
We calculated estimates of future interest payments based on the December 31, 2023 outstanding debt balances, using the fixed rates under our interest rate swap agreements for the applicable notional amounts and the weighted average effective interest rates as of December 31, 2023 for the remaining outstanding balances not covered by our swap contracts.
We calculated estimates of future interest payments based on the December 31, 2024 outstanding debt balances, using the fixed rates under our interest rate swap agreements for the applicable notional amounts and the weighted average effective interest rates as of December 31, 2024 for the remaining outstanding balances not covered by our swap contracts.
Weather Impacts on Fiscal Year 2022 to Fiscal Year 2021 Comparisons For a detailed discussion of Weather Impacts on Fiscal Year 2022 compared to Fiscal Year 2021, see the Seasonality and Quarterly Fluctuations section of Management’s Discussion and Analysis included in Part II, Item 7 of our 2022 Annual Report on Form 10-K.
Weather Impacts on Fiscal Year 2023 to Fiscal Year 2022 Comparisons For a detailed discussion of Weather Impacts on Fiscal Year 2023 compared to Fiscal Year 2022, see the Seasonality and Quarterly Fluctuations section of Management’s Discussion and Analysis included in Part II, Item 7 of our 2023 Annual Report on Form 10-K.
As of December 31, 2023, we had two interest rate swap contracts in place and one forward-starting interest rate swap contract, each of which has the effect of converting our exposure to variable interest rates on a portion of our variable rate borrowings to fixed interest rates.
As of December 31, 2024, we had two interest rate swap contracts in place and one forward-starting interest rate swap contract, each of which has the effect of converting our exposure to variable interest rates on a portion of our variable rate borrowings to fixed interest rates.
We believe that we are well positioned to benefit from the inherent long-term growth opportunities in our industry fueled by favorable population migration trends, strong housing demand dynamics and product developments and technological advancements as consumers focus on more environmentally sustainable and energy-efficient products.
We believe that we are well positioned to benefit from the inherent long-term growth opportunities in our industry fueled by favorable population migration trends, positive housing demand dynamics, and product developments and technological advancements as consumers focus on more sustainable and energy-efficient products.
We may recognize additional tax benefits related to stock option exercises in 2024 from grants that expire in years after 2024, for which we have not included any expected benefits in our guidance.
We may recognize additional tax benefits related to stock option exercises in 2025 from grants that expire in years after 2025, for which we have not included any expected benefits in our guidance.
The fair value estimates used in our impairment test is determined using discounted cash flow models, which require the use of significant unobservable inputs, representative of a Level 3 fair value measurement.
The fair value estimates used in our impairment test are determined using discounted cash flow models, which require the use of significant unobservable inputs, representative of a Level 3 fair value measurement.
Our capital spending primarily relates to leasehold improvements, delivery and service vehicles and information technology. We focus our capital expenditure plans based on the needs of our sales centers. In recent years, we have increased our investment in technology and automation enabling us to operate more efficiently and better serve our customers.
We focus our capital expenditure plans based on the needs of our existing sales centers and the opening of new sales centers. Our capital spending primarily relates to leasehold improvements, delivery and service vehicles and information technology. In recent years, we have increased our investment in technology and automation enabling us to operate more efficiently and better serve our customers.
As of December 31, 2023, U.S. income taxes were not provided on the earnings or cash balances of our foreign subsidiaries, outside of the provisions of the transition tax from U.S. tax reform.
As of December 31, 2024, U.S. income taxes were not provided on the earnings or cash balances of our foreign subsidiaries, outside of the provisions of the transition tax from U.S. tax reform.
Our primary capital needs are seasonal working capital obligations, debt repayment obligations and other general corporate initiatives, including acquisitions, opening new sales centers, dividend payments and share repurchases. Our primary working capital obligations are for the purchase of inventory, payroll, rent, other facility costs and selling and administrative expenses.
Our primary capital needs are seasonal working capital obligations, debt repayment obligations and other general corporate initiatives, including acquisitions, opening new sales centers, technology-related investments, dividend payments and share repurchases. Our primary working capital obligations are for the purchase of inventory, payroll, rent, other facility costs and selling and administrative expenses.
The weighted average effective interest rate for the Credit Facility as of December 31, 2023 was approximately 4.7%, excluding commitment fees and including the impact of our interest rate swaps. Term Facility Our Term Facility provides for $185.0 million in borrowing capacity and matures on December 30, 2026.
The weighted average effective interest rate for the Credit Facility as of December 31, 2024 was approximately 4.0%, excluding commitment fees and including the impact of our interest rate swaps. Term Facility Our Term Facility provides for $185.0 million in borrowing capacity and matures on December 30, 2026.
Our discussion of consolidated operating results includes the operating results from acquisitions in 2023, 2022 and 2021. We have included the results of operations in our consolidated results since the respective acquisition dates.
Our discussion of consolidated operating results includes the operating results from acquisitions in 2024, 2023 and 2022. We have included the results of operations in our consolidated results since the respective acquisition dates.
Sales to specialty retailers that sell swimming pool supplies and customers who service large commercial installations are included in the appropriate existing product categories, and growth in these areas is reflected in the discussion above. In 2023, sales to retail customers decreased 10% compared to 2022 and represented approximately 14% of our consolidated net sales.
Sales to specialty retailers that sell swimming pool supplies and customers who service large commercial installations are included in the appropriate existing product categories, and growth in these areas is reflected in the discussion above. In 2024, sales to retail customers decreased 4% compared to 2023 and represented approximately 14% of our consolidated net sales.
These write-offs are charged against our allowance for doubtful accounts. In the past five years, write-offs have averaged approximately 0.09% of net sales annually. Write-offs as a percentage of net sales approximated 0.12% in 2023, 0.08% in 2022 and 0.06% in 2021. We expect that write-offs will range from 0.05% to 0.10% of net sales in 2024.
These write-offs are charged against our allowance for doubtful accounts. In the past five years, write-offs have averaged approximately 0.10% of net sales annually. Write-offs as a percentage of net sales approximated 0.16% in 2024, 0.12% in 2023 and 0.08% in 2022. We expect that write-offs will range from 0.05% to 0.10% of net sales in 2025.
We believe this measure 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 disclosures. Other companies may calculate this non-GAAP financial measure differently than we do, which may limit their usefulness as a comparative measure.
We believe this measure 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 disclosures in this Form 10-K. Other companies may calculate this non-GAAP financial measure differently than we do, which may limit its usefulness as a comparative measure.
(Unaudited) Year Ended December 31, 2023 2022 Diluted EPS $ 13.35 $ 18.70 Less: ASU 2016-09 tax benefit 0.17 0.27 Adjusted diluted EPS $ 13.18 $ 18.43 Fiscal Year 2022 compared to Fiscal Year 2021 For a detailed discussion of the Results of Operations in Fiscal Year 2022 compared to Fiscal Year 2021, see the Results of Operations section of Management’s Discussion and Analysis included in Part II, Item 7 of our 2022 Annual Report on Form 10-K. 40 Seasonality and Quarterly Fluctuations For discussion regarding the effects seasonality and weather have on our business, see Item 1, “Business,” of this Form 10-K.
(Unaudited) Year Ended December 31, 2024 2023 Diluted EPS $ 11.30 $ 13.35 Less: ASU 2016-09 tax benefit 0.23 0.17 Adjusted diluted EPS $ 11.07 $ 13.18 Fiscal Year 2023 compared to Fiscal Year 2022 For a detailed discussion of the Results of Operations in Fiscal Year 2023 compared to Fiscal Year 2022, see the Results of Operations section of Management’s Discussion and Analysis included in Part II, Item 7 of our 2023 Annual Report on Form 10-K. 40 Seasonality and Quarterly Fluctuations For discussion regarding the effects seasonality and weather have on our business, see Item 1, “Business,” of this Form 10-K.
The following table presents certain unaudited quarterly data for 2023 and 2022. We have included income statement and balance sheet data for the most recent eight quarters to allow for a meaningful comparison of the seasonal fluctuations in these amounts. In our opinion, this information reflects all normal and recurring adjustments considered necessary for a fair presentation of this data.
The following table presents certain unaudited quarterly included income statement and balance sheet data for the most recent eight quarters to allow for a meaningful comparison of the seasonal fluctuations in these amounts. We believe this information reflects all normal and recurring adjustments considered necessary for a fair presentation of this data.
The forward-looking statements in this Current Trends and Outlook section and elsewhere in this document are subject to significant risks and uncertainties, including the sensitivity of our business to weather conditions; changes in the economy, consumer discretionary spending, the housing market, interest or inflation rates; our ability to maintain favorable relationships with suppliers and manufacturers; the extent to which home-centric trends experienced during the height of the pandemic will moderate or reverse; competition from other leisure product alternatives or mass merchants; our ability to continue to execute our growth strategies; changes in the regulatory environment; new or additional taxes, duties or tariffs; excess tax benefits or deficiencies recognized under ASU 2016-09 and other risks detailed in Item 1A of this Form 10-K.
The forward-looking statements in this Current Trends and Outlook section and elsewhere in this document are subject to significant risks and uncertainties, including the sensitivity of our business to weather conditions; changes in the economy, consumer discretionary spending, the housing market, inflation, or interest rates; our ability to maintain favorable relationships with suppliers and manufacturers; the extent to which favorable consumer spending trends over the past several years will continue; competition from other leisure product alternatives or mass merchants; our ability to continue to execute our growth strategies; changes in the regulatory environment; new or additional taxes, duties or tariffs; excess tax benefits or deficiencies recognized under ASU 2016-09 and other risks detailed in Item 1A of this Form 10-K.
Our most significant goodwill balance of $403.5 million was related to our Porpoise Pool & Patio reporting unit and the next largest goodwill balance for a reporting unit was $12.1 million. The average goodwill balance per reporting unit was $2.8 million.
Our most significant goodwill balance of $401.6 million was related to our Porpoise Pool & Patio reporting unit and the next largest goodwill balance for a reporting unit was $12.1 million. The average goodwill balance per reporting unit was $2.8 million.
Income Taxes Our effective income tax rate was 24.0% at December 31, 2023 and December 31, 2022. We recorded a $6.7 million, or $0.17 per diluted share, benefit from ASU 2016-09 for the year ended December 31, 2023 compared to a benefit of $10.8 million, or $0.27 per diluted share, realized in 2022.
Income Taxes Our effective income tax rate was 23.4% at December 31, 2024 and 24.0% at December 31, 2023. We recorded a $8.8 million, or $0.23 per diluted share, benefit from ASU 2016-09 for the year ended December 31, 2024 compared to a benefit of $6.7 million, or $0.17 per diluted share, realized in 2023.
In 2024, we expect our effective tax rate will be approximately 25.3% without the impact of ASU 2016-09. Our effective tax rate is dependent upon our results of operations and may change if actual results are different from our current expectations.
In 2025, we expect our effective tax rate will be around 25% without the impact of ASU 2016-09. Our effective tax rate is dependent upon our results of operations and may change if actual results are different from our current expectations.
We recorded a $6.7 million, or $0.17 per diluted share, tax benefit from Accounting Standards Update (ASU) 2016-09, Improvements to Employee Share-Based Payment Accounting, for the year ended December 31, 2023 compared to a tax benefit of $10.8 million, or $0.27 per diluted share, realized in 2022.
We recorded an $8.8 million, or $0.23 per diluted share, tax benefit from Accounting Standards Update (ASU) 2016-09, Improvements to Employee Share-Based Payment Accounting, for the year ended December 31, 2024 compared to a tax benefit of $6.7 million, or $0.17 per diluted share, realized in 2023.
We estimate that we have approximately $3.8 million in unrealized excess tax benefits related to stock options that expire and restricted awards that vest in the first quarter of 2024.
We estimate that we have approximately $3.2 million in unrealized excess tax benefits related to stock options that expire and restricted awards that vest in the first quarter of 2025.
We also plan to broaden our geographic presence by opening about 10 or more new sales centers in 2024 and by making selective acquisitions when appropriate opportunities arise. We base our assumptions on normal weather conditions and do not incorporate alternative weather predictions into our guidance.
We also plan to broaden our geographic presence by opening 8 to 10 new sales centers in 2025 and by making selective acquisitions when appropriate opportunities arise. We base our assumptions on normal weather conditions and do not incorporate alternative weather predictions into our guidance.
The estimated impact related to ASU 2016-09 is subject to several assumptions which can vary significantly, including our estimated share price and the period that our employees will exercise vested stock options. We recorded a $6.7 million benefit in our provision for income taxes for the year ended December 31, 2023 related to ASU 2016-09.
The estimated impact related to ASU 2016-09 is subject to several assumptions which can vary significantly, including our estimated share price and the period that our employees will exercise vested stock options. We recorded an $8.8 million benefit in our provision for income taxes for the year ended December 31, 2024 related to ASU 2016-09.
We pay interest on borrowings under the Receivables Facility at a variable rate based on one month Term SOFR, plus an applicable margin. The Receivables Facility matures on November 1, 2024. The Receivables Facility provides for the sale of certain of our receivables to a wholly owned subsidiary (the Securitization Subsidiary).
We pay interest on borrowings under the Receivables Facility at a variable rate based on one month Term SOFR, plus an applicable margin. The Receivables Facility matures on October 30, 2026. The Receivables Facility provides for the sale of certain of our receivables to a wholly owned subsidiary (the Securitization Subsidiary).
Impairment of Goodwill and Other Indefinite-Lived Intangible Assets Goodwill is our largest intangible asset. At December 31, 2023, our goodwill balance was $700.1 million, representing approximately 20% of total assets. Goodwill represents the excess of the amount we paid to acquire a company over the estimated fair value of tangible assets and identifiable intangible assets acquired, less liabilities assumed.
Impairment of Goodwill and Other Indefinite-Lived Intangible Assets Goodwill is our largest intangible asset. At December 31, 2024, our goodwill balance was $698.9 million, representing approximately 21% of total assets. Goodwill represents the excess of the amount we paid to acquire a company over the estimated fair value of tangible assets and identifiable intangible assets acquired less liabilities assumed.
Our reserve for inventory obsolescence was $23.5 million at December 31, 2023 compared to $21.2 million at December 31, 2022. Our inventory turns, as calculated on a trailing four quarters basis, were 2.7 times at December 31, 2023 and 2.6 times at December 31, 2022.
Our reserve for inventory obsolescence was $26.7 million at December 31, 2024 compared to $23.5 million at December 31, 2023. Our inventory turns, as calculated on a trailing four quarters basis, were 2.8 times at December 31, 2024 and 2.7 times at December 31, 2023.
Historically, our capital expenditures have averaged roughly 1.0% of net sales. Capital expenditures were 1.1% of net sales in 2023 and 0.7% of net sales in 2022 and 2021. In 2022 and 2021, our capital expenditures as a percentage of net sales were lower than our historical average due to our significant sales growth in those years.
Historically, our capital expenditures have averaged roughly 1.0% of net sales. Capital expenditures were 1.1% of net sales in 2024, 1.1% of net sales in 2023 and 0.7% in 2022. In 2022, our capital expenditures as a percentage of net sales were lower than our historical average due to significant sales growth in that year.
The Term Facility is repaid in quarterly installments of 1.250% of the Term Facility on the last business day of each quarter beginning in the first quarter of 2020. We may prepay amounts outstanding under the Term Facility without penalty other than interest breakage costs.
The Term Facility is repaid in quarterly installments of 1.250% of the Term Facility on the last business day of each quarter beginning in the first quarter of 2020 with the final principal repayment due on the maturity date. We may prepay amounts outstanding under the Term Facility without penalty other than interest breakage costs.
If the balance of the accounts receivable reserve increased or decreased by 20% at December 31, 2023, pretax income would change by approximately $2.3 million and earnings per share would change by approximately $0.04 per diluted share (based on the number of weighted average diluted shares outstanding for the year ended December 31, 2023).
If the balance of the accounts receivable reserve increased or decreased by 20% at December 31, 2024, pretax income would change by approximately $1.7 million and earnings per share would change by approximately $0.03 per diluted share (based on the number of weighted average diluted shares outstanding for the year ended December 31, 2024).
If the balance of our inventory reserve increased or decreased by 20% at December 31, 2023, pretax income would change by approximately $4.7 million and earnings per share would change by approximately $0.09 per diluted share (based on the number of weighted average diluted shares outstanding for the year ended December 31, 2023).
If the balance of our inventory reserve increased or decreased by 20% at December 31, 2024, pretax income would change by approximately $5.3 million and earnings per share would change by approximately $0.10 per diluted share (based on the number of weighted average diluted shares outstanding for the year ended December 31, 2024).
COVID-19 Pandemic and Other Economic Trends Beginning in the second quarter of 2020 during the COVID-19 pandemic, we experienced unprecedented demand as families spent more time at home and sought opportunities to create or expand home-based outdoor living and entertainment spaces. This trend had a positive impact on our financial performance during 2020 through 2022.
During the COVID-19 pandemic (generally 2020 through 2022), we experienced unprecedented demand as families spent more time at home and sought opportunities to create or expand home-based outdoor living and entertainment spaces. This trend had a positive impact on our financial performance during 2020 through 2022.
To estimate the fair value of our reporting units, we project company-wide future cash flows using management’s assumptions for sales growth rates, operating margins, discount rates and earnings multiples. The earnings multiples are then used to estimate the fair value of each reporting unit. These estimates can significantly affect the outcome of our impairment test.
In combination with our qualitative test, we also estimate the fair value of our reporting units by projecting company-wide future cash flows using management’s assumptions for sales growth rates, operating margins and discount rates. Estimated earnings multiples are then used to estimate the fair value of each reporting unit. These estimates can significantly affect the outcome of our impairment test.
As of December 31, 2023, our average total leverage ratio equaled 1.39 (compared to 1.37 as of December 31, 2022) and the TTM average total indebtedness amount used in this calculation was $1.1 billion. • Minimum Fixed Charge Coverage Ratio .
As of December 31, 2024, our average total leverage ratio equaled 1.42 (compared to 1.39 as of December 31, 2023) and the TTM average total indebtedness amount used in this calculation was $970.1 million. • Minimum Fixed Charge Coverage Ratio .
Earnings per share decreased 29% to $13.35 per diluted share compared to $18.70 per diluted share in 2022. 39 Reconciliation of Non-GAAP Financial Measures The non-GAAP measures described below should be considered in the context of all of our other disclosures in this Form 10-K.
Earnings per share decreased 15% to $11.30 per diluted share compared to $13.35 per diluted share in 2023. 39 Reconciliation of Non-GAAP Financial Measures The non-GAAP measures described below should be considered in the context of all of our other disclosures in this Form 10-K.
Total net receivables, including pledged receivables, decreased 2% compared to December 31, 2022, primarily due to lower sales in 2023. Our allowance for doubtful accounts was $11.7 million at December 31, 2023 and $9.5 million at December 31, 2022.
Total net receivables, including pledged receivables, decreased 8% compared to December 31, 2023, primarily due to lower sales in 2024. Our allowance for doubtful accounts was $8.6 million at December 31, 2024 and $11.7 million at December 31, 2023.
Due to the seasonal nature of our industry, the results of any one or more quarters are not necessarily a good indication of results for an entire fiscal year or of continuing trends.
Due to the seasonal nature of our industry, the results of any one or more quarters are not necessarily a good indication of results for an entire fiscal year or of continuing trends, including the impact of new and acquired sales centers.
Recent Accounting Pronouncements See Note 1 of “Notes to Consolidated Financial Statements,” included in Item 8 of this Form 10-K for details. 36 RESULTS OF OPERATIONS The table below summarizes information derived from our Consolidated Statements of Income expressed as a percentage of net sales for the past three fiscal years: Year Ended December 31, 2023 2022 2021 Net sales 100.0 % 100.0 % 100.0 % Cost of sales 70.0 68.7 69.5 Gross profit 30.0 31.3 30.5 Operating expenses 16.5 14.7 14.8 Operating income 13.5 16.6 15.7 Interest and other non-operating expenses, net 1.1 0.7 0.2 Income before income taxes and equity in earnings 12.4 % 15.9 % 15.6 % Note: Due to rounding, percentages may not add to operating income or income before income taxes and equity in earnings.
In October 2022, we performed our annual goodwill impairment test and recorded goodwill impairment of $0.6 million related to the closure of a Horizon reporting unit in that period. 35 Recent Accounting Pronouncements See Note 1 of “Notes to Consolidated Financial Statements,” included in Item 8 of this Form 10-K for details. 36 RESULTS OF OPERATIONS The table below summarizes information derived from our Consolidated Statements of Income expressed as a percentage of net sales for the past three fiscal years: Year Ended December 31, 2024 2023 2022 Net sales 100.0 % 100.0 % 100.0 % Cost of sales 70.3 70.0 68.7 Gross profit 29.7 30.0 31.3 Operating expenses 18.0 16.5 14.7 Operating income 11.6 13.5 16.6 Interest and other non-operating expenses, net 0.9 1.1 0.7 Income before income taxes and equity in earnings 10.7 % 12.4 % 15.9 % Note: Due to rounding, percentages may not add to operating income or income before income taxes and equity in earnings.
Market conditions in 2023 were challenged by overall affordability concerns, including higher interest rates and product cost and labor inflation, which led to consumer hesitancy and some cyclical suppression of demand. While these market conditions impacted new pool construction and remodeling projects, our non-discretionary maintenance product sales in 2023 were not significantly impacted.
Market conditions in 2024 were challenged by generally higher than normal interest rates and product cost and labor inflation, which led to consumer hesitancy on discretionary spending and some cyclical suppression of demand. While these market conditions impacted new pool construction and remodeling projects, our non-discretionary maintenance product sales in 2024 were not significantly impacted.
We project that 2024 earnings will be in the range of $13.10 to $14.10 per diluted share, including an estimated $0.10 benefit from ASU 2016-09 during the first quarter of 2024.
We project that 2025 earnings will be in the range of $11.08 to $11.58 per diluted share, including an estimated $0.08 benefit from ASU 2016-09 during the first quarter of 2025.
We expect that consumers will continue to invest in outdoor living spaces as they consider backyards an extension of their home space.
As lower housing turnover encourages consumers to renovate their existing homes, we expect that consumers will continue to invest in outdoor living spaces as they consider backyards an extension of their home space.
Receivables Securitization Facility Our two-year accounts receivable securitization facility (the Receivables Facility) offers us a lower-cost form of financing. Under this facility, we can borrow up to $350.0 million between April through August and from $210.0 million to $340.0 million during the remaining months of the year.
Receivables Securitization Facility Our two-year accounts receivable securitization facility (the Receivables Facility) offers us a lower-cost form of financing and was recently amended on October 31, 2024. As amended, under this facility, we can borrow up to $375.0 million between April through May and from $210.0 million to $350.0 million during the remaining months of the year.
As of December 31, 2023, our fixed charge ratio equaled 5.94 (compared to 9.57 as of December 31, 2022) and TTM Rental Expense was $92.0 million.
As of December 31, 2024, our fixed charge ratio equaled 5.07 (compared to 5.94 as of December 31, 2023) and TTM Rental Expense was $104.0 million.
Operating Expenses (in millions) Year Ended December 31, 2023 2022 Change Selling and administrative expenses $ 913.5 $ 907.6 $ 5.9 0.6% Operating expenses as a percentage of net sales 16.5 % 14.7 % Operating expenses increased 0.6%, or $5.8 million, to $913.5 million in 2023, up from $907.6 million in 2022.
Operating Expenses (in millions) Year Ended December 31, 2024 2023 Change Selling and administrative expenses $ 958.1 $ 913.5 $ 44.6 5% Operating expenses as a percentage of net sales 18.0 % 16.5 % Operating expenses increased 5%, or $44.6 million, to $958.1 million in 2024, up from $913.5 million in 2023.
Without the benefits from ASU 2016-09, our effective tax rate was 25.0% for the year ended 2023 and 25.1% for the year ended 2022. Net Income and Earnings Per Share Net income decreased 30% to $523.2 million in 2023 compared to $748.5 million in 2022.
Without the benefits from ASU 2016-09, our effective tax rate was 25.0% for both the years ended 2024 and 2023. Net Income and Earnings Per Share Net income decreased 17% to $434.3 million in 2024 compared to $523.2 million in 2023.
The following summarizes our outlook for 2024: • We expect sales to be flat to a low single digit increase compared to 2023, impacted by the following factors and assumptions: ◦ normal weather patterns for 2024; ◦ sustained demand for pool maintenance products; ◦ volumes of discretionary products used for swimming pool construction to be flat to down 10%; ◦ volumes of products used in the remodeling, renovation and upgrading of swimming pools to be flat to down 10%; ◦ inflationary product cost increases, which generally pass through to customers of approximately 2% to 3%; and ◦ a 1% benefit from expansion of the installed base of in-ground swimming pools. • We project gross margin for the full year of 2024 to be around 30.0%, with our highest margin in the second quarter of the year.
The following summarizes our outlook for 2025: • We expect sales to be flat to a low single digit increase compared to 2024, impacted by the following factors and assumptions: ◦ normal weather patterns for 2025; ◦ sustained demand for pool maintenance products; ◦ similar volumes of discretionary products used for pool construction and remodeling, renovation and upgrading of pools as 2024; ◦ inflationary product cost increases, which generally pass through to customers of approximately 1% to 2%; and ◦ one less selling day in the first quarter and for the full year of 2025 compared to 2024. • We project gross margin for the full year of 2025 to be in the range of our 2024 gross margin at 29.7% and our long-term target of 30.0%, with our highest margin in the second quarter of the year.
Our compensation packages include bonus plans that are specific to groups of eligible participants and their levels and areas of responsibility. The majority of our bonus plans consist of annual cash payments that are based primarily on objective performance criteria.
Our compensation packages include bonus plans that are specific to groups of eligible participants and their levels and areas of responsibility. The majority of our bonus plans consist of annual cash payments that are based primarily on objective performance criteria. We calculate bonuses based on the achievement of certain key measurable financial and operational results, including operating income.
In view of current trends, we established our outlook for 2024 based on reasonable expectations for industry demand, pricing and inflationary conditions, focused expense management, increased investment in our digital transformation initiatives and ongoing leverage of existing investments in our business and continuous process improvements.
In view of current trends, we established our outlook for 2025 based on reasonable expectations for industry demand, pricing and inflationary conditions, continued capacity creation to have a positive impact on variable expenses, continued investment in our digital transformation initiatives and ongoing leverage of existing investments in our business and continuous process improvements.
Beginning in 2023, our Compensation Committee did not grant any awards under the SPIP. Outstanding awards will pay out in 2024 and 2025 if the applicable three-year performance conditions are achieved. We record annual performance-based compensation accruals based on operating income achieved in a quarter as a percentage of total expected operating income for the year.
Payouts through the SPIP are based on three-year compound annual growth rates (CAGRs) of our diluted EPS. Beginning in 2023, our Compensation Committee did not grant any awards under the SPIP. We record annual performance-based compensation accruals based on operating income achieved in a quarter as a percentage of total expected operating income for the year.
Total debt outstanding of $1.1 billion at December 31, 2023 decreased $333.5 million compared to December 31, 2022 as we have used operating cash flows to reduce our debt. Current Trends and Outlook Over the past decade, consumers’ investments in their homes, including backyard renovations, have flourished.
Total debt outstanding of $950.4 million at December 31, 2024 decreased $103.0 million compared to December 31, 2023 as we have used operating cash flows to reduce our debt. Current Trends and Outlook Consumers’ investments in their homes, including backyard renovations, continue to be favorable.
On the last day of each fiscal quarter, our average total leverage ratio must be less than 3.25 to 1.00.
As of December 31, 2024, the calculations of these two covenants are detailed below: • Maximum Average Total Leverage Ratio . On the last day of each fiscal quarter, our average total leverage ratio must be less than 3.25 to 1.00.
The table below summarizes the changes in our sales centers during 2023: December 31, 2022 420 Acquired location 5 New locations 14 December 31, 2023 439 For information about our recent acquisitions, see Note 2 of “Notes to Consolidated Financial Statements,” included in Item 8 of this Form 10-K. 37 Net Sales (in millions) Year Ended December 31, 2023 2022 Change Net sales $ 5,541.6 $ 6,179.7 $ (638.1) (10)% Following sales growth of 17% in 2022, 35% in 2021 and 23% in 2020 (all compared to the prior year periods), our net sales in 2023 declined 10% compared to 2022.
The table below summarizes the changes in our sales center count during 2024: December 31, 2023 439 Acquired locations 2 New locations 10 Closed/consolidated locations (3) December 31, 2024 448 For information about our recent acquisitions, see Note 2 of “Notes to Consolidated Financial Statements,” included in Item 8 of this Form 10-K. 37 Net Sales (in millions) Year Ended December 31, 2024 2023 Change Net sales $ 5,311.0 $ 5,541.6 $ (230.6) (4)% Net sales in 2024 declined 4% compared to 2023.
We had been monitoring this location’s results, which came in below expectations at the end of the 2023 season. We performed an interim goodwill impairment analysis, which included a discounted cash flow analysis, and determined that the estimated fair value of the reporting unit no longer exceeded its carrying value.
We performed an interim goodwill impairment analysis, which included a discounted cash flow analysis, and determined that the estimated fair value of the reporting unit no longer exceeded its carrying value. Following this, in October 2023, we performed our annual goodwill impairment test and did not recognize any goodwill impairment at the reporting unit level.
We record Global Intangible Low Tax Income (GILTI) on foreign earnings as period costs if and when incurred, although we have not realized any impacts since the December 2017 enactment of U.S. tax reform.
Due to changing tax laws and state income tax rates, significant judgment is required to estimate the effective tax rate expected to apply to tax differences that are expected to reverse in the future. 33 We record Global Intangible Low Tax Income (GILTI) on foreign earnings as period costs if and when incurred, although we have not realized any impacts since the December 2017 enactment of U.S. tax reform.
If suitable acquisition opportunities arise that would require financing, we believe that we have the ability to finance any such transactions. As of February 20, 2024, $344.1 million of the current Board authorized amount under our authorized share repurchase plan remained available. We expect to repurchase additional shares in the open market from time to time depending on market conditions.
If suitable acquisition opportunities arise that would require financing, we believe that we have the ability to finance any such transactions. As of February 20, 2025, $336.8 million remained available to purchase shares of our common stock under our current Board-approved share repurchase plan program.
After 15 months, we include acquired, consolidated and new market sales centers in the base business calculation including the comparative prior year period.
After 15 months, we include acquired, consolidated and new market sales centers in the base business calculation including the comparative prior year period. We have not provided separate base business income statements within this Form 10-K as base business results closely approximated consolidated results.
Interest and Other Non-operating Expenses, net Interest and other non-operating expenses, net increased $17.5 million compared to 2022, as higher average interest rates more than offset a decrease in average debt. Our weighted average effective interest rate increased to 5.2% in 2023 from 2.8% in 2022 on average outstanding debt of $1.1 billion in 2023 versus $1.4 billion in 2022.
Interest and Other Non-operating Expenses, net Interest and other non-operating expenses, net decreased $8.2 million compared to 2023, primarily due to a decrease in average debt between periods. Our weighted average effective interest rate was 5.2% in 2024 and 2023 on average outstanding debt of $956.3 million in 2024 versus $1.1 billion in 2023.
In recent years, steady increases in home values, lack of affordable new homes and increased mortgage rates have prompted homeowners to stay in their homes longer and upgrade their home environments, including their backyards. Many families have spent more time at home and sought opportunities to create or expand home-based outdoor living and entertainment spaces.
In recent years, steady increases in home values, lack of affordable new homes and increased mortgage rates have positioned homeowners to stay in their homes longer and upgrade their home environments, including their backyards.
We have also utilized our medium-term (three-year) Strategic Plan Incentive Program (SPIP) to provide senior management with an additional cash-based, pay-for-performance award based on the achievement of specified earnings growth objectives. Payouts through the SPIP are based on three-year compound annual growth rates (CAGRs) of our diluted EPS.
Management also establishes specific business improvement objectives for both our operating units and corporate employees. The Compensation Committee approves objectives for annual bonus plans involving executive management. We have also utilized our medium-term (three-year) Strategic Plan Incentive Program (SPIP) to provide senior management with an additional cash-based, pay-for-performance award based on the achievement of specified earnings growth objectives.
The change in financing activities primarily reflects a $537.0 million increase in net debt payments and a $16.8 million increase in dividends paid, partially offset by a decrease in share repurchases of $164.9 million.
The change in financing activities primarily reflects a $232.4 million decrease in net debt payments, partially offset by an increase in dividends paid of $12.2 million.
We pay interest on revolving and term loan borrowings under the Credit Facility at a variable rate based on one-month Term SOFR, plus an applicable margin.
We pay interest on revolving and term loan borrowings under the Credit Facility at a variable rate based on the one-month Term secured overnight financing rate (SOFR), plus an applicable margin. The term loan requires quarterly amortization payments with all remaining principal due on the term loan maturity date of September 25, 2026.
Fiscal Year 2023 compared to Fiscal Year 2022 Base Business We calculate base business results by excluding, for a period of 15 months, sales centers that we acquire, open in new markets or close.
Fiscal Year 2024 compared to Fiscal Year 2023 Base Business When calculating our base business results, we exclude for a period of 15 months sales centers that are acquired, opened in new markets or closed.
To the extent the carrying value of a reporting unit is greater than its estimated fair value, we perform a discounted cash flow analysis at the reporting unit level to further evaluate our initial fair value estimate.
To the extent our qualitative test indicates it is more likely than not that the fair value of a reporting unit is less than the carrying amount or for any reporting unit where we only perform a quantitative test, we perform a discounted cash flow analysis at the reporting unit level to further evaluate our initial fair value estimate.
For additional information regarding our debt arrangements, see Note 5 of our “Notes to Consolidated Financial Statements,” included in Item 8 of this Form 10-K. • Operating lease amounts include future rental payments for our operating leases. The amounts presented are consistent with contractual terms and are not expected to differ significantly from actual results under our existing leases.
Estimates of interest payable on this debt is separately reflected in the table appearing below. For additional information regarding our debt arrangements, see Note 5 of our “Notes to Consolidated Financial Statements,” included in Item 8 of this Form 10-K. • Operating lease amounts include future rental payments for our operating leases.
In October 2023, we performed our annual goodwill impairment test and did not record any additional goodwill impairment at the reporting unit level. As of October 1, 2023, we had 250 reporting units with allocated goodwill balances.
Impairment charges would decrease operating income, negatively impact diluted EPS and result in lower asset values on our balance sheet. In October 2024, we performed our annual goodwill impairment test and did not record any goodwill impairment at the reporting unit level. As of October 1, 2024, we had 251 reporting units with allocated goodwill balances.
In 2023, sales of equipment, which includes swimming pool heaters, pumps, lights, filters and automation, decreased approximately 9% compared to 2022 and represented approximately 29% of net sales. Sales of building materials fell 9% compared to 2022 and represented approximately 13% of net sales in 2023.
In 2024, sales of equipment, which is used across maintenance, renovation and new pool construction and includes swimming pool heaters, pumps, lights, filters and automation, were flat compared to 2023 and represented approximately 31% of net sales in 2024. Sales of building materials fell 10% compared to 2023 and represented approximately 12% of net sales in 2024.
Gross profit was $1.7 billion in 2023, a 14% decrease from gross profit of $1.9 billion in 2022. Our gross profit increased at a 16% CAGR from 2019 to 2023. Gross margin declined 130 basis points to 30.0% in 2023 compared to 31.3% in 2022.
Gross profit was $1.6 billion in 2024, a 5% decrease from gross profit of $1.7 billion in 2023. Gross margin declined 30 basis points to 29.7% in 2024 compared to 30.0% in 2023.
Credit Facility Our Credit Facility provides for $1.25 billion in borrowing capacity consisting of a $750.0 million five-year unsecured revolving credit facility and a $500.0 million term loan facility. The Credit Facility also includes sublimits for the issuance of swingline loans and standby letters of credit.
Credit Facility Our Credit Facility, as amended, provides for $1.3 billion in borrowing capacity consisting of a $800.0 million unsecured revolving credit facility and a $500.0 million term loan facility.
Upon payment of the receivables by customers, rather than remitting to the financial institutions the amounts collected, we retain such collections as proceeds for the sale of new receivables until payments become due. At December 31, 2023, there was $191.7 million outstanding under the Receivables Facility at a weighted average effective interest rate of 6.2%, excluding commitment fees.
Upon payment of the receivables by customers, rather than remitting to the financial institutions the amounts collected, we retain such collections as proceeds for the sale of new receivables until payments become due.
Net income declined 30% to $523.2 million in 2023 compared to $748.5 million in 2022. Earnings per share decreased 29% to $13.35 per diluted share compared to a record of $18.70 per diluted share in 2022.
Net income declined 17% to $434.3 million in 2024 compared to $523.2 million in 2023. Earnings per share decreased 15% to $11.30 per diluted share compared to $13.35 per diluted share in 2023.
We plan to fund these repurchases with cash provided by operations and borrowings under our credit and receivables facilities.
We expect to repurchase additional shares in the open market from time to time depending on market conditions. We plan to fund these repurchases with cash provided by operations and borrowings under our credit and receivables facilities described below.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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While our international operations, including Canada and Mexico, accounted for only 7% of total net sales in 2023, our exposure to currency rate fluctuations could be material in 2024 and future years to the extent that either currency rate changes are significant or that our international operations comprise a larger percentage of our consolidated results.
While our international operations, including Canada and Mexico, accounted for only 7% of total net sales in 2024, our exposure to currency rate fluctuations could be material in 2025 and future years to the extent that either currency rate changes are significant or that our international operations comprise a larger percentage of our consolidated results.
For information about our debt arrangements and interest rate swaps, see Note 5 of “Notes to Consolidated Financial Statements,” included in Item 8 of this Form 10‑K. In 2023, there was no interest rate risk related to the notional amounts under our interest rate swap contracts.
For information about our debt arrangements and interest rate swaps, see Note 5 of “Notes to Consolidated Financial Statements,” included in Item 8 of this Form 10‑K. In 2024, there was no interest rate risk related to the notional amounts under our interest rate swap contracts.
To calculate the potential impact in 2023 related to interest rate risk, we performed a sensitivity analysis assuming that we borrowed the monthly maximum available amount under the Credit Facility, the maximum amount available under the Receivables Facility and the amount outstanding under our Term Facility.
To calculate the potential impact in 2024 related to interest rate risk, we performed a sensitivity analysis assuming that we borrowed the monthly maximum available amount under the Credit Facility, the maximum amount available under the Receivables Facility and the amount outstanding under our Term Facility.
Based on this calculation, our pretax income would have decreased by approximately $13.8 million and earnings per share would have decreased by approximately $0.26 per diluted share (based on the number of weighted average diluted shares outstanding for the year ended December 31, 2023).
Based on this calculation, our pretax income would have decreased by approximately $13.5 million and earnings per share would have decreased by approximately $0.26 per diluted share (based on the number of weighted average diluted shares outstanding for the year ended December 31, 2024).
The maximum amount available under the Credit Facility is $1.25 billion and the maximum amount available under the Receivables Facility is $350.0 million. Failure of our swap counterparties would result in the loss of any potential benefit to us under our swap agreements.
The maximum amount available under the Credit Facility is $1.3 billion and the maximum amount available under the Receivables Facility is $375.0 million. Failure of our swap counterparties would result in the loss of any potential benefit to us under our swap agreements.

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