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Item 2. Management’s Discussion and Analysis

2025-04-29 compared with 2024-10-30 · 107 added, 182 removed, 202 unchanged (59% of the section changed)

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Forward-looking statements speak only as of the date of this filing, and we undertake no obligation to publicly update or revise such statements to reflect new circumstances or unanticipated events as they occur.

You can identify these statements by the fact that they do not relate strictly to historic or current facts and often use words such as “anticipate,” “estimate,” “expect,” “intend,” “believe,” “will likely result,” “outlook,” “project,” “may,” “can,” “plan,” “target,” “potential,” “should” and other words and expressions of similar meaning.

You can identify these statements by the fact that they do not relate strictly to historic or current facts and often use words such as “anticipate,” “estimate,” “expect,” “intend,” “believe,” “will,” “outlook,” “project,” “may,” “can,” “plan,” “target,” “potential,” “should” and other words and expressions of similar meaning.

No assurance can be given that the expected results in any forward-looking statement will be achieved, and actual results may differ materially due to one or more factors, including the sensitivity of our business to weather conditions;

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our ability to maintain favorable relationships with suppliers and manufacturers;

the extent to which home-centric trends associated with the pandemic will continue to moderate or reverse;

competition from other leisure product alternatives or mass merchants;

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Financial Results

Net sales decreased 3% in the third quarter of 2024 to $1.4 billion compared to $1.5 billion in the third quarter of 2023.

Base business results approximated consolidated results for the period.

Following similar trends from the first half of the year, our third quarter results were anchored by strong sales of non-discretionary maintenance products, while sales of pool construction and discretionary products remained soft compared to the third quarter of 2023.

Net sales benefited approximately 2% from one more selling day in the third quarter of 2024 versus the same period in 2023.

Gross profit decreased 3% to $416.4 million in the third quarter of 2024 from $428.7 million in the same period of 2023.

Gross margin remained consistent at 29.1% for each of the third quarters of 2024 and 2023.

Increases in our selling and administrative expenses (operating expenses) moderated during the third quarter of 2024, growing 2% to $240.1 million compared to $234.3 million in the third quarter of 2023.

Expense increases in the quarter primarily related to inflationary impacts, the expansion of our network and our technology initiatives and were partially offset by lower variable costs and a timing shift of certain expenses from the third quarter of 2024 to the fourth quarter of 2024.

As a percentage of net sales, operating expenses increased to 16.8% in the third quarter of 2024 compared to 15.9% in the same period of 2023.

Operating income in the third quarter of 2024 decreased 9% to $176.4 million from $194.4 million in 2023.

Operating margin was 12.3% in the third quarter of 2024 compared to 13.2% in the third quarter of 2023.

Interest and other non-operating expenses, net for the third quarter of 2024 decreased $1.2 million compared to the third quarter of 2023, primarily due to a decrease in average debt between periods.

We recorded a $0.5 million tax benefit from Accounting Standards Update (ASU) 2016-09, Improvements to Employee Share-Based Payment Accounting , in the quarter ended September 30, 2024, compared to a tax benefit of $0.4 million realized in the same period of 2023.

This resulted in a $0.01 per diluted share tax benefit in the third quarter of 2024 consistent with the $0.01 per diluted share tax benefit realized in the same period of 2023.

Net income decreased 9% to $125.7 million in the third quarter of 2024 compared to $137.8 million in the third quarter of 2023.

Earnings per diluted share decreased 7% to $3.27 in the third quarter of 2024 compared to $3.51 in the same period of 2023.

Without the impact from ASU 2016-09 in both periods, earnings per diluted share decreased 7% to $3.26 compared to $3.50 in the third quarter of 2023.

First quarter ended March 31, 2025 compared to the first quarter ended March 31, 2024

Net sales decreased 4% in the first quarter of 2025.

On a same-selling day basis, sales declined 2% in the first quarter of 2025, consistent with the 2% decrease we saw in the fourth quarter of 2024, which was an improved sequential trend from earlier in 2024.

Maintenance-related product sales supported overall sales, as chemical volumes grew 1% with double-digit growth in our private-label chemical products.

While discretionary projects remained pressured, we saw an improvement in overall sales in March following challenging weather patterns in January and February.

Gross profit decreased 8% in the first quarter of 2025 from the same period of 2024.

Gross margin decreased 100 basis points to 29.2% compared to 30.2%.

In the first quarter of 2024, our gross profit benefited by 4% and our gross margin by 110 basis points from the non-recurring reversal of $12.6 million for estimated import taxes.

Without the 110 basis points included in our prior quarter gross margin, our first quarter of 2025 gross margin was 10 basis points higher than last year.

Selling and administrative expenses (operating expenses) in the first quarter of 2025 were held to a 2% increase compared to the first quarter of 2024.

Operating expenses increased from inflationary impacts and sales center network expansion but were partially offset by our management of variable costs.

A s a percentage of net sales, operating expenses increased to 21.9% in the first quarter of 2025 compared to 20.5% in the same period of 2024.

Operating income in the first quarter of 2025 decreased 29%.

Operating margin was 7.2% in the first quarter of 2025 compared to 9.7% in the first quarter of 2024, including the 110 basis points attributable to the import tax reversal discussed above.

We recorded a $3.8 million tax benefit from Accounting Standards Update (ASU) 2016-09, Improvements to Employee Share-Based Payment Accounting , in the quarter ended March 31, 2025, compared to a tax benefit of $7.4 million realized in the same period of 2024.

This resulted in a $0.10 per diluted share tax benefit in the first quarter of 2025, a $0.02 increase from the $0.08 we estimated in our 2024 Annual Report on Form 10-K, compared to the $0.19 per diluted share tax benefit realized in the same period of 2024.

Net income decreased to $53.5 million in the first quarter of 2025 compared to $78.9 million in the first quarter of 2024.

Earnings per diluted share decreased 30% to $1.42 in the first quarter of 2025 compared to $2.04 in the same period of 2024, which included a $0.24 benefit from the import tax reversal discussed above.

Without the impact from ASU 2016-09 in both periods, earnings per diluted share decreased 29% to $1.32 compared to $1.85 in the first quarter of 2024.

Further, without the impact from ASU 2016-09 and the import tax reversal, earnings per diluted share decreased 18%, or $0.29, from the first quarter of 2024 to the same period in 2025.

See RESULTS OF OPERATIONS below for definitions of our non-GAAP measures and reconciliations of our non-GAAP measures to GAAP measures.

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Financial Position and Liquidity

Total net receivables, including pledged receivables, trended in line with net sales activity at September 30, 2024 compared to September 30, 2023.

Our days sales outstanding (DSO), as calculated on a trailing four quarters basis, was 26.7 days at September 30, 2024 and 26.3 days at September 30, 2023.

Our allowance for doubtful accounts balance was $10.0 million at September 30, 2024 and $10.6 million at September 30, 2023.

Our inventory management efforts reduced our inventory levels compared to September 30, 2023 by $78.8 million, or 6%, to $1.2 billion.

Our inventory reserve was $28.6 million at September 30, 2024 and $25.9 million at September 30, 2023.

Our inventory turns, as calculated on a trailing four quarters basis, were 2.8 times at September 30, 2024 and 2.6 times at September 30, 2023.

As allowed for companies impacted by Hurricane Francine, we deferred our 2024 third quarter estimated federal tax payment of $42.0 million, which will be paid in February 2025.

Total debt outstanding was $923.8 million at September 30, 2024, down $110.1 million from September 30, 2023, as we have used a portion of operating cash flows to reduce our debt over the past year.

Total net receivables, including pledged receivables, decreased 6% at March 31, 2025 compared to March 31, 2024, reflecting year-over-year sales trends, which were partially offset by positive credit and collections activities.

Our days sales outstanding (DSO), as calculated on a trailing four quarters basis, was 25.9 days at March 31, 2025 and 26.9 days at March 31, 2024.

Our allowance for doubtful accounts balance was $8.5 million at March 31, 2025 and $9.3 million at March 31, 2024.

In light of current market conditions, we thoughtfully executed early buy ordering to ensure the appropriate inventory was available when needed.

Our inventory levels decreased from March 31, 2024 by $36.3 million, or 2%, to $1.46 billion as a result of the stocking improvements we have implemented.

Our inventory reserve was $27.1 million at March 31, 2025 and $24.2 million at March 31, 2024.

Our inventory turns, as calculated on a trailing four quarters basis, were 2.8 times at March 31, 2025 and 2.7 times at March 31, 2024.

Total debt outstanding was $1.0 billion at March 31, 2025, up $45.9 million from March 31, 2024, due to increased share repurchases in 2025.

For additional information, see “Liquidity and Capital Resources” below.

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For a detailed discussion of trends impacting us through 2024, see the Current Trends and Outlook section of Management’s Discussion and Analysis included in Part II, Item 7 of our 2024 Annual Report on Form 10-K.

We expect sales for the full year of 2024 to decline by approximately 5% from 2023 based on the following factors and assumptions:

• a 15-20% decline in volumes of discretionary products used for swimming pool construction;

• a 10-15% decline in volumes of products used in the remodeling, renovation and upgrading of swimming pools;

• sustained demand for pool maintenance products, although less prominent to our fourth quarter sales mix;

• inflationary product cost increases of approximately 1%.

As previously disclosed in our 2023 Annual Report on Form 10-K, we expect gross margin for the full year of 2024 to be in line with our long-term outlook of approximately 30.0% .

Our a ctual gross margin will depend on amounts and timing of inflationary price increases, product mix and customer mix.

We expect to leverage our existing infrastructure and manage discretionary spending to mitigate inflationary impacts while continuing to invest in our business.

We project that our annual effective tax rate (without the benefit from ASU 2016-09) for 2024 will be aroun d 25.0%.

We expect our effective tax rate will fluctuate from quarter to quarter due to ASU 2016-09, particularly in periods when employees elect to exercise their vested stock options or when restrictions on share-based awards lapse.

We recorded an $8.3 million, or $0.21 per diluted share, tax benefit from ASU 2016-09 for the nine months ended September 30, 2024.

We expect sales for the full year of 2025 to be flat to slightly positive compared to 2024.

We primarily source our products domestically and expect that currently announced tariffs will positively impact net sales by approximately 1% based on vendor price increases to-date.

We expect gross margin for the full year of 2025 to be in line with our 2024 gross margin of 29.7%, with our highest margin in the second quarter of the year.

Our efforts in pricing optimization and supply chain initiatives are expected to mitigate discretionary headwinds from product and customer mix that are currently pressuring our long-term gross margin outlook of 30.0%.

We expect to leverage our existing infrastructure and strategically manage discretionary spending while continuing to invest in our sales center network.

We project that our operating expenses in 2025 will increase around 3% compared to 2024.

In 2025, we expect our effective tax rate will be arou nd 25.0% without the impact of ASU 2016-09.

Due to ASU 2016-09 requirements, w e expect our effective tax rate will fluctuate from quarter to quarter, particularly in periods when employees elect to exercise their vested stock options or when restrictions on share-based awards lapse.

We recorded a $3.8 million, or $0.10 per diluted share, tax benefit from ASU 2016-09 for the three months ended March 31, 2025.

We may recognize additional tax benefits related to stock option exercises in 2025 from grants that expire in future years.

We have not included any expected tax benefits in our full year guidance beyond what we have recognized as of September 30, 2024.

We have not included any expected tax benefits in our full year guidance beyond what we have recognized as of March 31, 2025.

We expect 2025 diluted EPS in the range of $11.10 to $11.60, including the impact of year-to-date tax benefits of $0.10.

expect to continue to use cash for the payment of cash dividends as and when declared by our Board of Directors (Board) and to fund opportunistic share repurchases under our Board-authorized share repurchase program.

We expect to continue to use cash for the payment of cash dividends as and when declared by our Board of Directors (Board) and to

fund opportunistic share repurchases under our Board-authorized share repurchase program.

The forward-looking statements in the foregoing section and elsewhere in this report are based on current market conditions, speak only as of the filing date of this report, are based on several assumptions and are subject to significant risks and uncertainties, including the risks detailed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2024.

See “Cautionary Statement for Forward-Looking Statements.”

RESULTS OF OPERATIONS

As of September 30, 2024, we conducted operations through 447 sales centers in North America, Europe and Australia.

For the nine months ended September 30, 2024, approximately 96% of our net sales were from our operations in North America.

As of March 31, 2025, we conducted operations through 449 sales centers in North America, Europe and Australia.

For the three months ended March 31, 2025, approximately 95% of our net sales were from our operations in North America.

The following table presents information derived from the Consolidated Statements of Income expressed as a percentage of net sales:

Three Months Ended Nine Months Ended

September 30, September 30,

2024 2023 2024 2023

Three Months Ended

Net sales 100.0 % 100.0 %

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We have included the results of operations from acquisitions in 2025 and 2024 in our consolidated results since the acquisition dates.

Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023

Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024

Base Business

When calculating our base business results, we exclude sales centers that are acquired, opened in new markets or closed for a period of 15 months.

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.

We also exclude consolidated sales centers when we do not expect to maintain the majority of the existing business and existing sales centers that we consolidate with acquired sales centers.

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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-Q as our base business results for the three and nine months ending September 30, 2024 closely approximated consolidated results for the same period.

We have not provided separate base business income statements within this Form 10-Q as our base business results for the three months ending March 31, 2025 closely approximated consolidated results for the same period.

Acquired and new market sales centers excluded from base business contributed less than 1% to the change in net sales.

The table below summarizes the changes in our sales center count during the first nine months of 2024:

The table below summarizes the changes in our sales center count during the first three months of 2025:

December 31, 2024 448

Acquired locations 2

New locations 2

Consolidated/closed locations (3)

September 30, 2024 447

Closed location (1)

March 31, 2025 449

Three Months Ended

September 30,

(in millions) 2025 2024 Change

Net sales $ 1,071.5 $ 1,120.8 $ (49.3) (4)%

Net sales of $1.4 billion in the third quarter of 2024 decreased 3% compared to $1.5 billion in the third quarter of 2023.

In the third quarter, recurring maintenance product sales remained strong, while spending on larger semi-discretionary items, as well as new pool construction and renovation projects, showed a more measured pace.

Net sales of $1.07 billion in the first quarter of 2025 decreased 4% compared to $1.12 billion in the first quarter of 2024 anchored by consistent sales of non-discretionary products while sales of discretionary products continued to feel downward pressure from current market conditions and unfavorable weather in January and February.

The following factors impacted our sales during the quarter and are listed in order of estimated magnitude:

• approximately 2% benefit from one more selling day in the third quarter of 2024 compared to the same quarter in 2023;

• stability from maintenance-related activities evidenced by volume growth in chemicals;

sales of chemicals increased 2% compared to the third quarter of 2023 and represented 17% of our net sales;

• approximately net 1% benefit from price comprised of a 2% benefit from inflation-driven price increases on equipment, offset by moderate declines in areas like chemical sanitizers and commodities;

• lower sales volumes due to a decline in pool construction and discretionary spending (see discussion below).

In the third quarter of 2024, sales of equipment, which is used across maintenance, renovation and new construction and includes swimming pool heaters, pumps, lights, filters and automation, grew 1% versus the same period last year, and collectively represented approximately 29% of net sales for the period.

Sales of building materials, which are primarily used in new construction and remodeling, decreased 9% compared to the third quarter of 2023 and represented approximately 11% of net sales in the third quarter of 2024.

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 sales trends in these product categories are reflected in the discussion above.

Sales to our retail customers declined by 2% in the third quarter of 2024, as steady maintenance sales during a key seasonal period partially offset ongoing weakness in discretionary demand, compared to the third quarter of 2023.

Retail sales represented approximately 14% of our total net sales in the third quarter of 2024.

Sales to commercial swimming pool customers remained strong with an increase of 7% in the third quarter of 2024 compared to the third quarter of 2023 and represented approximately 5% of our net sales for the third quarter of 2024.

• stability from maintenance-related activities evidenced by volume growth in chemicals, which had flat sales growth for the quarter and represented 13% of total sales;

• lower sales volumes of products used in pool construction and discretionary activities (see discussion below);

• one less selling day, which lowered sales by approximately 2% compared to first quarter 2024;

• a benefit of approximately 1% from inflationary product cost increases, which is net of price deflation for some products.

In the first quarter of 2025, sales of equipment for maintenance, renovation and new construction activities, including swimming pool heaters, pumps, lights, filters and automation devices, declined 4% versus the same period last year, and collectively represented approximately 34% of net sales for the period.

Sales of building materials, which are primarily used in new construction and remodeling, decreased 5% compared to the first quarter of 2024 and represented approximately 13% of net sales in the first quarter of 2025.

Three Months Ended

September 30,

(in millions) 2025 2024 Change

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Gross margin 29.2 % 30.2 %

Gross margin remained consistent at 29.1% in both the third quarters of 2024 and 2023.

While being affected by unfavorable product and customer mix in the current environment, strategic gross margin-related initiatives and progress on our pricing optimization efforts sustained our gross margin.

Gross profit decreased 8% in the first quarter of 2025 from the same period of 2024.

Gross margin decreased 100 basis points to 29.2% compared to 30.2%.

In the first quarter of 2024, our gross profit benefited by 4% and our gross margin by 110 basis points from the non-recurring reversal of $12.6 million for estimated import taxes.

Without the 110 basis points included in our prior quarter gross margin, our first quarter of 2025 gross margin was 10 basis points higher than last year, reflecting benefits from our strategic pricing and supply chain initiatives, which were partially offset by a less advantageous customer mix and a slight drag from product mix due to lower building material sales.

Operating Expenses

Three Months Ended

September 30,

(in millions) 2025 2024 Change

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Operating expenses as a % of net sales 21.9 % 20.5 %

Operating expenses increased 2% in the third quarter of 2024 compared to the third quarter of 2023.

Expense growth drivers included inflationary increases, costs associated with opening new locations and investments in our technology initiatives.

These increases were partially offset by lower variable costs and a shift of certain expenses from the third quarter of 2024 to the fourth quarter of 2024.

Interest and Other Non-Operating Expenses, Net

Interest and other non-operating expenses, net for the third quarter of 2024 decreased $1.2 million compared to the third quarter of 2023, primarily due to a decrease in average debt between periods.

Our weighted average effective interest rate remained unchanged at 5.2% in the third quarter of 2024 compared to the third quarter of 2023 on average outstanding debt of $946.1 million and $1.0 billion for the respective periods.

Our effective income tax rate was 23.4% for the three months ended September 30, 2024, compared to 23.8% for the three months ended September 30, 2023.

We recorded a $ 0.5 million tax benefit from ASU 2016-09 in the quarter ended September 30, 2024, compared to a tax benefit of $ 0.4 million realized in the same period last year.

Without the benefit from ASU 2016-09 in both periods, our effective tax rate was 23.7% for the third quarter of 2024 and 24.1% for the third quarter of 2023.

Our third quarter effective income tax rate is typically lower compared to other quarters due to the annual expiration of statutes of limitations in the various jurisdictions where we have recorded uncertain tax positions.

Net Income and Earnings Per Share

Net income decreased 9% to $125.7 million in the third quarter of 2024 compared to $137.8 million in the third quarter of 2023.

Earnings per diluted share decreased 7% to $3.27 in the third quarter of 2024 compared to $3.51 in the same period of 2023.

Without the impact from ASU 2016-09 in both periods, earnings per diluted share decreased 7% to $3.26 in the third quarter of 2024 compared to $3.50 in the third quarter of 2023.

See the reconciliation of GAAP to non-GAAP measures below.

Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023

Nine Months Ended

September 30,

(in millions) 2024 2023 Change

Net sales $ 4,323.5 $ 4,538.5 $ (215.0) (5)%

Net sales for the first nine months of 2024 decreased 5% compared to the same period last year.

In the first nine months of 2024, maintenance activities were stable, reflecting steady demand for non-discretionary products, while pool construction and discretionary spending were softer, impacted by current macroeconomic conditions.

The following factors also impacted our sales and are listed in order of estimated magnitude:

• stability from maintenance-related activities evidenced by volume growth in chemicals;

sales of chemicals increased 1% compared to the first nine months of 2023 and represented 15% of our net sales;

• approximately 1% benefit from inflationary product cost increases;

• negative volume impacts from reduced pool construction and discretionary activities (see discussion below).

In the first nine months of 2024, sales of equipment, which is used across maintenance, renovation and new construction and includes swimming pool heaters, pumps, lights, filters and automation, decreased approximately 1% compared to the same period last year and collectively represented 30% of net sales in the first nine months of 2024.

Sales of building materials, which are primarily used in new pool construction and remodeling, decreased 10% compared to the first nine months of 2023 and represented approximately 12% of net sales in the first nine months of 2024.

Sales to retail customers decreased 4% in the first nine months of 2024 compared to the first nine months of 2023 and represented approximately 15% of our consolidated net sales.

Sales to commercial customers increased 8% in the first nine months of 2024 compared to the first nine months of 2023 and represented approximately 5% of our consolidated net sales in the first nine months of 2024.

Nine Months Ended

September 30,

(in millions) 2024 2023 Change

Gross profit $ 1,285.1 $ 1,366.3 $ (81.2) (6)%

Gross margin 29.7 % 30.1 %

Gross margin declined 40 basis points to 29.7% in the nine months ended September 30, 2024, compared to 30.1% in the first nine months of 2023.

In the first nine months of 2024, our gross margin was impacted by:

• carrying a large amount of lower cost strategically-purchased inventory in the beginning of 2023 that was successfully reduced to normalized levels by the end of 2023;

• less favorable product and customer mix;

• higher levels of vendor incentives earned versus 2023 due to increased purchasing as compared to the prior year when we were actively reducing inventory levels;

• a benefit of $12.6 million, or 30 basis points, related to a reduction of estimated import taxes previously recorded in the fourth quarter of 2022.

Operating Expenses

Nine Months Ended

September 30,

(in millions) 2024 2023 Change

Selling and administrative expenses $ 728.6 $ 699.0 $ 29.6 4%

Operating expenses as a % of net sales 16.9 % 15.4 %

Operating expenses for the nine months ended September 30, 2024 were up 4% compared to the prior year period.

Expense growth drivers included inflationary wage, rent and insurance increases, higher costs associated with the expansion of our network and additions related to our technology initiatives.

We partially mitigated these increases with close management of variable costs.

Selling and administrative expenses in the first quarter of 2025 were held to a 2% increase compared to the first quarter of 2024.

Operating expenses increased from inflationary impacts and sales center network expansion but were partially offset by our management of variable costs.

As a percentage of net sales, operating expenses increased to 21.9% in the first quarter of 2025 compared to 20.5% in the same period of 2024.

Interest and Other Non-Operating Expenses, Net

Interest and other non-operating expenses, net for the first nine months of 2024 decreased $6.5 million compared to the same period last year, as a decrease in average debt between periods more than offset higher average interest rates.

Our weighted average effective interest rate increased to 5.2% from 5.1% for the respective periods on average outstanding debt of $1.0 billion for the first nine months of 2024 versus $1.2 billion for the same period of 2023.

Our effective income tax rate was 23.2% for the nine months ended September 30, 2024, compared to 24.1% for the nine months ended September 30, 2023.

We recorded an $8.3 million, or $0.21 per diluted share, tax benefit from ASU 2016-09 in the nine months ended September 30, 2024, compared to a $5.9 million, or $0.15 per diluted share, tax benefit in the same period of 2023.

Without the benefits from ASU 2016-09, our effective tax rate was 24.8% for the nine months ended September 30, 2024, and 25.0% for the nine months ended September 30, 2023.

Interest and other non-operating expenses, net for the first quarter of 2025 decreased $2.3 million compared to the first quarter of 2024, primarily due to lower average interest rates on debt borrowings between periods.

Our weighted average effective interest rate decreased to 4.5% in the first quarter of 2025 compared to 5.3% in the first quarter of 2024 on average outstanding debt of $962.4 million and $999.1 million for the respective periods.

Our effective income tax rate was 19.4% for the three months ended March 31, 2025, compared to 17.3% for the three months ended March 31, 2024.

We recorded a $3.8 million tax benefit from ASU 2016-09 in the quarter ended March 31, 2025, compared to a tax benefit of $7.4 million realized in the same period last year.

Without the benefit from ASU 2016-09 in both periods, our effective tax rate was 25.2% for the first quarter of 2025 and 25.1% for the first quarter of 2024.

Net Income and Earnings Per Share

Net income decreased 16% to $397.0 million for the nine months ended September 30, 2024, compared to $471.8 million for the nine months ended September 30, 2023.

Earnings per diluted share decreased 14% to $10.30 for the nine months ended September 30, 2024, versus $12.00 per diluted share for the nine months ended September 30, 2023.

Without the impact from ASU 2016-09 in both periods, earnings per diluted share decreased 15% to $10.09 for the nine months ended September 30, 2024, compared to $11.85 for the nine months ended September 30, 2023.

N et income decreased to $53.5 million in the first quarter of 2025 compared to $78.9 million in the first quarter of 2024.

Without the impact from ASU 2016-09 in both periods, earnings per diluted share decreased 29% to $1.32 compared to $1.85 in the first quarter of 2024.

See the reconciliation of GAAP to non-GAAP measures below.

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The table below presents a reconciliation of diluted EPS to adjusted diluted EPS.

(Unaudited) Three Months Ended Nine Months Ended

September 30, September 30,

2024 2023 2024 2023

(Unaudited) Three Months Ended

Diluted EPS $ 1.42 $ 2.04

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(in thousands) 2025 2024 2023

Third Second First Fourth Third Second First Fourth

First Fourth Third Second First Fourth Third Second

Statement of Income Data

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Weather Impacts on 2025 and 2024 Results

The third quarter of 2024 saw a mix of weather conditions across the continental U.S.

Several regions faced notable weather events during the quarter.

Tropical weather brought localized flooding and heavy rainfall particularly to the coastal areas of Florida, Louisiana and the Carolinas.

Wetter conditions and cooler temperatures in July of 2024, compared to July of 2023, impacted maintenance activities in Texas, a key market, during a prominent selling month.

The Northeast and Midwest regions experienced generally warm and dry conditions throughout the quarter, which was favorable for pool-related activities.

The West, particularly in California, continued its trend of above-average temperatures and dry conditions, which supported outdoor and construction activities.

Collectively, weather conditions in the third quarter of 2024 had a relatively neutral impact on the overall business.

The second quarter of 2024 was marked by precipitation variability across the U.S.

with wetter conditions in the central U.S.

and Texas and below average precipitation in the western U.S.

Maintenance activities benefited from warmer-than-average temperatures across most regions, particularly in June.

Overall, mixed weather conditions led to varied impacts across our markets.

In contrast, weather conditions in the second quarter of 2023 unfavorably impacted sales due to cooler temperatures across the West through the mid-Atlantic region and the impact of wildfires in Canada.

The first quarter of 2024 was the tenth wettest first quarter on record leading to mixed impacts across our markets, particularly in the month of March, which is seasonally our highest sales month of the first quarter.

However, we also observed above-average temperatures during the quarter contributing positively to economic activities in many regions, such as improvement in California during March.

The adverse effects of cooler and wetter weather in Florida and the Southeast compared to the first quarter of last year and excessive precipitation in Texas and the Northeast outweighed the positives, resulting in an unfavorable net impact on net sales.

In the first quarter of 2023, varied weather conditions had a more pronounced unfavorable impact on net sales due to unusually wet and cold weather in the western U.S., particularly California and Arizona.

This wet and cold weather was partially offset by generally favorable conditions in our southern markets, where sales benefited from warmer weather and below-average precipitation.

Weather conditions in the first quarter of 2025 were mixed across our key markets.

Early January snowstorms and overall cooler temperatures through much of February negatively impacted early season sales activity.

While March brought warmer and drier weather, these improvements provided only partial relief to our sales trends and were not enough to offset the slower start to the quarter.

During the first quarter of 2024, above-average temperatures in some regions, including California, contributed positively to economic activities.

However, the adverse effects of cooler and wetter weather in Florida and the Southeast, and excessive precipitation in Texas and the Northeast, outweighed the positives, resulting in an overall unfavorable impact on net sales.

CRITICAL ACCOUNTING ESTIMATES

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Our specific priorities for the use of cash are as follows:

• capital expenditures primarily for maintenance and growth of our sales center network, technology-related investments and fleet vehicles;

• capital expenditures primarily for maintenance and growth of our sales center network, technology-related investments and vehicle fleet;

• inventory and other operating expenses;

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• discretionary repurchases of our common stock under our Board-authorized share repurchase program.

We focus our capital expenditure plans based on the needs of our sales centers.

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.

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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.

Capital expenditures were 1.1% of net sales in 2024 and 2023.

Based on management’s current plans, we project capital expenditures for 2025 will be approximately 1.0% to 1.5% of net sales.

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The following table summarizes our cash flows (in thousands):

Nine Months Ended

September 30,

Three Months Ended

Provided by operating activities $ 27,224 $ 145,442

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Used in financing activities (20,611) (124,162)

Net cash provided by operations decreased to $488.6 million for the first nine months of 2024 from $750.0 million for the first nine months of 2023, impacted by our prior year inventory reduction efforts of $330.9 million during the first nine months of 2023 and lower net income in 2024.

Net cash used in investing activities for the first nine months of 2024 decreased $5.1 million compared to the first nine months of 2023, primarily due to a decrease of $7.1 million in cash used for acquisitions, partially offset by a $3.0 million increase in net capital expenditures.

Net cash used in financing activities was $411.8 million for the first nine months of 2024 compared to $656.8 million for the first nine months of 2023, primarily reflecting $128.4 million of net debt payments in the first nine months of 2024 versus $353.4 million of net debt payments in the first nine months of 2023, partially offset by a $27.7 million decrease in share repurchases and a $9.2 million increase in dividends paid in the first nine months of 2024 compared to the same period in 2023.

Net cash provided by operations was $27.2 million in the first three months of 2025 compared to $145.4 million in the first three months of 2024.

Of the $118.2 million decline, $68.5 million related to federal tax payments deferred from 2024 to the first quarter of 2025, while the remaining difference is attributable to changes in working capital, including a $69.8 million headwind from the changes in inventory and accounts payable due to higher purchases in the first quarter of 2025, and lower net income in 2025.

Net cash used in investing activities for the first three months of 2025 decreased $5.4 million compared to the first three months of 2024, primarily due to a reduction of $3.7 million in net capital expenditures and a $1.3 million decline in acquisition costs.

Net cash used in financing activities was $20.6 million for the first three months of 2025 compared to $124.2 million for the first three months of 2024, primarily reflecting $74.5 million of net debt proceeds in the first three months of 2025 versus $74.3 million of net debt payments in the first three months of 2024 and a $40.0 million increase in share repurchases.

Future Sources and Uses of Cash

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Credit Facility

Our Credit Facility, as recently amended, provides for $1.3 billion in borrowing capacity consisting of an $800.0 million unsecured revolving credit facility and a $500.0 million term loan facility.

Our Credit Facility provides for $1.3 billion in borrowing capacity consisting of an $800.0 million unsecured revolving credit facility and a $500.0 million term loan facility.

The Credit Facility also includes an accordion feature permitting us to request one or more incremental term loans or revolving credit family commitment increases up to $250.0 million and sublimits for the issuance of swingline loans and standby letters of credit.

We pay interest on revolving and term loan borrowings under the Credit Facility at a variable rate based on the 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 (Term SOFR), plus an applicable margin.

The term loan requires quarterly amortization payments with all remaining principal due on September 25, 2026.

The revolving credit facility matures on September 30, 2029.

We intend to continue to use the Credit Facility for general corporate purposes, for future share repurchases and to fund future growth initiatives.

Under our Credit Facility, at September 30, 2024, there was $125.0 million of revolving borrowings outstanding, a $468.8 million term loan, $15.1 million of standby letters of credit outstanding and $659.9 million available for borrowing.

The weighted average effective interest rate for the Credit Facility as of September 30, 2024, was approximately 4.1%, excluding commitment fees and including the impact of our interest rates swaps.

At March 31, 2025, there was $167.7 million of revolving borrowings outstanding, a $456.3 million term loan, $15.1 million of standby letters of credit outstanding and $617.2 million available for borrowing.

The weighted average effective interest rate for the Credit Facility as of March 31, 2025, was approximately 3.7%, excluding commitment fees and including the impact of our interest rates swaps.

Term Facility

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We pay interest on borrowings under the Term Facility at a variable rate based on one-month Term SOFR, plus an applicable margin.

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.

The Term Facility is repaid in quarterly installments of 1.250% of the Term Facility, 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.

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 September 30, 2024, there was $109.9 million outstanding under the Term Facility with a weighted average effective interest rate of 6.1%.

At March 31, 2025, there was $100.0 million outstanding under the Term Facility with a weighted average effective interest rate of 5.6%.

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.

The Receivables Facility matures on November 1, 2024 and it is our intent to complete a renewal in advance of the current maturity date.

We classify the entire outstanding balance as Long-term debt on our Consolidated Balance Sheets as we intend and have the ability to refinance the obligations on a long-term basis.

Our two-year accounts receivable securitization facility (the Receivables Facility) offers us a low-cost form of financing.

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.

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).

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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 September 30, 2024, there was $209.3 million outstanding under the Receivables Facility at a weighted average effective interest rate of 5.7%, excluding commitment fees.

At March 31, 2025, there was $290.4 million outstanding under the Receivables Facility at a weighted average effective interest rate of 5.3%, excluding commitment fees.

Financial Covenants

Financial covenants of the Credit Facility, Term Facility and Receivables Facility include maintenance of a maximum average total leverage ratio and a minimum fixed charge coverage ratio, which are our most restrictive financial covenants.

As of September 30, 2024, the calculations of these two covenants are detailed below:

As of March 31, 2025, the calculations of these two covenants are detailed below:

• Maximum Average Total Leverage Ratio .

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Average Total Leverage Ratio is the ratio of the sum of (i) Total Non-Revolving Funded Indebtedness as of such date, (ii) the trailing twelve months (TTM) Average Total Revolving Funded Indebtedness and (iii) the TTM Average Accounts Securitization Proceeds divided by TTM EBITDA (as those terms are defined in the Credit Facility).

As of September 30, 2024, our average total leverage ratio equaled 1.41 (compared to 1.42 as of June 30, 2024) and the TTM average total indebtedness amount used in this calculation was $989.5 million.

As of March 31, 2025, our average total leverage ratio equaled 1.47 (compared to 1.42 as of December 31, 2024) and the TTM average total indebtedness amount used in this calculation was $957.3 million.

• Minimum Fixed Charge Coverage Ratio .

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Fixed Charge Ratio is the ratio of the TTM EBITDAR divided by TTM Interest Expense paid or payable in cash plus TTM Rental Expense (as those terms are defined in the Credit Facility).

As of September 30, 2024, our fixed charge ratio equaled 5.22 (compared to 5.37 as of June 30, 2024) and TTM Rental Expense was $100.3 million.

As of March 31, 2025, our fixed charge ratio equaled 4.89 (compared to 5.07 as of December 31, 2024) and TTM Rental Expense was $106.5 million.

The Credit Facility and Term Facility limit the declaration and payment of dividends on our common stock to a manner consistent with past practice, provided no default or event of default has occurred and is continuing, or would result from the payment of dividends.

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Interest Rate Swaps

We utilize interest rate swap contracts and forward-starting interest rate swap contracts to reduce our exposure to fluctuations in variable interest rates for future interest payments on our variable rate borrowings.

We utilize interest rate swap contracts to reduce our exposure to fluctuations in variable interest rates for future interest payments on our variable rate borrowings.

Interest expense related to the notional amounts under all swap contracts is based on the fixed rates plus the applicable margin on the respective borrowings.

As of September 30, 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.

As of March 31, 2025, we had two interest rate swap contracts in place, 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.

For more information, see Note 4 of “Notes to Consolidated Financial Statements” included in Part I, Item 1 of this Form 10-Q.

Compliance and Future Availability

As of September 30, 2024, we were in compliance with all material covenants and financial ratio requirements under our Credit Facility, our Term Facility and our Receivables Facility.

As of March 31, 2025, we were in compliance with all material covenants and financial ratio requirements under our Credit Facility, our Term Facility and our Receivables Facility.

We believe we will remain in compliance with all material covenants and financial ratio requirements throughout the next twelve months.

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If suitable acquisition opportunities arise that would require financing, we believe that we would have the ability to finance any such transactions.

As of October 24, 2024, $497.0 million remained available to purchase shares of our common stock under our current Board-approved share repurchase program.

As of April 24, 2025, $290.8 million remained available to purchase shares of our common stock under our current Board-approved share repurchase program.

We expect to repurchase shares on the open market from time to time subject to market conditions.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis