POOL CORP 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion in conjunction with the accompanying interim Consolidated Financial Statements and notes, the Consolidated Financial Statements and accompanying notes in our 2024 Annual Report on Form 10-K and Management’s Discussion and Analysis in our 2024 Annual Report on Form 10-K. Forward-Looking Statements This report contains forward-looking information that involves risks and uncertainties. Our forward-looking statements express our current expectations or forecasts of possible future results or events, including projections of earnings and other financial performance measures, statements of management’s expectations regarding our strategic, operational and capital allocation plans and objectives, management’s views on industry, economic, competitive, technological and regulatory conditions and other forecasts of trends and other matters. 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,” “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; changes in economic conditions, consumer discretionary spending, the housing market, inflation or interest rates; our ability to maintain favorable relationships with suppliers and manufacturers; 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 our 2024 Annual Report on Form 10-K, as updated by our subsequent filings with the U.S. Securities and Exchange Commission. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. OVERVIEW Financial Results 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. 13 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. References to product line and product category data throughout this report generally reflect data related to the North American swimming pool market, as this data is more readily available for analysis and represents the largest component of our operations. In this Form 10-Q 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. It is possible that others assessing the same data could reach conclusions that differ from ours. Financial Position and Liquidity 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. Current Trends and Outlook 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 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 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. 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 14 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 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 March 31, 2025 2024 Net sales 100.0 % 100.0 % Cost of sales 70.8 69.8 Gross profit 29.2 30.2 Selling and administrative expenses 21.9 20.5 Operating income 7.2 9.7 Interest and other non-operating expenses, net 1.0 1.2 Income before income taxes and equity in earnings 6.2 % 8.5 % Note: Due to rounding, percentages presented in the table above may not add to Operating income or Income before income taxes and equity in earnings. We have included the results of operations from acquisitions in 2025 and 2024 in our consolidated results since the acquisition dates. 15 Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024 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. 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. We generally allocate corporate overhead expenses to excluded sales centers on the basis of their net sales as a percentage of total net sales. After 15 months, 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 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 three months of 2025: December 31, 2024 448 New locations 2 Closed location (1) March 31, 2025 449 Net Sales Three Months Ended March 31, (in millions) 2025 2024 Change Net sales $ 1,071.5 $ 1,120.8 $ (49.3) (4)% 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: • 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; and • 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. 16 Gross Profit Three Months Ended March 31, (in millions) 2025 2024 Change Gross profit $ 312.4 $ 338.6 $ (26.2) (8)% Gross margin 29.2 % 30.2 % 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 March 31, (in millions) 2025 2024 Change Selling and administrative expenses $ 234.8 $ 229.8 $ 5.0 2% Operating expenses as a % of net sales 21.9 % 20.5 % 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 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. Income Taxes 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 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. 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. See the reconciliation of GAAP to non-GAAP measures below. 17 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-Q. Adjusted Diluted EPS We have included adjusted diluted EPS, a non-GAAP financial measure, as a supplemental disclosure, because we believe this measure is useful to management, investors and others in assessing our period-to-period operating performance. Adjusted diluted EPS is a key measure used by management to demonstrate the impact of tax benefits from ASU 2016-09 on our diluted EPS and to provide investors and others with additional information about our potential future operating performance to supplement GAAP measures. 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-Q. Other companies may calculate this non-GAAP financial measure differently than we do, which may limit its usefulness as a comparative measure. The table below presents a reconciliation of diluted EPS to adjusted diluted EPS. (Unaudited) Three Months Ended March 31, 2025 2024 Diluted EPS $ 1.42 $ 2.04 ASU 2016-09 tax benefit (0.10) (0.19) Adjusted diluted EPS $ 1.32 $ 1.85 18 Seasonality and Quarterly Fluctuations Our business is seasonal. In general, sales and operating income are highest during the second and third quarters, which represent the peak months of both swimming pool use and installation and irrigation and landscape installations and maintenance. Sales are lower during the first and fourth quarters. 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. Excluding borrowings to finance acquisitions and share repurchases, our peak borrowing usually occurs during the second quarter, primarily because extended payment terms offered by our suppliers typically are payable in April, May and June, while our peak accounts receivable collections typically occur in June, July and August. The following table presents certain unaudited quarterly income statement and balance sheet data for the most recent eight quarters to illustrate 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 results of any one or more quarters are not necessarily a good indication of results for an entire fiscal year or of continuing future trends for a variety of reasons, including the seasonal nature of our business and the impact of new and acquired sales centers. (Unaudited) QUARTER (in thousands) 2025 2024 2023 First Fourth Third Second First Fourth Third Second Statement of Income Data Net sales $ 1,071,526 $ 987,480 $ 1,432,879 $ 1,769,784 $ 1,120,810 $ 1,003,050 $ 1,474,407 $ 1,857,363 Gross profit 312,369 290,244 416,403 530,141 338,560 293,775 428,731 567,783 Operating income 77,538 60,651 176,353 271,481 108,720 79,344 194,443 327,009 Net income 53,545 37,300 125,701 192,439 78,885 51,437 137,843 232,250 Balance Sheet Data Total receivables, net $ 497,076 $ 314,861 $ 425,693 $ 577,529 $ 527,175 $ 342,910 $ 461,582 $ 630,950 Product inventories, net 1,460,680 1,289,300 1,180,491 1,295,600 1,496,947 1,365,466 1,259,308 1,392,886 Accounts payable 890,167 525,235 401,702 515,645 907,806 508,672 429,436 485,099 Total debt 1,025,090 950,356 923,829 1,116,553 979,177 1,053,320 1,033,897 1,184,586 We expect that our quarterly results of operations will continue to fluctuate depending on the timing and amount of revenue contributed by new and acquired sales centers. Based on our peak summer selling season, we generally open new sales centers and close or consolidate sales centers, when warranted, either in the first quarter before the peak selling season begins or in the fourth quarter after the peak selling season ends. 19 Weather is one of the principal external factors affecting our business. The table below presents some of the possible effects resulting from various weather conditions. 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 landscape 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) Weather Impacts on 2025 and 2024 Results 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 We prepare our Consolidated Financial Statements in accordance with U.S. generally accepted accounting principles (GAAP), which require management to make estimates and assumptions that affect reported amounts and related disclosures. Management identifies critical accounting estimates as: • those that require the use of assumptions about matters that are inherently and highly uncertain at the time the estimates are made; and • those for which changes in the estimates or assumptions, or the use of different estimates and assumptions, could have a material impact on our consolidated results of operations or financial condition. Management has discussed the development, selection and disclosure of our critical accounting estimates with the Audit Committee of our Board. For a description of our critical accounting estimates that require us to make the most difficult, subjective or complex judgments, please see our 2024 Annual Report on Form 10-K. We have not changed any of these policies from those previously disclosed in that report. Recent Accounting Pronouncements See Note 1 of “Notes to Consolidated Financial Statements,” included in Part I, Item 1 of this Form 10-Q for discussion of recent accounting pronouncements. 20 LIQUIDITY AND CAPITAL RESOURCES Liquidity is defined as the ability to generate adequate amounts of cash to meet short-term and long-term cash needs. We assess our liquidity in terms of our ability to generate cash to fund our operating activities, taking into consideration the seasonal nature of our business. Significant factors which could affect our liquidity include the following: • cash flows generated from operating activities; • the adequacy of available bank lines of credit; • the quality of our receivables; • acquisitions; • dividend payments; • capital expenditures; • changes in income tax laws and regulations; • the timing and extent of share repurchases; and • the ability to attract long-term capital with satisfactory terms. 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. Our working capital obligations fluctuate during the year, driven primarily by seasonality and the timing of inventory purchases. Our primary sources of working capital are cash from operations supplemented by bank borrowings, which have historically been sufficient to support our growth and finance acquisitions. We have funded our capital expenditures and share repurchases in substantially the same manner. We prioritize our use of cash based on investing in our business, maintaining a prudent capital structure, including a modest amount of debt, and returning cash to our shareholders through dividends and share repurchases. 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 vehicle fleet; • inventory and other operating expenses; • strategic acquisitions executed opportunistically; • payment of cash dividends as and when declared by our Board; • repayment of debt to maintain an average total target leverage ratio (as defined below) between 1.5 and 2.0; and • 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 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. Historically, our capital expenditures have averaged roughly 1.0% of net sales. 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. 21 Sources and Uses of Cash The following table summarizes our cash flows (in thousands): Three Months Ended March 31, 2025 2024 Provided by operating activities $ 27,224 $ 145,442 Used in investing activities (13,561) (18,952) Used in financing activities (20,611) (124,162) 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 To supplement cash from operations as our primary source of working capital, we plan to continue to utilize our three major credit facilities, which are the Third Amended and Restated Revolving Credit Facility (the Credit Facility), the Term Facility (the Term Facility) and the Receivables Securitization Facility (the Receivables Facility). For additional details regarding these facilities, see the summary descriptions below and more complete descriptions in Note 5 of our “Notes to Consolidated Financial Statements,” included in Part II, Item 8 in our 2024 Annual Report on Form 10-K and Note 5 of “Notes to Consolidated Financial Statements” included in Part I, Item 1 of this Form 10-Q. Credit 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 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. 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 Our Term Facility provides for $185.0 million in borrowing capacity and matures on December 30, 2026. Proceeds from the Term Facility were used to pay down the Credit Facility in December 2019, adding borrowing capacity for future share repurchases, acquisitions and growth-oriented working capital expansion. 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, 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. At March 31, 2025, there was $100.0 million outstanding under the Term Facility with a weighted average effective interest rate of 5.6%. 22 Receivables Securitization Facility 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). The Securitization Subsidiary transfers variable undivided percentage interests in the receivables and related rights to certain third-party financial institutions in exchange for cash proceeds, limited to the applicable funding capacities. 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 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 March 31, 2025, 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. 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 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 . On the last day of each fiscal quarter, our fixed charge ratio must be greater than or equal to 2.25 to 1.00. 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 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. We may declare and pay quarterly dividends so long as (i) the amount per share of such dividends is not greater than the most recently publicly announced amount of dividends per share and (ii) our Average Total Leverage Ratio is less than 3.25 to 1.00 both immediately before and after giving pro forma effect to such dividends. Under the Credit Facility and Term Facility, we may repurchase shares of our common stock provided no default or event of default has occurred and is continuing, or would result from the repurchase of shares, and our maximum average total leverage ratio (determined on a pro forma basis) is less than 3.25 to 1.00. Other covenants in each of our credit facilities include restrictions on our ability to grant liens, incur indebtedness, make investments, merge or consolidate, and sell or transfer assets. Failure to comply with any of our financial covenants or any other terms of our credit facilities could result in, among other things, higher interest rates on our borrowings or the acceleration of the maturities of our outstanding debt. Interest Rate Swaps 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 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. 23 Compliance and Future Availability 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. For additional information regarding our debt arrangements, see Note 5 of “Notes to Consolidated Financial Statements,” included in Part II, Item 8 of our 2024 Annual Report on Form 10-K, as updated by Note 5 of “Notes to Consolidated Financial Statements,” included in Part I, Item 1 of this Form 10-Q. 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. If suitable acquisition opportunities arise that would require financing, we believe that we would have the ability to finance any such transactions. 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. We plan to fund these repurchases with cash provided by operations and borrowings under the above-described credit facilities. 24