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Feb. 13, 2020, 7:00 a.m. EST

Pool Corporation Reports Record 2019 Results and Provides 2020 Earnings Guidance

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POOL CORPORATION

Condensed Consolidated Statements of Cash Flows

(In thousands)







                                                                                                    Year Ended
                                                                                                    December 31,
                                                                                                    2019             2018            Change
        Operating activities
        Net income                                                                                  $     261,575    $    234,461    $    27,114
        Adjustments to reconcile net income to net cash provided by operating activities:
                                                 Depreciation                                       27,885           26,122          1,763
                                                 Amortization                                       1,389            1,793           (404        )
                                                 Share-based compensation                           13,472           12,874          598
                                                 Equity earnings in unconsolidated investments, net (262          )  (242         )  (20         )
                                                 Net losses on foreign currency transactions        1,347            560             787
                                                 Other                                              7,551            8,928           (1,377      )
        Changes in operating assets and liabilities, net of effects of acquisitions:
                                                 Receivables                                        (15,691       )  (14,371      )  (1,320      )
                                                 Product inventories                                (14,165       )  (142,170     )  128,005
                                                 Prepaid expenses and other assets                  (4,218        )  1,018           (5,236      )
                                                 Accounts payable                                   16,860           (6,567       )  23,427
                                                 Accrued expenses and other current liabilities     3,033            (3,750       )  6,783
        Net cash provided by operating activities                                                   298,776          118,656         180,120
        Investing activities
        Acquisition of businesses, net of cash acquired                                             (8,901        )  (2,578       )  (6,323      )
        Purchase of property and equipment, net of sale proceeds                                    (33,362       )  (31,580      )  (1,782      )
        Net cash used in investing activities                                                       (42,263       )  (34,158      )  (8,105      )
        Financing activities
        Proceeds from revolving line of credit                                                      1,066,529        1,138,195       (71,666     )
        Payments on revolving line of credit                                                        (1,415,988    )  (998,503     )  (417,485    )
        Proceeds from asset-backed financing                                                        189,000          198,400         (9,400      )
        Payments on asset-backed financing                                                          (182,500      )  (189,900     )  7,400
        Proceeds from term facility                                                                 185,000          --              185,000
        Proceeds from short-term borrowings and current portion of long-term debt                   30,863           17,127          13,736
        Payments on short-term borrowings and current portion of long-term debt                     (28,286       )  (18,793      )  (9,493      )
        Payments of deferred acquisition consideration                                              (312          )  (661         )  349
        Payments of deferred financing costs                                                        (406          )  (106         )  (300        )
        Proceeds from stock issued under share-based compensation plans                             18,574           13,569          5,005
        Payments of cash dividends                                                                  (83,772       )  (69,430      )  (14,342     )
        Purchases of treasury stock                                                                 (23,188       )  (187,469     )  164,281
        Net cash used in financing activities                                                       (244,486      )  (97,571      )  (146,915    )
        Effect of exchange rate changes on cash and cash equivalents                                198              (509         )  707
        Change in cash and cash equivalents                                                         12,225           (13,582      )  25,807
        Cash and cash equivalents at beginning of period                                            16,358           29,940          (13,582     )
        Cash and cash equivalents at end of period                                                  $     28,583     $    16,358     $    12,225
        


Derived from audited financial statements.

ADDENDUM

Base Business

The following tables break out our consolidated results into the base business component and the excluded components (sales centers excluded from base business):







        (Unaudited)                  Base Business                   Excluded                         Total
        (in thousands)               Three Months Ended              Three Months Ended               Three Months Ended
                                     December 31,                    December 31,                     December 31,
                                     2019            2018            2019             2018            2019            2018
        Net sales                    $   575,791     $   538,555     $   6,443        $  4,527        $   582,234     $   543,082
        Gross profit                 160,721         159,537         1,329            905             162,050         160,442
        Gross margin                 27.9        %   29.6        %   20.6         %   20.0        %   27.8        %   29.5        %
        Operating expenses           133,369         133,178         2,883            1,294           136,252         134,472
        Expenses as a % of net sales 23.2        %   24.7        %   44.7         %   28.6        %   23.4        %   24.8        %
        Operating income (loss)      27,352          26,359          (1,554    )      (389     )      25,798          25,970
        Operating margin             4.8         %   4.9         %   (24.1     )  %   (8.6     )  %   4.4         %   4.8         %
        








        (Unaudited)                  Base Business                     Excluded                        Total
        (in thousands)               Year Ended                        Year Ended                      Year Ended
                                     December 31,                      December 31,                    December 31,
                                     2019             2018             2019            2018            2019             2018
        Net sales                    $   3,152,253    $   2,987,937    $   47,264      $   10,160      $   3,199,517    $   2,998,097
        Gross profit                 912,680          867,980          12,245          2,193           924,925          870,173
        Gross margin                 29.0          %  29.0          %  25.9         %  21.6         %  28.9          %  29.0          %
        Operating expenses           569,458          552,841          14,221          3,443           583,679          556,284
        Expenses as a % of net sales 18.1          %  18.5          %  30.1         %  33.9         %  18.2          %  18.6          %
        Operating income (loss)      343,222          315,139          (1,976     )    (1,250     )    341,246          313,889
        Operating margin             10.9          %  10.5          %  (4.2       ) %  (12.3      ) %  10.7          %  10.5          %
        


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







        Acquired                     Acquisition    Net            Periods
                                     Date           Sales Centers  Excluded
                                                    Acquired
        W.W. Adcock, Inc.            January 2019   4              January - December 2019
        Turf & Garden, Inc.          November 2018  4              January - December 2019 and
                                                                   November - December 2018
        Tore Pty. Ltd. (Pool Power)  January 2018   1              January - April 2019 and
                                                                   January - April 2018
        Chem Quip, Inc.              December 2017  5              January - March 2019 and
                                                                   January - March 2018
        Intermark                    December 2017  1              January - February 2019 and
                                                                   January - February 2018
        


We acquired certain distribution assets of each of these companies.

When calculating our base business results, we exclude sales centers that are acquired, closed or opened in new markets for a period of 15 months. We also exclude consolidated sales centers when we do not expect to maintain the majority of the existing business and existing sales centers that are consolidated with acquired sales centers.

We generally allocate corporate overhead expenses to excluded sales centers on the basis of their net sales as a percentage of total net sales. After 15 months of operations, we include acquired, consolidated and new market sales centers in the base business calculation including the comparative prior year period.

The table below summarizes the changes in our sales centers during 2019.







        December 31, 2018             364
        Acquired locations            4
        New locations                 9
        Closed/consolidated locations (4  )
        December 31, 2019             373
        


Adjusted EBITDA

We define Adjusted EBITDA as net income or net loss plus interest expense, income taxes, depreciation, amortization, share-based compensation, goodwill and other non-cash impairments and equity earnings or losses in unconsolidated investments. Adjusted EBITDA is not a measure of cash flow or liquidity as determined by generally accepted accounting principles (GAAP). We have included Adjusted EBITDA as a supplemental disclosure because we believe that it is widely used by our investors, industry analysts and others as a useful supplemental liquidity measure in conjunction with cash flows provided by or used in operating activities to help investors understand our ability to provide cash flows to fund growth, service debt and pay dividends as well as compare our cash flow generating capacity from year to year.

We believe Adjusted EBITDA should be considered in addition to, not as a substitute for, operating income or loss, net income or loss, cash flows provided by or used in operating, investing and financing activities or other income statement or cash flow statement line items reported in accordance with GAAP. Other companies may calculate Adjusted EBITDA differently than we do, which may limit its usefulness as a comparative measure.

The table below presents a reconciliation of Adjusted EBITDA to net cash provided by operating activities. Please see page 6 for our Condensed Consolidated Statements of Cash Flows.







        (Unaudited)                                                                            Year Ended December 31,
        (in thousands)                                                                         2019             2018
        Adjusted EBITDA                                                                        $   382,212      $    353,427
                             Add:
                             Interest and other non-operating expenses, net of interest income (21,992     )    (19,645      )
                             Provision for income taxes                                        (56,161     )    (58,774      )
                             Net losses on foreign currency transactions                       1,347            560
                             Other                                                             7,551            8,928
                             Change in operating assets and liabilities                        (14,181     )    (165,840     )
        Net cash provided by operating activities                                              $   298,776      $    118,656
        


Shown net of losses on foreign currency transactions.

The table below presents a reconciliation of net income to Adjusted EBITDA.







        (Unaudited)                                                Year Ended December 31,
        (in thousands)                                             2019             2018
        Net income                                                 $   261,575      $   234,461
                Add:
                Interest and other non-operating expenses          22,425           20,336
                Provision for income taxes                         56,161           58,774
                Share-based compensation                           13,472           12,874
                Equity earnings in unconsolidated investments, net (262        )    (242        )
                Depreciation                                       27,885           26,122
                Amortization                                       956              1,102
        Adjusted EBITDA                                            $   382,212      $   353,427
        








        (1) Shown net of interest income and net of losses on foreign currency transactions and includes amortization of deferred financing costs as discussed
		 below.
        (2) Excludes amortization of deferred financing costs of $433 for 2019 and $691 for 2018. This non-cash expense is included in Interest and other
		 non-operating expenses, net on the Consolidated Statements of Income.
        


Return on Invested Capital

We calculate Return on Invested Capital (ROIC) using trailing four quarter results. We define ROIC as Net income adjusted for Interest and other non-operating expenses, net (net of taxes at the effective tax rate), divided by the sum of average Long-term debt, net, average Short-term borrowings and the current portion of long-term debt and average Total stockholders' equity from our financial statements as filed with the SEC. We have included ROIC as a supplemental disclosure because we believe that it may be used by our investors, industry analysts and others as a measure of the efficiency and effectiveness of our use of capital.

ROIC is not a measure of financial performance under GAAP. We believe ROIC should be considered in addition to, not as a substitute for, operating income or loss, net income or loss, cash flows provided by or used in operating, investing and financing activities or other income statement, balance sheet or cash flow statement line items reported in accordance with GAAP. Other companies may calculate ROIC differently than we do, which may limit its usefulness as a comparative measure.

The table below presents our calculation of ROIC at December 31, 2019 and 2018.







        (Unaudited)                                                            Year Ended December 31,
        (in thousands)                                                         2019               2018
        Numerator (trailing four quarters total):
        Net income                                                             $   261,575        $   234,461
        Interest and other non-operating expenses, net                         23,772             20,896
        Less: taxes on Interest and other non-operating expenses, net at 17.7% (4,208      )      (4,200      )
        and 20.1%, respectively
                                                                               $   281,139        $   251,157
        Denominator (average of trailing four quarters):
        Long-term debt, net                                                    $   595,247        $   602,984
        Short-term borrowings and current portion of long-term debt            17,323             15,190
        Total stockholders' equity                                             346,049            289,979
                                                                               $   958,619        $   908,153
        Return on invested capital                                             29.3           %   27.7           %
        


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