Good day, and welcome to the Pool Corporation second quarter 2022 conference call. All participants will be in listen- only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Melanie Hart, Vice President and Chief Financial Officer. Please go ahead. Thank you, and welcome to our second quarter 2022 earnings conference call. Our discussion, comments, and responses to questions today may include forward-looking statements, including management's outlook for 2022 and future periods. Actual results may differ materially from those discussed today. Information regarding the factors and variables that could cause actual results to differ from projected results are discussed in our 10-K. In addition, we may make references to non-GAAP financial measures in our comments. A description and reconciliation of our non-GAAP financial measures is included in our press release and posted to our corporate website in our Investor Relations section. I'll now turn the call over to our President and CEO, Peter Arvan. Pete? Thank you, Melanie, and good morning to everyone on the call. This morning, we proudly recorded another record quarter with net sales coming in at $2.1 billion, an increase of 15%, marking our first ever $2+ billion quarter and beating last year's very strong second quarter where we saw sales increase by 40%. These results prove exceptional given the challenges that we faced this past quarter in weather, the supply chain, and recognizing that the second quarter is where growth capacity industry-wide is most limited. There were many factors that came into play this quarter that, when taken in totality, demonstrate the strength of the company and the resilience of the industry. First off, I would say that demand for new pools is solid, and not surprisingly, the backlog on new pool construction is somewhat smaller than this time last year. Our builders are reporting leads have slowed a bit, but that they have plenty of work on new construction and renovation projects on the ever-expanding install base of pools. Second, following two years of very favorable weather in the second quarter, we experienced a cooler and wetter start this year in our seasonal markets that delayed many projects, impacting the demand and timing of sales of many products from packaged pools and equipment to chemicals. As we would have expected, when the weather improved later in the quarter, sales for these products increased to fulfill the strong demand. Third, supply chain constraints have improved in many areas, but persist in several products that contain computer chips like the variable speed pumps and automation. Our Trichlor inventories have improved tremendously, but the availability of granular Cal-Hypo used to shock swimming pools is very tight, affecting sales for that product. Fourth, we have seen a continuation of the demand for connected and smart technology products like automation, salt chlorination, variable speed pumps, robotic cleaners, and customizations which positively impact revenue on repair and replacement, as well as new construction and remodel, and we expect that will continue. Fifth, without a doubt, our inventory management program has helped us keep pace with the strong demand and fluctuating lead times as the install base of pools grows and favorable market dynamics continue. At the same time, we have seen a decline in the demand of some categories that were supercharged by the pandemic, such as above ground pools and heaters, as mentioned on previous calls. Fortunately, the decline represents a very small percentage of our total sales. Lastly, the inflation that has worked its way into the industry is passing through the channel, which is reflected in our revenue and gross profit performance. We believe that most of the inflation that we are seeing is driven by structural cost increases by our suppliers, making these new price levels permanent in nature. To summarize, we would characterize the current situation and near-term outlook as positive, with mix and price more than offsetting some declines in unit volumes that are driven by supply chain constraint items and weather-related delays for both construction and pool maintenance products. As I mentioned, the reported backlog may be returning back to more normal levels, but the install base, which is where we derive over 80% of our revenue, continues to grow, ensuring that demand for our products, including maintenance and repair and remodel items, remains strong. Acquisitions, most notably Porpoise Pool & Patio, as projected, are performing extremely well, adding 5% to our revenue during the quarter. Excluding revenue from new franchise locations, our acquired Pinch operations grew by 14% in the quarter. Pinch has a very proven and unique value proposition, which allows the individual owners to operate best-in-class stores while the business continues to attract new franchisees. Looking at the base business in our four largest markets, California saw sales increase 9% in the quarter. This is on top of the 33% growth that we saw last year in the same quarter. Texas saw revenues grow by 17%, while Arizona saw sales grow by 20%. Our Florida business continues to benefit from a very robust economy and grew by 23%. Overall, our year-round markets grew by 16% and our seasonal markets by 5% as they were impacted by the weather pattern that I mentioned above. Continuing to base business product sales results, we were very pleased with what we saw during the quarter. Equipment, which grew by 35% in the second quarter of 2021, grew by an additional 7% in the second quarter of 2022. As mentioned, supply chain disruptions and shortages of key components continue to impact this area, and it is worth noting that last year in the same quarter, we were still working through the Texas freeze impact. Additionally, keep in mind the seasonal markets experienced unfavorable weather this year, which is very different than the favorable weather and early start that positively impacted their results in the previous two years. Chemical sales increased by 25% in the quarter. A better inventory position on Trichlor helped, but we were hampered by the shortage in Cal- Hypo this year. Not surprisingly, with this year's weather pattern, volumes, particularly in the retail sizes, were softer in the quarter when compared to last year. As mentioned, retail sales improved as the weather turned more favorable as the quarter progressed. Building material sales increased by 22%, which is on top of the 33% growth in this category that we saw in the second quarter of 2021. Our ability to grow this category is strong. We are adding and refreshing NPT centers and capabilities to bring the most complete product offering in this category closer to our customers and help them showcase these products to the millions of pool owners and thousands of new or prospective pool owners across North America. Our capabilities in this area are unmatched as we offer the most complete line of products, expert advice, and training, and the best customer experience in the industry. Additionally, our digital catalog and augmented reality tool, called the NPT Backyard app, help bring the showroom to the homeowner's own backyard virtually. Retail sales excluding Pinch A Penny grew by 7% in the quarter, clearly feeling the effects of the weather in our seasonal markets. For comparative purposes, we grew retail sales 20% in the same period last year. It is noteworthy that the results on a year-to-date basis are up 13%. Looking at the results on a regional basis, we see a clear bifurcation that is weather-driven with the year-round markets posting results similar to Pinch A Penny, which is highly concentrated in Florida and Texas. Commercial pool product sales are up 23%, and that is on top of the 45% growth that we saw in the same period of 2021. With leisure travel bouncing back and strong demand in this category, we are encouraged with this trend, and no one is better positioned to serve this than POOLCORP. We have deep expertise and an expansive inventory to serve the critical time-sensitive nature of this business. Now, let me add some color on our European business results. After a tremendous 2021, Europe is facing a difficult 2022. Driven by very unfavorable weather, uncertainty on the continent because of the war in Ukraine, and a slowing economy that is grappling with surging energy and food costs, we saw sales decline 18% in the quarter. On a constant currency basis, it was -8%. For perspective, this compares with the same quarter in 2021, where we saw sales surge 42%. Our European team is very seasoned and is managing the business appropriately, and we remain very committed to our European strategy over the long haul. Turning to Horizon, once again, we are very pleased with the results. Base business sales grew by 14%, and total sales, including acquisitions, increased by 15%. Once again, I'd like to point out that this compares with 2021, which in the same period we saw sales increase by 31%. Jeff Clay and his team continue to execute our strategic plan with very strong results. We remain very committed to the industry and highly confident in our team's ability to grow and take additional share. At this juncture, let me add some commentary on gross margin, expenses, and operating income. Starting off with gross margins, I'm very pleased to show that overall gross margin percent increased 150 basis points to 32.4%. This marks the first time that we have ever exceeded 32%, so yet another milestone for the POOLCORP team. For our base business, gross margin percent increased 100 basis points to 31.9%. Many factors combined to drive the increase. Pricing management, our supply chain activities, product and customer mix all help drive the increase in gross margin percent. Additionally, we are in the early stages of vertically integrating certain chemical lines with Porpoise Pool & Patio, which is helping drive the increase. Conversely, we face headwinds in some of our vendor incentive programs as growth tiers are impacted by the timing of our purchases. Furthermore, the rapid pace of vendor price increases has subsided. Again, none of this is a surprise, and we have planned and executed accordingly. As you can see, our gross margin improvement is driven by a multitude of levers that, when combined, more than offset the headwinds that we face. Looking at operating expenses, we are very pleased to see that our capacity creation activities continue to drive results. Our operating expenses as a percentage of sales in our base business fell 40 basis points, while overall operating expenses increased 20 basis points, reflecting the acquisition, of course, in our results. Considering the tremendous inflation that we have seen almost across the board, from wages and salaries to fuel leases and transportation, we are very happy with how the team has remained focused and executed at the highest levels. POOL360 sales grew by 9% in the quarter, making up 12% of total sales. I would also like to point out that we have released our next generation of POOL360, which contains a long list of customer-driven enhancements that we believe will result in higher adoption rates of this capacity-creating tool. Wrapping up the income statement, we posted operating income of $419 million, an operating margin of 20.4%, respectively. These results reflect a 24% increase in operating income and a 150 basis point improvement in operating margin. We are extremely proud of these spectacular results, all made possible by the combined efforts. Our extraordinary team here at POOLCORP are dedicated and loyal vendor partners and our tremendously creative and hardworking customers, all of whom work together to help more people enjoy outdoor living. We could not be more thankful for this teamwork. POOLCORP is a unique, well-managed company in a resilient industry. Technology to modernize the millions of pools that make up the install base and build pools of the future continues to be developed and released by our supplier partners, and adoption of such is in the early stages at best. Our own technology to make the entire supply chain from the manufacturers to the customers more productive and bring us closer together, giving everyone back valuable time continues to get better. The future is bright and more connected than ever. We are balanced in our approach and have always been very strategic with capital allocation and investments, looking out at the changing landscape and positioning the company to have a value proposition that is second to none and create additional capacity for growth. Our latest investment in Porpoise Pool & Patio is only just starting to realize its true potential now that we have integrated and are one team. We will continue to expand the footprint, extract the synergies, and leverage the industry-leading technology to improve our value proposition to the thousands of independent specialty retail stores that we serve, giving them world-class capabilities. This is a very powerful combination that we know accelerates our growth and the ability to gain share even in an uncertain business environment, because each business is made better by the combination. We have always been an organic growth-oriented company with the ability to select, acquire, and integrate accretive businesses where we see value. Additionally, no one is better or has a more proven track record with greenfields than POOLCORP. We have successfully opened 31 locations in the last four years and will open an additional 10-12 this year. We are a performance-based company that attracts, retains, and develops industry-leading talent, creating vibrant career paths for our employees. We have deep loyal customer relationships and strong vendor partnerships that when combined with our team, produce great financial results that are durable. Unlike most other building product distributors, POOLCORP enjoys a unique advantage of essentially maintaining a lifelong relationship with every pool that is built and remains in service. We provide the construction material and the maintenance supplies and the remodeling products required during the entire existence of each pool, whether it is a DIY-maintained pool or one that is serviced by one of our professional customers. It is an annuity industry and business model that grows upon itself. As more pools are built, more products are demanded forever. With all of this in mind, and half of the year behind us, we are raising our full year guidance to $18.38-$19.13 per share. I will now turn the call over to Melanie for her financial commentary and balance sheet update. Thank you, Pete, and good morning, everyone. As expected, second quarter 2022 continued with robust 15% sales growth over 2021, comping last year's phenomenal growth in our seasonally significant quarter, which is a tremendous accomplishment. This represents a 22% sales growth increase year- to- date. The inflation impact for the quarter was around 10%. Additional vendor price increases, primarily in the equipment area, occurred during the quarter, having just a partial impact on the current quarter due to the timing of the increases. Our recent acquisitions added 5% to our sales growth in the quarter. Overall volume growth was in line with our expectations, lapping the remaining impact of the Texas freeze that benefited sales growth in 2021. However, we did see negative impacts on sales activity from weather in Canada, the Upper Midwest, and the Northeast, which we believe slowed sales growth by 1%-2% during the quarter. The weather impact was evident in the April sales growth rate being the lowest month of the quarter. As Pete mentioned, the growth rate improved throughout the quarter, with sales growth in the year-round markets continuing to be strong. Europe experienced some negative weather and macro impacts, resulting in an 8% local currency decline from 2021 during the quarter compared to a local currency 31% growth in Q2 2021. As they represented only 5% of net sales in 2021, the estimated impact on the consolidated financials for the quarter is approximately 2%. A - 1% impact from foreign currency also brought down results. In summary, for the quarter, Q1 included an early buy shift of approximately 1% of sales that would have normally taken place in Q2. We experienced a - 1% to 2% from North American weather, a 2% drag in Europe from weather and macro events, and a 1% foreign currency impact. Gross margins hit an impressive 32.4% for the quarter and 32.1% year- to- date. During the second quarter, we realized a 100 basis point improvement on base business activity with a 150 basis point consolidated increase over Q2 2021. Second quarter typically has higher gross margins than we report for the full year as a result of seasonality. This increase over prior year moderated in Q2 from the increase reported in Q1 as we faced significant improvements achieved in the same quarter last year. We reported an accretive benefit from our acquisitions. We also continued to see gross margin dollar benefits from product mix as items such as variable speed pumps, LED lights, automation, and custom features experienced higher sales growth than their more traditional non-automated counterparts. We saw increased activity through our CSLs or centralized shipping locations. This provides a significant benefit to our network in order to manage inventory in a tight supply environment and ensure we can replenish our locations timely to avoid lost sales from stockouts while enhancing our gross margins on certain products. Better inventory positions on faster moving products and increased selling prices made necessary from vendor cost increases also provided an incremental benefit. Operating expenses increased only 16% on a gross profit dollar increase of 21%. As our continued ability to manage seasonal sales volume, coupled with our capacity creation efforts, resulted in increased operating leverage even while experiencing above historical levels, inflationary increases in compensation expense, rent, and freight costs. This includes an additional $21 million in operating expenses in the quarter from recent acquisitions. Operating margin increased 150 basis points in the quarter, and operating income increased to $419 million. The power of our operating model is that it provides us the ability to make incremental improvements as we grow, and also the flexibility to ensure that we sustain operating margin as a significant portion of our compensation expense is comprised of our performance-based incentive programs, so that our employees are rewarded along with our shareholders in periods of operating income improvement. Our strategic planning process, improving operating capabilities and management discipline developed over our 40-year history and 27 years as a public company, provides us the agility to respond in changing macroeconomic times. Interest expense for the quarter increased $6.6 million from prior year second quarter to $8.5 million due to higher debt levels compared to last year. Our trailing four-quarter leverage ratio was 1.1x. A continued conservative position, even with higher average debt from working capital investments, acquisitions, and increased share repurchasing activities, and remains well below our overall targeted range of 1.5x-2x. We recorded an ASU benefit of $1.6 million or $0.04 per diluted share, compared to $7.7 million or $0.19 per diluted share that we realized in the same period in 2021. As the timing of when these benefits are realized are related to restricted stock vesting and option exercises, and computed based on the stock price in effect at the time of the transaction, this tax benefit has and will continue to fluctuate from quarter to quarter and year to year. I would now like to turn our discussion over to our balance sheet and capital allocation. Receivables increased 29%, reflecting higher sales growth in June than the full quarter, additional amounts due from vendor programs as a result of higher sales year- to- date, and 5% from acquisitions. Product inventories have decreased from our peak in March 2022, as we prepared well and ordered inventory early to be fully stocked for the season. Inventories that were in short supply at this time last year, in particular, Trichlor tablets, are now in a position to allow for consistent supply to customers versus the rolling stock-outs we experienced last year. As a result, we have realized approximately 20% increased sales volume for these products. The overall balance includes approximately $90 million in higher cost inventories from inflation, which we expect to realize in additional selling price, and approximately $50 million from acquisitions. We are pleased with the quality of the inventory on hand and do not expect any negative margin impacts resulting from managing inventories. We actively monitor inventory levels related to chemicals, pipe, and rebar, areas where we have seen higher inflation. We review inventory levels and turns by sales center at the individual SKU level and believe current on-hand amounts are appropriate in relation to expected future sales. Net cash provided by operations was $28.7 million year- to- date, down from the $187.2 million generated in the same period last year. The current year period includes an $80 million cash payment that was deferred from 2021 as a result of Hurricane Ida and $136 million more cash outlays in the first half of the year on inventory. In 2021, we continued to build inventory through the second half of the year in order to keep up with sales demand and added approximately $430 million in base business inventory in the second half of 2021. As we have seen improved lead times, we would expect to seasonally bring down inventory in third quarter 2022 in order to take advantage of early buy opportunities that we expect to arise as normal in fourth quarter 2022. For the year, we are expecting to generate significant free cash flows. The Board authorized a 25% increase to our quarterly dividend rate beginning in the second quarter 2022. Our quarterly dividend rate of $1 per share represents the 12th consecutive year we have increased our dividend rate. We now expect to return approximately $150 million to shareholders in cash dividends for the year. Also in May, the Board increased our share buyback authorization to $600 million from the $404 million available under our previous share repurchase authorization. We have taken full advantage of the increased authorization and completed $216 million in share repurchases during the quarter, acquiring 547,000 shares and bringing our year-to-date total share repurchases to $268 million. This is the highest ever commitment from the company on both the dollars invested in the annual period and the number of shares purchased. Our earnings guidance for the year increased to $18.38-$19.13, includes $0.20 ASU tax benefit realized to date. This reflects a growth range of 20%-25%, excluding the impact of the tax benefit. Inflation expectations for the year are largely unchanged at an estimated 10%-11%. Inflation in the second half of the year will moderate from what we have reported year- to- date as we begin lapping the increases that were realized in the second half of 2021. Our sales growth expectations for the year remain consistent with the net sales guidance range of 17%-19% we discussed on our February call. Additional vendor price increases in second quarter, not factored into our previous guidance, are offset by slight decreases in volume as a portion of the business related to consumables was impacted by negative weather in Q2. Our guidance also factors in updates for Europe and foreign currency impacts. Our estimate for the 5% contribution from acquisitions is unchanged. We will also have one less selling day in third quarter, and with the additional selling day we reported in first quarter, we will have the same net number of days for the year. Forecasted gross profit margin for the full year may be slightly up from our previous guidance of comparable to 2021 as far as the revised inflation announced in Q2. We realized 240 basis points and 260 basis points improvement in margins in third quarter and fourth quarter of 2021, and so expect these gross margin numbers in the back half of the year to moderate more in line with our longer-term guidance. The increases we have seen in the interest rate environment, along with our revised average debt outstanding, resulted in an updated estimate to the interest expense line of $35 million-$40 million. We expect our year-end leverage to be less than 1.5 x. No changes are expected in our income tax rate for the full year, and we continue to expect the third quarter rate to be slightly lower than the annual rate. With the effect of the shares we have repurchased to date, we are updating our year-end estimate for shares outstanding to approximately 40.3 million shares. We continue adding to our future growth capacity with five greenfield sales centers openings year- to- date, and an acquisition completed early in second quarter in West Virginia, a state we haven't previously had a physical presence in. With this acquisition, we now have sales centers operating in 40 states. We have also added one new Pinch A Penny franchise store during the quarter, bringing year-to-date new franchise openings to three stores. We still expect to open around 10 new franchise locations this year. One area that has been in the headlines lately is a significant shortage of lifeguards across the country, preventing some community pools from opening this season. We are passionate about expanding the enjoyment from swimming and the outdoor living lifestyle. As part of our ongoing partnership with the YMCA, we recently donated $1 million to eight YMCAs, choosing locations throughout the country with strong aquatic programs. These donations will provide training for more than 900 lifeguards and swimming lessons for 8,600 children who otherwise would not have had the opportunity to learn basic water skills. We are very pleased with our results for the first half of 2022 and expect continued growth in the second half as our industry begins to see some relief from the supply chain challenges. I will now turn the call back over to the operator to begin our Q&A session. We will now begin the question-and-answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. Please limit yourself to one question and one follow-up, and then re-queue for additional questions. At this time, we will pause momentarily to assemble our roster. The first question comes from Ryan Merkel with William Blair. Please go ahead with your question. Hey, thanks, and good morning, everyone. Morning. I wanted to start with unpacking sales guidance a little bit. It sounds like, I think 5% volume growth was your original guide. It sounds like maybe that's a bit lower, the main drivers there being weather in Europe. Do I have that right? And what is the new outlook for volumes for 2022? Yeah. If you look at it, we were originally at 4%-5%. It kind of included in that 17%-19% guidance. We believe we lost a little bit to weather in Q2, as well as we've updated for Europe. You know, as we go through the year, you know, when we updated the guidance for first quarter, you know, we kinda reiterated that the overall range for the year would be similar to what we had originally indicated, recognizing that we had higher growth than that in Q1. The two other factors that play into that is when we look at Q3, we will have one less selling day, and then also when we get to Q4, the overall expectation for inflation for the year at 10%-11% will be less in the fourth quarter because we'll be lapping some of those costs that were already embedded in the prior year numbers for fourth quarter. Got it. That's helpful. Okay. Then maybe you could comment on July and how organic volumes are tracking. My sense is based on the guide that it would be down in low single digits. If I'm right there, could you just rank order the main drivers of why volumes would be a bit lower? I think Europe might be at the top of the list, but it would be helpful to get that color. Yeah. You know, we haven't seen a significant change other than you know Europe is having a heat wave. We've seen a little bit of favorable promise in the weather over in Europe. You know, overall when we updated our guidance for the full year, what we do expect Europe to be down and be a contributor to that from a volume standpoint. As we look at the rest of the business, July activity is coming you know in pretty much in line with June. It looks like you know a lot of the unfavorable weather that we saw in April is behind us. You know, a little too soon to call for the rest of the quarter, but we're hoping that things remain warm and dry, and we have, you know, good weather for the third quarter. It's encouraging, Ryan. Okay, good. Well, thanks. I'll pass it on. Our next question comes from David Manthey with Baird. Please go ahead with your question. Thank you. Good morning, everyone. Melanie, thanks for giving us a rough update on the full year gross margin, but I believe last quarter you said that third quarter and fourth quarter gross margin would both be lower year-over-year. Is there any update you can provide us with a finer point on the third and fourth quarter? Yeah. No. We do still looking at the comparable from last year, we had that significant growth, the 240 and 260 basis points. We will expect those margins to kind of moderate off of those levels, but certainly be well above the 2020 levels. Okay. In the case that if sales were lower in 2023, could you remind us? You've given us some numbers in the past about incentive comp that would automatically kind of reverse out, and could you also talk about the percentage of SG&A that would flex down with sales, sort of your variable costs in the cost stack? Yeah. If we look at the breakdown between the variable and fixed cost, you know, it's primarily about 50/50. When we look at compensation, we consider that to be component of the variable piece. As we look at the incentive comp that is included in the current numbers with the higher growth that we've seen, if you know, if and when we return to kind of that relative normal growth, we would expect the compensation expense would decrease by about $30 million. Okay. $30 million, but the 30 is in the 50%. Yep. Yeah. Okay. Thank you very much. Our next question comes from Susan Maklari, with Goldman Sachs. Please go ahead with your question. Thank you. Good morning, everyone. Morning. My first question is, just thinking about underlying consumer demand as the macro shifts and housing potentially moderates a bit, can you just talk a little bit about what you're hearing from your customers in terms of consumer interest in new pool construction and even some of the R&R projects in there? Any thoughts on how that may trend as home prices potentially flatten out? Sure. What we're hearing from the builders right now is, as I said in my prepared comments, that backlogs are smaller, which is to be, you know, expected given the flurry of activity during the pandemic. You know, I need a pool, I need one. Need a pool right now. I think what people sometimes don't understand is because backlogs are smaller, it doesn't translate into less work being done. The builders that we talk to, obviously on a daily basis are still very busy. There's still plenty of work out there for new pool construction, and as I mentioned, the renovation and remodel project backlog is also very strong. I think one of the biggest contributing factors to that is from a renovation and remodel perspective, frankly, and new construction is housing values. Housing values are strong. Although, you know, housing sales may be flattening out because of the rising interest rates, everybody that has a home today that purchased it in the last several years is sitting on a tremendous amount of equity as the home values have appreciated. That makes the likelihood of investing in the home, whether it's the addition of a pool or renovating and remodeling a pool that's already there, very good. That's essentially the feedback that we're getting from builders. There's the install base of pools, which as you know, is in excess of 5.3 million, most of which has very little technology on it, right? There's nothing there yet. Most especially newer homeowners are looking for a connected backyard experience to be similar to the, you know, the way the inside of your home operates. Additionally, you know, when you look at the age of the installed base of pools being, you know, in the approximately 25 years across North America, it shows that there is a, when you look at the timing on when those pools were built, it shows that there is a lot of pools that are in need of and will be in need of modernization and updates. Whether our builders are building new pools or whether they are remodeling and renovating, you know, they are busy, and the guidance that we're getting from them is that that they will stay busy. Now, having said that, as I mentioned, you know, the leads have slowed, so but that doesn't translate into, "Hey, we're going to build less pools." In fact, I would tell you the biggest limiting factor on new pool construction right now is weather. You know, during the second quarter, which is, you know, prime building pool starts, especially in the Upper Midwest and through the Northeast, that's prime time for to get projects started in Canada as well. New pool constructions are behind in those areas because the weather was not conducive to construction, especially early in the quarter. Most of our builders in those areas, they're behind in the number of units that they've constructed, but they're not behind in the amount of work that they have. Now, how many of those are completed in the 2022 season really is gonna be a function, as you know, of the shoulders of the season, right? There's more surplus capacity typically in the first and fourth quarter that will dictate how many pools actually get done. Although it's too soon, with only six months into the year to tell you, how many pools I think are going to get built. I think that will largely depend on the amount of billable days that exist between now and year-end. Okay. That's incredibly helpful color, Peter. Thank you. My follow-up question is, you know, you clearly bought a lot of stock back this quarter. I think that you bought more back this quarter than you ever have on a full year basis. You know, as you think about the inventories normalizing, you know, your commentary that you plan to work that down through the third quarter, can you give us any update on how you're thinking of uses of cash? You know, anything around maybe a programmatic sort of repurchase approach or anything else, especially as the valuations are where they are for the stock? Yeah. I mean, we have mentioned that our share repurchase program this year has been very strong, and it's strong because we have tremendous confidence in the company and in the industry, and we look at the price and say it's a very attractive price, and we're a buyer. We were granted an additional authorization by the Board, which we've taken advantage of, as Melanie mentioned, and we still have additional authorization left, which we will continue to use. The rest of our capital allocation model is really unchanged. We have always been very disciplined in how we deploy capital, whether it is for expansions and greenfields and operating the business, whether it's, you know, new trucks, new facilities. You know, we increased our dividend program. We're still active in the M&A market, although I don't know that there's any big deals out there that would consume a tremendous amount of cash. There's the share buyback. As Melanie mentioned, we believe that as we bring down inventories between now and year-end, that our free cash flow is going to be tremendous this year. With that, we will take advantage of the opportunities that we're given. Okay, great. Thank you very much for that, and good luck. Thank you. Our next question comes from Andrew Carter with Stifel. Please go ahead with your question. Hey, thanks. I just want to unpack Europe. I realize small portion of the business, but ex-weather, constant currency down 6% in the quarter. Where do you project that goes throughout the year in terms of the decline that's in your guidance? Just could you remind us how different Europe is versus kind of the U.S. pool business? Is that a good proxy, or is just the markets are two very different to where that kind of decline, if we did endure some pretty heavy macro pressure here in the U.S., we couldn't see those kind of numbers? Thanks. Yep. Thank you. Europe, we said on a constant currency basis, Europe is down 8%, and that comps off of a very strong quarter, second quarter and year that they had last year. The European market is strong. There is about 5 million pools across Europe. They're different pools than they are in North America. They tend to be smaller pools with less features and less automation because the real estate that surrounds most homes in Europe tends to be smaller than what you find in North America. Having said that, there still is a nice opportunity. As I mentioned, Europe had some tremendous headwinds this year. First, it started with the war and the uncertainty that that creates on the continent. It's kind of crazy to think about in 2022 that we have another war in Europe, but there is a war in Europe that is on people's minds, number one. Number two, you would compound that with tremendous inflation on energy and frankly, uncertainty on energy prices, which makes the inflation even worse, and that extends on to food and other basic items in Europe, which is on people's mind. Then lastly, you know, if that's not enough for the Europeans to contend with, their weather this spring or through the second quarter was just dreadful. What I'm very encouraged with, though, is that when the heat wave, the heat dome that is over North America that is now extended into Europe, when that hit, we saw an immediate, you know, reversal of the sales trend in Europe, and sales picked up nicely. We are very encouraged. We are very excited about the future prospects in Europe, but we're having to work through some market dynamics that we hadn't anticipated. However, our team in Europe is rock solid. Our management team knows what to do. They're operating the business appropriately, and as I mentioned, we are no less optimistic about the future in Europe than we were before. We think we have a tremendous opportunity to continue to grow and take share and bring new products to the market. Thanks. Second question, I wanted to shift gears a little bit. I know that you mentioned that the inventory situation is still tight, and you know, that's kind of reflected in what you're doing. Where do you see the risk as the supply chain eases and a lot of your smaller competitors potentially over-correct, and they could be over-inventoried just as you're in a position to manage it? And one thing within that question, could you remind us how much exposure you have to potentially transitory inflation that could be a deflationary risk in the out years? Thanks. Yeah. From a transitory inflation, it's actually a very small portion of our business. I made the point in my comments that most of the inflation that we have seen from our suppliers on products is structural. You know, with labor being a huge component in everything that our manufacturers make, and with the increase in labor cost, that translates likely into what we believe to be a permanent price level. I don't see a scenario where for the vast majority of our business, we're going to see any deflation. Having said that, there are a couple of items in our inventory, whether it's, you know, rebar or whether it's PVC pipe, where they're more commodity in nature, so obviously less labor, more raw material and commodity pricing driven, where there could be some movement. It represents such a small portion of our inventory that it's really not anything that we contemplate. It's a small portion of the inventory in dollars and just the percentage of the inventory in total is so small that even if it swings one way or the other, I don't really see that happening. As it relates to oversupply of inventory, I think what happened is last year when you had hang ups in the supply chain and you had lead times extending, that led to distributors ordering because you were ordering, you know, your restock or your stocking levels and distribution are typically a function of your lead time usage plus your safety stock. Well, if lead time continues to get bigger, then you're having to order more and more product because you think it's gonna take you longer to get it. The good news is that on many products that were in short supply last year, the lead times have come down considerably, which is allowing us to bring down inventory. What I did mention, though, is that there are still several products out there that are in very short supply, both on the equipment side and on the chemical side. Last year I was essentially flush with Cal- Hypo and short on Trichlor. This year I'm flush with Trichlor and I'm short on Cal- Hypo. When it comes to, you know, equipment, it's a similar dynamic. Last year we were short on heaters. This year I have plenty of heaters. The backlog on chip items that have a chip embedded in them, whether it's a salt cell or whether it's a motor, variable speed motor, a drive, or whether it's an automation center or an LED light, that's still, we still see significant supply chain issues and inconsistency in deliveries. Thanks. I'll pass it on. Thanks. Our next question comes from Trey Grooms with Stephens. Please go ahead with your question. Hi. Good morning. This is actually Noah Merkousko on for Trey. Okay. My first question. I was hoping you could talk about the sustainability of EBIT margins longer term. You know, we've seen significant improvement over the last couple of years, but you know, longer term, you know, top line growth may moderate to more normal levels, seeing less inflation from suppliers, et cetera. Just how do you get confidence in sustaining this level of profitability? Okay. It's two items. First of all, as it relates to our capacity creation initiatives, that we focused on, you know, we know that, as we continue to roll that out to additional sales centers, as we continue to expand what we're doing in those areas, that we continue to work and operate more effectively, and so we can push more volume growth through the sales centers, based on the model that we have in place. The other component, that is, you know, probably the one item that's kind of most significant individually is going to be, the reference to the performance-based compensation, that, you know, the additional dollars that are included in the current expense line, at a kind of a normalized level within our, you know, 69% long-term organic growth, would be about $30 million less than where it is currently. Right. Thanks. That makes sense. For my follow-up, what are you seeing on the commercial side in terms of demand? I know it's a smaller part of the overall business, but there's been some recent forecasts calling for big growth in hotel construction next year. I'm just curious what percentage of your overall business would go into hotel pools? Yeah, it's still a very small percentage. Honestly, it's one of the larger opportunities that we have because our market share in commercial pool is smaller than what we would see in the residential area. We're very encouraged by the demand that we see, the amount of projects that are being bid or put out to bid right now. Frankly, with the boom in travel, as everybody has seen by watching the news, there's a ton of people traveling and the resorts are all busy. They're investing money in their aquatic areas, which is very good for us. Whether it's maintenance and repair, whether it's new construction, we see a significant opportunity to continue to grow in that area. We've invested heavily in inventory. We've invested in specialists and programs, which we think positions us best to capitalize on the rebound that we've seen after, you know, at the beginning of the pandemic. Certainly, that part of the business slowed considerably, but we're very happy with the bounce back and the outlook. Thanks. That's really encouraging. I'll leave it there. Thank you. Our next question comes from David MacGregor with Longbow Research. Please go ahead with your question. Yes. Good morning, everyone. Can you just talk about vendor programs and what changes you may be seeing, if any, with vendor offers on rebate programs, volume thresholds, dollar rebates for certain unit volumes? How is that evolving in this environment? Yeah, the programs really don't change in structure, right? They're all predicated upon, you know, there's a baseline and then there's growth, which is what I mentioned in my comments. You know, one of the tailwinds that we had last year as it related to our gross margin has turned into a headwind this year, and that has to do with the timing of the purchases and when we buy. Obviously, as lead times come down, I'm going to buy less. If I'm going to buy less. Right. Then, you know, that's certainly going to affect the vendor programs, the construct of which really doesn't change. Again, as I mentioned, that wasn't a surprise to us. We knew it. We contemplated it. It was in our calculus of what we were going to do to manage our gross margins. We would expect that next year, you know, as the season winds down and we burn off some inventory and we get into a normal early buy season, that the opportunities from a vendor program will continue to be attractive to us. Okay. The second question for me, we've talked a little bit about price cost here in a couple of different questions, but maybe coming at it a slightly different way, just ask you, maybe Pete, how your view on second half price cost may be different now from where it was 90 days ago, and what's changed in that view since your last earnings call? Yeah. You know, I would say if you asked me on the last call what I thought the likelihood of future price increases was going to be, I would have said it was more likely than not. From where I sit today, I don't think we're going to see much more inflation, at least until the early buy program. I think the pricing environment is more stable, which is not necessarily a bad thing. I think predictability and stability, certainly for our customers, is a good thing, but that would be the major change. I don't think it's affected demand, right? I mean, that's the good news. It hasn't affected demand, but I don't really see much change between now and the early buy programs in the fall. Got it. Great. Thanks very much. Thank you. Our next question comes from Stephen Volkmann with Jefferies. Please go ahead with your question. Hi. Thanks for squeezing me in. I appreciate it. Just a couple of follow-ups, if I could. Is it possible to quantify what you think mix and share have added to growth over the last couple of years? As we go, as we look at those two different components, you know, really as you look at mix, we look at that in two different pieces. Some of the mix is kind of on the traditional products where we can see that we're selling, you know, selling more of certain products. In particular, the individual quarters when we call out, where building material growth is higher than growth for the quarter, chemical growth, those types of things. As you look at, you know, the other way that we look at it is the growth margin dollar impact. That, as it relates to a lot of the variable speed pumps, the LED lighting, and really those automated products that are coming out and more readily available, certainly than they were several years ago, we see the increase in sales activity in those particular products that is actually driving a significant portion of the gross margin dollar increases. Okay, thanks. Any thoughts on how much share you've gained through this kind of COVID situation? Yeah. You know, we look at that by market. You know, the other component of that when we look at the share gains is when we go back and reference the number of greenfields that we've opened. You know, as part of every greenfield opening, the expectation there that we're continuing to capture market share. That is one of the strategic purposes behind opening those new locations. You know, the expansion of the, you know, kind of our overall share gains are, you know, have been very favorable, but we've done that through our increased investments, and then also our focus on serving the new customers that have come to us looking for the products. You know, with that, we focus on the options that we have, in particular our B2B software, the POOL360, that some of our competitors don't have, and making sure that those relationships are sticky as we go forward. I think it's pretty balanced, Steven, in terms of how much of our growth is product mix. I think it's pretty balanced. As Melanie says, it varies by market. Okay. All right. Fair enough. Maybe a quick follow-up for you, Pete. I know it's not your view here, but obviously the market is taking a sort of a risk off view of 2023 and 2024. If there were a downturn, and I'd characterize that as meaning a down year or two for POOLCORP, what would be your playbook? You know, how do you get more aggressive on M&A? Do you know, put more greenfields out there, or do you kind of batten down the hatches and wait for the storm to pass? How do you view sort of managing through a downturn? Again, with the caveat that I don't think that's your view, but I'm just curious. You must have a playbook. I mean, as I mentioned, I think POOLCORP is a very unique company in a very unique industry. A downturn in one industry doesn't translate to the same results as another. As we mentioned, and I'm not sure everybody has appreciated that most of our business is derived from the installed base of pools, which has to be maintained. You know, whether the new pool construction turns out to be 115,000 or 110,000, 95,000 or 120,000 is going to have some impact on our business. Most of our business is nondiscretionary. Over 60% of our business is nondiscretionary, and that it's tied to the maintenance and repair of the existing installed base, which has to happen. Even during the Great Recession, that didn't move. Even if there's some apocalypse scenario from an economic environment, you know, we would expect that part of the business to continue to perform. If I look at the other two portions of our business, the second one being what we would call semi-discretionary, that portion of the business, given home values, which I don't think are going to drop very much 'cause I think home values are being driven as much by supply and demand as anything else. There is a net housing shortage. Most people that have purchased a house in the last five years are in at very attractive interest rates that they would pay a significant amount of money if they were to sell their house and refinance. I don't really think we're gonna see a lot of houses change hands given the current interest rate environment. That translates into stable home equity value, so the people that are in a home, we think are gonna continue to invest in homes. We think that our renovation and our renovation market is again going to be very stable. If I look at the new construction business, I would tell you that new construction could swing one way or the other based on a variety of factors, some economic. Weather is always going to be a big factor in how many pools get built. Labor, which the labor environment, given the current unemployment statistics that we all see every month, you know, wouldn't lead any of us to believe that there's gonna be a bunch more capacity brought into the industry for new pool construction. I would say that portion of the business is good and stable. Opportunities that may persist, we're gonna continue to run our playbook. We have a very disciplined capital allocation strategy. We're gonna continue to invest in the portions of our business necessary to add capacity where we need it, and we don't invest ahead of the capacity need. We use our capacity creation to expand capacity as much as we possibly can, and when we need more, then we go out and invest in additional capacity. That portion of our business will continue. We'll continue to invest in technology, which we think is gonna improve the customer experience. We think it's gonna give time back to everybody involved, whether it's the dealers or whether it's us. That's also an important part of our capital allocation strategy. From an M&A perspective, you know, we are a very strategic buyer. We're also a very well-capitalized buyer, so we're always on the lookout for businesses that I think are valuable, and could be valuable to us. We certainly have the balance sheet strength to execute on anything out there that we see makes sense. We have a very proven track record of being very disciplined with our acquisitions. We don't have to buy anything simply because of our expansive footprint and the infrastructure and the know-how that we have. If we see something that is attractive, we certainly have the balance sheet to do it. From a valuation perspective, if we think it makes sense, we do it. If we think that the value that is being requested is beyond what the business is worth in our minds, we certainly have the option, unlike others, to simply open a greenfield to capitalize on the opportunity. We are mindful of the economic environment. We've been leaning into capacity creation before the pandemic, during the pandemic, and we'll continue to lean into capacity creation after the pandemic because we think that makes us a better business. We're focused on the customer experience, and making sure that we provide the best level of service so that even in a market that may be less robust in the future, we continue to take share and we're rewarded for taking care of our customers. Could there be opportunities on the M&A side? Certainly. Are we in a position to jump on them if we like them? Absolutely. Our overall plan doesn't really change. Super. I appreciate all the detail. Thanks so much. Again, if you have a question, please press star then one. Our next question comes from Garik Shmois with Loop Capital. Please go ahead with your question. Oh, hi. Thanks for squeezing me in. First question is, I'm wondering if you could provide how the seasonal market sales progressed throughout the quarter. I'm wondering to the degree they bounced back to more comparable levels after weather improved after April. Yeah. Here's what happens. You have to look at the nature of the business in the seasonal markets, right? The portion of the business that you won't get back is the consumables, right, for when the pool is being used. If the pool opens up a month later than it would have because it was cold and rainy or people are using it less, then, you know, your maintenance and repair products are going to be less. Those days when they're gone, they're gone. You typically don't get those back. Unless, on the end of the season, that you end up with an extended summer or a late fall, then you sometimes can get those days back, which is why for us it's very early to call the year and say, "Well, here's what the seasonal markets are gonna look like," because so much of it depends on the beginning and the end. The good news is in the middle, you know, the capacity is almost at max anyway, and there's very little growth capacity, so most of our growth comes on the shoulders of the year. On the construction side, you know, those days you can get back. If the weather stays good and there is certainly demand for renovation and remodel and new construction, if the weather stays good, you know, later in the fall, early in the winter in some cases, then our builders are going to keep working because they have backlogs and customers that they need to satisfy. Got it. Appreciate that. My follow-up question is just on the upcoming early buy you referenced a few times. I know it's a little bit early, but just hoping for some of your thoughts on the level of inflation you could see into next year. You know, would it be in the more normal 1%-2% range? Would it be above normal, or could you see deflation, as you work through your upcoming negotiations due to some of the stocking that's occurring? Yeah. I wish I could tell you more clearly what I think inflation is going to be next year, but unfortunately, I don't think anybody knows. What's important is, what I mentioned is that I think the inflation that we got, meaning that the price I'm paying for products today, is, it's not gonna get any cheaper. Meaning that what I'm paying this year is probably cheaper than I'm ever going to pay going forward, because I think prices will continue to escalate. How much they escalate going forward remains to be seen. Remember, this is an industry that typically would move, you know, prices 1%, sometimes 2% on the inflation side. We went through a couple of years where inflation was obviously well above the industry norm. The same factors that affect us are affecting our manufacturers as it relates to their operating costs, whether it's people, whether it's real estate, whether it's raw material. I would tell you, I guess thematically, that I think inflation next year is going to be above the norm. I guess I'm not convinced that it's going to be as much as we saw this year. It's again, very soon to tell. I think that inflation is going to be well above the norm next year as well. Great. No, I appreciate that. Thanks. This concludes our question- and- answer session. I would like to turn the conference back over to Peter Arvan for any closing remarks. Thank you everyone for joining the call today. We look forward to reporting our third quarter 2022 results on October 20th. Have a great day, and we will talk to you then. Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.