Good morning, welcome to the Pool Corporation Second Quarter 2023 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 your touchtone phone. Please note, this event is being recorded. I would like now to turn the conference over to Melanie Hart, Vice President and CFO. Please go ahead. Welcome to our second quarter 2023 earnings conference call. Our discussion, comments, and responses to questions today may include forward-looking statements, including management's outlook for 2023 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 the Investor Relations section. Peter Arvan, our President and CEO, will begin today's call. Pete? Thank you, Melanie. Good morning. three months ago, you will recall that we said the year was off to a challenging start, driven primarily by weather, but we cautiously believed at the time that as the year progressed, things would improve. Although things did improve sequentially, allowing us to post the second-best quarter in our company's history, they did not improve as much as we would have liked, as weather continued to provide headwinds and new construction remains under pressure. one notable exception to this is for high-end new construction, where demand remains solid. The weather change that we count on to initiate the start of the pool season came later than what we have seen for the last couple of years. This effectively shortened our season as homeowners delayed openings, and the cooler weather kept water temperatures lower, which negatively impacts our maintenance business, particularly chemical usage. Higher interest rates and uncertain macroeconomic conditions continue to weigh heavily on new pool construction, particularly at the lower end of the market. Additionally, we have seen some indication that more discretionary purchases like heaters and high-end cleaners have been deferred, but we are seeing resiliency in the remodel market. Dealers are reporting that demand for renovation is outpacing demand for new construction in many markets. Despite the challenging market conditions, PoolCorp recorded a strong quarter, demonstrating the power of the brand and tremendous execution by the team. We continue to invest in our growth and focus on the customer experience, which is helping us retain and grow our market share. We have opened eight new sales centers since the beginning of the year, far more than the rest of the industry combined. Pinch A Penny has added 9 new stores since the beginning of the year, adding to our already impressive network of over 275 franchise stores. Our ability to manage operating expenses in a declining demand environment is noticeable as our operating expenses declined 3% on a year-over-year basis in a quarter, even though we continue to invest in our new locations, new technology, and our people. POOL360 adoption is growing as dealers are recognizing the added benefit and time savings that they receive by using the latest release of the tool. We are launching our POOL360 water test application at our independent retailers, which is a best-in-class online water testing solution that helps dealers provide water chemistry excellence and drives sales of our private label chemical brands. Our strong balance sheet has gotten even stronger as we have generated over $377 million of cash from operations, paid down debt, reduced inventory while providing best-in-class service. As in past recessionary periods, we get stronger and will exit this cycle stronger than ever. When I step back and look at the revised earnings outlook that we reported this morning and put it in context to historical results, not just 2022, I'm proud of how the team is performing and all that we have accomplished. Our market share is improving. The team is more focused than ever on providing best-in-class service. Of course, we are disappointed to report a year-over-year decrease in sales, but when you put things in perspective, in this environment, we have achieved 93% growth in sales and EPS growth of almost 200% from 2019 to 2022. Our North American market has been expanded by over 311,000 new pools built in the last 3 years. Over 30% product inflation has passed through the channel. Market growth from new products, strategic acquisitions, continued market share gains, and consistent renovation and remodel activity of the aging install base all gives us confidence in the future. Our size, scale, and unmatched experience in the industry allows us to excel in each of these areas and outperform the competition because we have the broadest footprint, the best talent in the industry, and the swiftest access to capital, allowing us to prudently and responsibly invest during all business cycles. Even with these negative impacts, our second quarter 2023 sales of $1.9 billion exceeded 2021 second quarter sales by $70 million or 4%. As adverse weather carried over into April, then varied in impact by geography for the rest of the quarter, the negative trend on top line moderated in the second quarter to minus 10% compared to the first quarter, where sales declined 15%. When we look at our year-round base business markets, the impacts of varying weather patterns are apparent. For the second quarter, we saw California sales decline 8%, which is a sequential improvement when compared to the weather-driven, down 24% that we saw in the first quarter. For reference, California sales increased 9% in the second quarter of 2022 and 33% in the second quarter of 2021. Moving to Arizona, sales declined 7%, which again, is a significant improvement over the 14% decline that we saw in the first quarter. For historical context, sales in the second quarter of 2022 and 2021 were up 20% and 24%, respectively, in Arizona. Texas experienced cooler temperatures throughout the second quarter and significant precipitation in May, resulting in a 13% decrease over last year and trending down from the 6% first quarter decrease. For perspective, sales in Texas increased 17% in the second quarter of 2022, and 30% in the second quarter of 2021. Florida sales decreased 7% over last year, where for the quarter we observed typical weather for this time of year other than a wetter June. You will remember that Florida sales was up 7% in the first quarter, bringing the year-to-date number to essentially flat. We have seen a slowdown in Florida new construction. We must keep in mind that Florida experienced a 23% and 35% growth for the second quarter of 2022 and 2021 respectively. It remains significantly higher than pre-pandemic levels. Turning to our seasonal markets, our sales declined 11% in the second quarter, in contrast to the 23% decrease we experienced in the first quarter. Although we observed some improvement as the ground began to thaw, key areas such as Canada, the Northeast and Midwest, still experienced temperatures below swimming standards through June. Sales in our seasonal markets grew 5% and 32% in the second quarter of 2022 and 2021, respectively. Pricing on equipment continues to hold, with overall sales down 8% for the quarter and less unfavorable than the declines in new construction. Chemical sales in the quarter were down 3%, driven by the weather patterns I discussed earlier, and trichlor pricing came down more than we saw in the first quarter, resulting in a 1% drag on consolidated sales for the quarter. Building material sales for the quarter were down 8%, continuing to indicate renovation and remodel numbers are faring somewhat better than anticipated, despite the lower new pool construction. As consumers take advantage of leisure travel, our commercial swimming pool sales continue to see an uptick, with net sales for the quarter increasing 8%, following a 12% increase in the first quarter over last year. Pinch A Penny franchises collectively reported relatively flat sales for the quarter compared to last year. The franchisees have seen overall impact from less sales of discretionary items such as equipment and recreational items, but non-discretionary sales are steady. Sales to our independent retail customers were off 11%, an improvement over the 16% decrease that we saw in the first quarter. Europe's second quarter sales remained challenged and were down 6% compared to the prior year, also saw a seasonal increase in trend improvement from the 25% decrease they reported in the first quarter. In the Horizon business, base business sales were flat for the quarter, an improvement over the 7% decrease we reported in the first quarter. Our irrigation product category, a strength for us, performed well, particularly boosted by commercial projects, but growth was offset by some pricing pressures on commodities, which have seen higher levels of inflation over the last couple of years. POOL360, our B2B tool, saw sales increase 3% over prior years, which continued to be better than total sales activity. Line volume growth for the same period was 4%, which indicates an accelerating adoption rate as our customers find value in the tool. We are encouraged by the resiliency of our gross margins, which came in at 30.6% in the quarter, where competition has increased due to softer new pool construction and current market conditions. Melanie will provide more detail on this topic in her comments. During the quarter, our operating expenses were 13% of net sales, an improvement over the 18.6% of net sales we reported in the first quarter. We saw good leverage on our fixed expenses and continued to add new sales centers, opening 3 during the quarter to expand our market presence. We also continued to invest in and expand our employer of choice initiatives and customer-facing programs to ensure we can expand our service offering to our customers. Operating income for the second quarter of 2023 was $327 million, down $92 million compared to last year. Almost 90% increase over 2019. With our reported operating margins of 17.6%, you can see that we've held on to the majority of the benefits we realized as the business rapidly grew over the last three years due to our disciplined execution. During the second quarter, we added five new locations, two acquired and three greenfields. This puts us at eight new greenfield distribution locations to date, keeping us on track to open around 10 for the full year. We also expanded our Pinch A Penny franchise network by adding 4 new franchise customers in the quarter. We continue to invest in the future of the business as we expect a return to steady historical growth after lapping the swift ramp that we have seen over the last several years. Last quarter, we began to experience the impacts of weather, heightened interest rates, lower consumer spending, and the end of COVID tailwinds. As part of our full year expectations, we believe we could see new pool construction down 30%, with around 70,000 new pools being added to the install base in 2023. We expect some increases in the average spend on new pools built this year, as lower priced pools are experiencing stiffer headwinds than higher priced units that typically are less dependent on financing. Our product offering continues to expand, and we are adding additional capabilities to our sales centers. Similarly, on remodel and renovation activities, in a typical year, we would see around 10% or 550,000 pools upgrading their pad equipment and taking advantage of new automation, more efficient pumps, alternative sanitizers, all of which increase the ease of pool ownership. Renovation and remodel activities often involve changing the look of the pool in the backyard using our proprietary tile, pool finish, and deck material selections. The owners of the 5.4 million in-ground pools are continuing to spend approximately $1,000 or more on pool maintenance annually, although some may choose to defer installation of more discretionary items in times of economic stress. chemical and minor repairs will continue on these bodies of waters, along with the above ground pools and spas that also saw accelerated growth over the last few years. While we are expecting a decline in sales in the current year, mostly due to tough comps, we are comparing against on a year-over-year basis, the long-term outlook of the industry as a whole remains strong. The install base is bigger than 2019 and continues to grow. Equipment and most all other product inflation is holding and continues to buoy the top line. As I mentioned earlier, some trichlor pricing is under pressure as supply conditions have returned to historical normal levels following a period of significant supply disruptions, but this is largely being offset by inflation of other chemicals. Looking ahead, we expect these dynamics to stabilize and reflect consistent pricing and supply characteristics. Everything that we love about this industry and our numerous competitive advantages are every bit as true today as they were in the past, give us great confidence in the future. Lastly, with almost seven months of the year behind us, providing an even clearer picture, we have adjusted our full year guidance for 2023 to $13.14-$14.14, delivering solid teens EPS in the face of unfavorable weather early on, macroeconomic headwinds, higher interest rates, and market normalization, show the cumulative benefit from exceptional execution by a very dedicated and talented team. Melanie will now provide additional comments in her financial commentary. Thank you, Pete, and good morning, everyone. This morning we reported $1.9 billion in net sales for the second quarter of 2023. This was the second-best top line in history after the exceptionally strong results we generated in 2022. Inflation in the quarter was approximately 3%-4%, slightly higher for equipment products and a marginal overall pricing benefit from chemicals. We saw some pressure on trichlor prices in the quarter, offset by inflation in other chemical products. The pricing impact of trichlor was around a 1% drag on net sales for the quarter. As we had anticipated, gross margin of 30.6% saw a 180 basis point decline compared to second quarter 2022. The benefits from lower cost inventory on hand have largely been sold through and contributed nominally to the second quarter gross margin. Current gross margin primarily reflects replacement costs and the seasonal benefit we would typically expect to see in the second quarter. Gross margin was somewhat negatively impacted by sales concession activity in our response to competitors reacting to the slower start to the season. Operating expenses declined by 3% year-over-year in the quarter. SG&A cost as a percentage of net sales was 13% for the quarter, significantly better than the 18.6% we reported in first quarter, as we realized improved expense leverage on our fixed costs in the higher sales quarter. Our field teams did an excellent job in managing through the seasonal expense growth between the first quarter and the second quarter. Last year, we increased expenses by $36 million from first quarter to second quarter. We were able to moderate that to only $17 million in the current quarter compared to Q1. We remain focused on compensation and freight-related variable expenses, while continuing our investments in new locations and tools and technology to support our long-term growth. The 13 new locations opened since June 2022, added incremental expenses and were a moderate drag on operating income. We completed three acquisitions year to date, each providing unique strategic benefits and once folded into the network, will contribute profitable growth going forward. Together, these added less than 1% to net sales for the quarter. For us, it was not significant to break out separately in the press release. Our second quarter operating margin was 17.6% versus 20.4% last year, continues to be above the 15.4% in 2019. Looking back to 2019, we ended the year with a 10.7% full year operating margin. That expanded almost 600 basis points to 16.6% for the full year 2022, as we realized benefits of around 150 basis points from inflation-driven price increases and inventory gains that have now largely normalized. We are experiencing some pullback in our operating margin from last year, but we believe the margins we will achieve in 2023, well above the pre-pandemic levels, are setting a good baseline and will be sustainable as we hold on to the 30%-35% industry growth from inflation, combined with our strategically beneficial acquisitions, increased scale, product expansion, and improved operating efficiencies. We reported diluted EPS, excluding ASU, of $5.89, compared to $7.59 in second quarter 2022. While 22% below last year, this is comparable to 2021 second quarter EPS and is 94% higher than the $3.03, excluding ASU, we reported in second quarter 2019. Many changes have affected our historically stable and growing industry since then, which bring positive opportunities for our future growth and profitability. Receivables continue to be well managed. Day sales outstanding was 26.2 days, compared to prior year of 27.2. We have made excellent progress on right sizing our inventory by vendor and by location now that supply chains have normalized. Stockouts, one of the metrics we monitor to ensure a great customer experience and analyze for lost sales opportunities, continue to trend well. We have reduced inventory year-over-year by $186 million, against the $260 million inventory reduction we estimated at year-end. We are continuing to aim toward the end of the season or end of third quarter to achieve these inventory levels. As we accomplish this, we will be uniquely positioned to work with our channel partners on early buys to best position us for the 2024 season. With acquisitions, new locations, and expanded product line offerings at many of our sales centers, our capabilities in managing working capital is another indicator of our focus on capacity creation and the value we continue to provide to our customers while generating strong returns for our shareholders. We reduced debt outstanding by $411 million from June of 2022, and although we had lower average debt outstanding during the quarter, an increase in our average interest rate resulted in a rise of $8 million in our quarterly interest expense. Cash flows from operating activities was $377 million, an increase of $348 million compared to last year, as strong earnings and working capital reductions contributed to increased cash flow. We have completed $44 million of share buybacks in the open market during the first half. Our board increased our authorization under our share repurchase program to $600 million during the quarter. Our full year cash flows are expected to be around $800 million, benefiting from cash generated due to reductions in inventory. From a timing standpoint, our cash flow is strongest in the second half of the year, after building preseason inventory in first quarter and paying for early buy inventory purchases in second quarter. Moving to our outlook. For the full year, we expect sales compared to 2022 to be down in the range of -10%. We are down 12% through the first half, with a 15% year-over-year decrease in Q1 and a 10% decline in Q2. Last year for base business, we realized a 10% increase in Q3, which was the same as Q2, and a 1% growth in fourth quarter. We will have 1 less selling day in the third quarter for the full year, which would typically add or subtract around 1%-2% for the quarter. Gross margin is expected to return to seasonally normalized level in the second half of the year, as inventory gain benefits have now fully passed through. We have stated previously, we expect full year 2023 gross margins to be around 30%. Operating expense growth moderated in the second quarter for year-to-date growth over prior year of 1% will continue to be well managed for the full year. With continued investments in the business, we will maintain certain core expenses and limit full-year base business expense growth to 1%. This will have us well positioned for when top line growth returns. When we look at potential uses for the increased cash flows we expect to generate this year, we anticipate spending around $25 million-$50 million on acquisitions, $50 million-$60 million on capital expenditures, $170 million on cash dividends, and the remaining approximately $550 million on a combination of debt reductions and share buybacks. We continue to maintain our leverage ratio at the low end of our target rate of 1.5-2x, with a mix of floating and fixed rate debt, reflecting a strong and flexible financial position to take advantage of future growth opportunities. Interest expense for the full year is expected to be between $55 million and $62 million, including slightly higher interest rates in the second half. Our annual tax rate should be in line with last year's tax rate of 25.2%, excluding ASU. We expect the third quarter rate to be slightly lower than the annual rate. Our board increased the quarterly dividend payout by 10% this quarter, increasing the quarterly dividend to $1.10. We expect to pay full year 2023 dividends of around $170 million, more than double the $84 million paid to shareholders in 2019. As Pete commented earlier, we have updated the range for our EPS guidance for the full year 2023 to $13.14-$14.14, which includes the $0.14 ASU tax benefit realized to date. This assumes a share count of 39.4 million shares, consistent with June 30th. We base our guidance on the assumption of normal historical weather conditions as the midpoint. We issued our second annual corporate responsibility report during the quarter. We are proud to have expanded our disclosures in the areas that we are focused on as part of our capacity creation efforts. These initiatives and activities are paying off through more efficient water usage and the benchmarking of our electricity usage in our continued efforts to lower our overall emissions. Our results for the second quarter, while somewhat less favorable than we had hoped, show the resilience of our industry and the sustainability of much of the pricing and market growth components we realized over the 2019 to 2022 period, prior to this period of market stabilization. Our financial position is strong, and we are well situated to support the return of industry growth. I will now turn the call over 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. To withdraw your question, please press star then two. We ask that you limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. Our first question comes from Ryan Merkel of William Blair. Go ahead. Good morning. Thanks for taking the questions. I wanted to start off with a question I'm getting from clients this morning, which is: How can we be comfortable that this is the last cut to guidance? Pete, maybe just walk us through how you approach guidance, what's changed, and why you're comfortable that the new guidance range is achievable. Sure. That's a good question, Ryan, we spent considerable time on it. I guess the difference between now and when we guidance out at the end of the last quarter, is that we have passed the most seasonally significant part of the year, and we're almost 3 weeks through the month of July, which gives us much better visibility into how the year is going to trend. Nothing new to report on new pool construction. We had said last time we thought new pool construction was going to be off 30%. We still can think it's going to be off in the neighborhood of 30%, skewed more heavily towards the lower-priced pools, with higher-priced pools doing better. Our ability to gain share, as evidenced by our analysis of our new pool sales, is consistent with what we thought before. We're down slightly less than the industry is, we believe, in new terms of new pool construction, so nothing new to report. The weather provided significant headwinds in the second quarter. The season started late, as you know, we basically contemplate normal weather in our guidance. We didn't get the normal weather that we were counting on, the seasonal markets opened late. Frankly, the poor weather moved around some of the year-round markets, too, and presented significant headwind. The other thing that we saw, and we have better visibility to now, is the consumer buying patterns and what we see there. You know, we are the nondiscretionary spend is good. I mean, we talked a little about the spend on chemicals or the pricing on chemicals, that trichlor is down, everything else is up a little. It's about the same. You know, chemical sales are gonna be higher when the weather is hotter, so the hotter water and hotter weather came later than anticipated. We are now getting good weather in terms of heat, and that is that's having an impact on the chemical spend. The nondiscretionary part of portion of our business is doing well. What we've seen is that a continuation, really, of the, we'll call semi-discretionary purchases by consumers. The consumer that has a heater that may need to be repaired, well, this time of year, nobody's thinking about heating their pools because most of them are too hot as it is. Those that would consider buying a new cleaner, given the current economic environment, what we're seeing is some people deferring some of those expenses to next year and not doing not making the purchase this year. We've got 7, you know, 6.5 months, almost 7 months of visibility into the year. We have a better view of what the consumer buying pattern is, and the idea that we think it would significantly improve over what we have seen based on the macroeconomic conditions and the weather pattern we've baked into our guidance. The only thing I didn't touch upon in my commentary just now is the renovation and remodel market. As I said, the renovation and remodel market is doing better than what we see in new construction. If you look at, you know, I mentioned our building materials being off 8. Two products to consider when we look at new pool construction and renovation and remodel would be tile and pool finish. You know, pool finish is down 2% for the year, and tile is down 9% for the year. We think that the backlog on renovation was higher in the beginning of the year, and we expect that to moderate. We think it was more favorable than the full year, our full-year outlook in the beginning of the year, but we think that's gonna moderate as dealers work through the backlog. We would consider normal weather for the balance of the year, so we're not counting on an extended season. I think we've captured most of our possibilities in terms of market demand, pricing considerations, supply chain interruptions within our guidance. I just think we have more clarity now with a large portion of the year behind us and a good look at what July is going to bring. Got it. That's very helpful. Thank you for that. For my follow-up, I was hoping you could comment on what you're seeing in June and what you're seeing in July. Have you seen trends improve a bit as the weather has got a bit hotter in some of the key pool markets? Yes, certainly. You know, the great part about this business is that, you know, most of the spend is nondiscretionary. When the weather cooperates and it is hot, and people are using their pools, then the demand for, you know, maintenance items such as chemical and parts and service is good. When things heated up, we are encouraged by the uptick in sales. However, one thing I got to point out, though, is we have very stiff comps in the third quarter, too. The third quarter is by no means a layup, given the growth that we saw in the third quarter of last year. The comps really don't moderate until the fourth quarter. you know, business is good, the sales centers are busy, but, you know, when we look at the comps that we have from last year, which was, the weather was good, sales centers were busy and consumers were certainly a bit more confident and new pool construction was stronger, we have to take that into consideration. Makes sense. I'll pass it on. Thank you. Thank you. Our next question comes from Susan Maklari of Goldman Sachs. Go ahead. Thank you. Good morning. Morning. My first question is, you know, Pete, can you just expand a bit on consumer sentiment and what you're hearing from some of your larger customers? It sounds like there's, to some extent, a mix shift that's happening with the higher-end versus the lower-end consumer. Is, is that fair? What do you think it's gonna take from a macro perspective to get some of these consumers back into the market on the discretionary or the semi-discretionary side? I think your sentiment on, or your observation on mix shift is accurate. You know, when I talk to our dealers, and I've talked to a lot of dealers across the country, from very, very large dealers to small dealers, what we're hearing is that, you know, at the higher end, and we have some customers that frankly specialize in very large projects, they're actually doing quite well. I believe it or not, I've had a couple tell me that they're sold out for this year and into next year, but they're the very high-end specialty builders. As you work down the chain from very high-end to core, to more entry-level pools, there is a phenomenon that happens, and that has to do with how that pool is paid for. The very high-end pools are typically purchased by more affluent families, and the percentage of those that have really any concern about financing cost is actually very low. The flip side to that is if you go to the opposite end of the spectrum, the entry-level pools, which is what we think drove a lot of the new pool, the increase in new pool activity through the pandemic, there was a lot more entry-level pools built. I think the mix of pools was skewed towards the entry-level pools, and the reason is because financing costs was actually quite low. If you talk to the dealers, what they would tell you is that many of those conversations, many of the closes happened at the kitchen table. They were selling a backyard resort, but they were basically selling that as a monthly payment. Monthly payments, when the interest rates and finance rates and HELOCs were very low and lending was free flowing, you know, monthly payments for those projects, and the fact that, you know, a few years ago, you had less inflation, so the overall price of the pool was lower, they were selling that based on, you know, some of those were $700-$750 a month payments. That was a very achievable number for folks that wanted a pool and decided to invest and become pool owners. As interest rates have come up, as inflation has worked its way through the system, as labor rates have come up, that same payment, in many cases, dealers are telling me, is now $1,200-$1,400, which simply puts it out of the range for many of the families that would be stretching at, frankly, a $700-$750 level. If you ask me what I think it's going to take to change that, I really think it would have to be one of two things or a combination. One is, if interest rates were to moderate, you know, it's just math. It brings down the price of the financing cost and brings down the monthly payment. That would make pools more affordable for those folks that are sitting on the sidelines waiting for that to happen. The other thing that happens over time is, you know, the memory of 2% interest and 3% interest fades in people's mind, and they become more accustomed to, Well, okay, if I'm going to do a HELOC, it's going to cost me 6% or 7% or 8%. As wages continue to catch up to inflation, then it becomes more, more acceptable, and I think you'll see some more pools at the entry level, start to come back in. I think Okay. ... your follow-on question was, or the second part of the question had to do with consumer sentiment. I think I briefly mentioned that with Ryan's question. What dealers are telling us is that certainly, you know, break-fix things, it is, if the pump isn't working, if the filter is leaking, if the salt cell stopped working, you know, if, in some cases, if the light stops working, it's going to get fixed. Consumers really don't have a choice because remember, with a pool, you have to move the water, filter the water, and treat the water in order to make sure that it doesn't turn green. That's a given. I think over the last couple of years, we've seen people trade up in terms of technology. They've gone from pressure cleaners and suction cleaners, you know, which were once the industry standard. Now we've seen people move towards the higher-end product, the robot, the robotic cleaners and such, and, higher levels of automation. I think in many of those cases, consumers are saying, "Well, I'd like a new robot," but given the macroeconomic conditions, inflation of everything from, you know, from, groceries, you know, perhaps additional, leisure travel being done, and general household expense increase, they're saying, "I'll probably going to wait, and I'll get the new cleaner next year as opposed to this year, and we'll live with the pressure cleaner or suction cleaner, one more year." I just think it's a matter- Okay ... it's a matter of just kind of how the consumer is feeling about everyday spending. Yeah. Okay. That's very helpful color. Just following up, you know, you mentioned that there was some increased competition earlier in the season as things were slow to get started in some parts of the country. As things have picked up in the summer, are you seeing that that competition has eased? How are you thinking about your ability to hold the market share gains that you've realized in the last couple of years against that? I guess finally, with that, any thoughts on or updates to your inflation expectations for this year? Yep. Great question. You know, there's really nothing new about the, competition. You know, if I, if I go back, I've been in the pool industry now, this is my 7th year, I believe. I can tell you that from the very first, my very first month when I went out and was meeting the team and trying to learn about the market and what would happen, and I would hear these stories about competitors that would go after a piece of business that we would have or we would hear about, you know, hyper-competitive pricing at a particular account or for a particular product. You know, that was basically the norm. All the way up to the pandemic. We kind of got a break during the pandemic when inventory was scarce, it was more of a question of do you have it versus how much is it? We got a little bit of a reprieve during that period of pandemic spending, when people just said, "I want, I want, I want," and those that had it, certainly had an advantage. You know, what we did from an investment perspective to make sure that we had product, and that allowed us to take share. It allowed us to gain new customers that in the past might not have had a reason to try us as a supplier, that were perhaps happy with who they were using before, that now tried us and got exposure to the vast network and the tools and resources that we offer, which pale in comparison to those of our competitors. What I would say is that, you know, I still hear stories every day about, you know, a competitor that is going after a piece of business or trying to liquidate some inventory or trying to raise some cash, you know, putting a ridiculous price into the market. I think it is isolated. I don't think it's anything new, and it's nothing, quite frankly, that we are worried about. When I consider what we've done over the last three years to, you know, widen the base of our business and improve the quality of our value proposition, I think it gives me great confidence in our ability to maintain the share that we gained and continue to gain. Since 2019, through acquisitions and greenfield openings, we have 59 new locations. There's 59 more locations today than there were in 2019. If you look at what differentiates our network compared to the others, we have about 100 NPT centers, which allow the smaller builders to use our showrooms to have their customers pick out the finishes for a new pool or a renovation and remodel. We have product trainers that teach new customers, new plaster crews, new tile crews, how to apply and how to install our proprietary products. If you look at our private label capabilities, you know, those that we had before the pandemic, and then with the addition of Pinch A Penny, and Suncoast Chemicals, and the fact that we're vertically integrated from a chemical packaging perspective, again, nobody that we compete with on the wholesale distribution side has capabilities like that. We think that gives us flexibility. We think that gives us additional capabilities to serve customers. Our focus on speed at the counter and the customer experience, our focus on we've invested in digital tools, and POOL360, as you can see, is gaining traction. The POOL360 water test software that we've just begun rolling out, as a great tool for the independent retailers to improve their chemical business, which at the same time, will improve our chemical business, of our private label chemicals, because that is the chemical solution that the software will recommend and takes that variability out of the dealer's hands in terms of what chemicals to recommend and how much. It's all done through a digital, through a digital platform. You know, we've invested in marketing capabilities, specific marketing capabilities that help our dealers grow, that help drive demand creation, all things that none of our competitors do. Certainly, the market is. I don't want to paint a picture that the market is not contested. We have competitors. We have good competitors that are trying to grow just as well as we are. When I look at the tools and resources that we have, including, frankly, the best team in the industry, when you look at how seasoned our management team is and their years of experience and the multiple cycles that they have seen as compared to some of our competitors that are relatively new to the space, I would put our team up against any other team, and they will win that race hands down. Okay. Thank you for all the color, Pete. It's very helpful, and good luck with everything. Thank you. Our next question comes from David Manthey, from Baird. Go ahead. Hi, good morning, everyone. First question, Pete, or Melanie, could you estimate the 2Q year-over-year change by new pools, renovation, and maintenance revenues that you experienced? I know it's not an exact science, but could you give us an idea there? I don't know if you mentioned price contribution across blue and green, if you could give us that as well. Yeah, we are seeing probably an impact in the second quarter on the new pool construction. It was about a -5%, and the renovation was around a -3%. You know, price contribution, we are on the green side, it's a little bit less than blue. We said 3%-4% in total. Green would trend to the lower end of that because they did have some more of the commodity, particularly the piping, that was overall impacting their sales. Their sales for the quarter actually did, they came in relatively flat. Your answer to the first question, Melanie, I'm asking about total revenues. I guess I thought you were asking for the walk between kind of last year and this year. Right. You're saying your new pools were down, what? 5%? The revenue related to new pools, yes. Oh, okay. Okay. All right. Second, speaking of new pools and new pool construction, can that segment reaccelerate in the absence of an improvement in turnover in the housing market and maybe more specifically, a resumption of the Southern migration? Yeah, I think, Dave, as I, as I mentioned, what you're gonna see is basically stability at the mid and upper end. The families that have the financial means to do it without financing, that are seeing stability in their home values, that say, "I want a pool," I think that's going to happen. At this point, you know, I don't see an acceleration in new pools yet, 'cause I don't see the what I think it would be the indicators that we would see that the lower-end pools come back into favor. A lot of that is gonna have to do with, as you mentioned, movement in the housing market. I'm moving, I might have freed up some equity, I have some cash that I can use, to build a pool and/or, lower interest rates that would encourage me to move forward with a project if I had to finance most of it. Great. Thank you. Thank you. Our next question comes from Trey Grooms from Stephens. Go ahead. Good morning, everyone. I guess, first on the guide, I'm backing into an EBIT margin kind of in that low teens range. Melanie, is there anything we need to be aware of as far as kind of the cadence here as we look at the balance of the year? Yeah, no. If you're, if you're backing into that for the full year, I think that's pretty reasonable. When you look at just kind of top line, the comps that we'll have in third quarter, where we were still up 10%, for base business year-over-year, are gonna be more difficult than fourth quarter, where we were just up 1%. We did start to see some of the slowdown in new construction, in, you know, starting out in the fourth quarter, primarily kind of November, December of last year. When you look at kind of the year-over-year comps, those should get, you know, relatively easier in the fourth quarter. Third quarter will also have that one less selling day as well. Yeah. Okay, got it. Then, you know, kind of sticking with the guide, you know, as we kind of look at the revised EPS guidance range here, and Pete, I understand, you know, why you would have confidence in the guide, given where we are in the year, and I appreciate the color you gave around that prior question. Looking at that range, you know, what would kind of drive us to be more at the top end or the bottom end of that range? Is that, you know, given that confidence you have, do you think that that would be more of a top-line driven swing or potential fluctuations of margins that could get us there? The biggest driver there is gonna be where we end up on the top line, kind of within that range, bracketing that down 10%. That'll get us to the high and low end of the range. There'll be some, you know, expense offsets that'll depend on the actual volume. You know, margins should be relatively similar in both case scenarios. Volume, you know, as you know, volume leverage is by far our biggest lever. Yep. Yep, that's all super helpful. Thank you. I'll pass it on. Good luck. Thank you. The next question comes from Scott Schneeberger of Oppenheimer. Go ahead. Thank you very much. Good morning. Peter or Melanie, could you covered weather very well on the first question from Ryan, I'm curious, you mentioned it was a $60 million-$70 million impact in the first quarter. When we're at this point next year, looking back on 2023, how much would you say will have been the weather impact from this year on a year-over-year basis? I guess, is there an update to $60 million-$70 million, is what I'm asking? We have that estimated for second quarter around $30 million. Incrementally, so 90 to 100, Melanie? yes, that's correct. Okay, thanks. Appreciate that. Then, Peter, you had said, and I think it was your part in the prepared remarks, that remodeling was trending ahead of what you had originally expected for the year, now that you're halfway through the year and had a chance to look at it. Then you kind of softened the commentary and said, "But it looks like it's getting worked through pretty well." Could you elaborate on that please? Yeah. I looked at, you know, we looked at the permit activity and what we believe happening on new pool construction and how we triangulated on that. We've looked at those two products that I mentioned, new pool finish or pool finish and tile, knowing that those two products only go into two things. One is a renovation and new pool construction. The new pool finish, as I mentioned in the second quarter, was up 2%. That number for earlier in the year was... I'm sorry, new pool finish was down 2% for the second quarter. Kind of similar to what it was, what it was in the first quarter, but it was skewed. When I looked at how the end of the second quarter plays out with pool finish and tile, it looks like it's moderating a little bit, meaning that it started out better, and then has moderated a little bit. Given that, you know, we don't really see a big movement in new pool construction, my only conclusion is that some of that has to do with renovation and remodel. Keep in mind, when we look at renovation and remodel, what I'm not saying is that our expectations are any different. I just think that when you look at the guide we gave related to new pool construction, I'm sorry, related to renovation and remodel, being down 15%-20%, I think that it's gonna be skewed more heavily towards the beginning of the year being better, and then as they work through the backlog, we think it'll be weaker, towards the back half. Okay, great. Thanks very much. The next question comes from Joe Ahlersmeyer from Deutsche Bank. Go ahead. Thank you very much. Just a couple questions from my end. First, on the, just to follow up from earlier, I think you said -5% was the 2Q impact from new construction. That's not that the category was down 5, it's that it was a 5-point impact to the consolidated number. Is that correct? Correct. Then just thinking about the cumulative change in the sales guide from earlier in the year, let's take sort of the initial midpoint, you know, down 1% to 2%, and then now we're at 10%. Can you maybe bucket that 8-9 percentage point change in sort of. I know this is a lot, but four different buckets, kind of: 1, things that are pushed to next year, so that maybe is the deferrals that you talked about. Things that are current year circumstances like weather, that really have nothing to do with next year, and the things that are worse this year but may improve next year. I'm thinking maybe the pool construction economics impacts there. Then things that are worse than expected, that likely won't recover, so are in structural impairments to your business, like share loss or pricing, which I think both of which you said you're not experiencing. I if you're not gonna bucket it, maybe just the way to think about the question is, if you're still investing behind growth, the question that I'm getting from investors is, you know, thinking about earnings next year, is there really any impairment to next year's earnings power between the beginning of the year and now? M aybe just if you could take the opportunity to explicitly say that from February to July, actually very little has changed in your mind about what your earnings power is next year. From a top line, if you kind of walk through, our initial guidance was flat to -3%. We did have, you know, some expectation that we could see some negative impacts. The biggest thing that changed since that point in time, the biggest single indicator is going to be the weather. When you look at the cumulative weather impact, that is around $90 million, as we talked about. The other things that, you know, we called out that are, you know, there's nothing else kind of significant in an individual standpoint, but the things that were kind of new for this quarter, you know, was the impact on the trichlor pricing. That was about 1% for the quarter. We do think that that'll continue for the rest of the year. Overall, not not that significant. You know, the other thing, the deferred sales activity. We don't think the consumer sentiment, you know, we don't see that that will continue as we get into next year, but, you know, that is something that was not considered in our initial guide as part of that. We also, when you look at the change in our, you know, early buy activity, which from our customer standpoint, which we equate to channel inventory, that did come in higher this year than we had originally anticipated as well as part of our initial guide. Understood. Thank you very much. The next question comes from Andrew Carter from Stifel. Go ahead. Hey, thanks. Going into the guidance, looking at it here, did you say SG&A would be modestly up this year, or that would be a change from -2%? Within that, given the kind of guidance reductions this year, is incentive comp meaningfully lower, therefore, there'll be a reset next year? Yeah, incentive comp, in the current guide is less than what we originally. At the beginning of the year, we had kind of talked about $10 million-$15 million. It's a little bit too early to call the final number, because when we look at the balance of the year, you know, we are continuing to aggressively pursue various different sales actions, and programs. You know, there's still quite a bit left of the year to determine what that final number will be. We will expect that to be a little bit higher than kind of our original $15 million estimate. As we go into next year, you know, we would expect that that to revert back and come back into the expense phase, but that the gross profit dollars that we'll generate from the revenue will more than offset the incremental expense on the incentive comp side. back to, like, I'm sorry, did I catch that SG&A is gonna be up this year, and that might be just because of new branches and acquisitions? Yeah. The guide for the full year is that it will be up no more than 1%. Yeah, the original we had talked about that it could be kind of -2% to +2%, depending upon where the top line fell out. We've, you know, as we've gotten further through the year, we can more confidently say that it'll it won't exceed a 1% increase. Okay, thank you. Kind of thinking about like, kind of to harp on the, kind of the share perspective, I know you wait for the markets, if you look out there and think about, like, unique customers that have come in in 21, 22, if you look at that activity, do you have a firm sense that you know you're at least holding market share or that they're not going elsewhere? Anything more granular that you have real-time, that tells you that, hey, you're still outperforming the market, holding your market share gains, or maybe not, maybe you're ceding some market share? Thanks. Yeah, I, Andrew, market share is, it's a bit elusive in an industry like ours. We have to triangulate it on market share. We also, you know, one of the beauties of this business is that we operate now 432 individual P&Ls, and we track customers at the local level. We have a pretty good view of what's going on at the individual customer level. We also get some information from the manufacturers as what's going on in the channel in total. Then we look at things like, you know, if the permit data and new pool construction is gonna be down 30%, we have the ability to kind of back into what is our new pool construction number look like, given, you know, we do an analysis, we look at certain items that are sold only on a new pool to try and triangulate in on that. We know that we're trending better than, you know, the -30% that the industry is likely going to see on new pool construction. Unfortunately, it's not an exact science, but given, you know, industry information that we can see, and that we get from our supplier partners, I think we're very confident in our ability to continue to grow and take share. One last question. On the deferrals that you talked about, you mentioned that's been pretty steady. Something breaks, it gets fixed. I guess when we go into these later months and something breaks in August, and you have the option to winterize or whatever, do you think there could be an added risk that you see deferrals pick up this season, and that might be something that could catch you off guard? Or is that just something that, as I say, that it's just too small, it doesn't even matter? Thanks. Yeah, I'm not sure this late in the season, right? For instance, nobody's gonna winterize their pool in July or August, right? Because it's still, it's still hot. Even if you say, "Hey, look, the pump broke, I'm not gonna fix it, I'm gonna just winterize the pool," the pool is still gonna turn green because the water temperature is high, and that's gonna do damage to the pool finish. Homeowners are not likely to do that. We don't really see a change in consumer behavior on essentials, right? The break, fix, the things that, you know, you have to move the water, filter the water, and treat the water. You know, if you have a, if you have any part of that equation that is bad, you really have no choice but to fix it. You know, winterizing a pool, pools are not drained. They essentially, they put a cover over them, they put a lot of chemicals in there, but if the water temperature is still warm, you can't put enough chemicals in that pool, one-time dose and cover it in order to keep it, to keep it from turning green. Green pools, obviously, you know, a lot of bad things come from that. They're unsightly, they're frankly, they're dangerous, and they're gonna do damage to the pool. I don't really think that's a, that is a, that's a big concern. Thanks. I'll pass it on. Thanks. The next question comes from David MacGregor with Longbow Research. Go ahead. Yeah, good morning. I just had one question here. Wonder if you just sort of focus in on maintenance and repair business, maintenance and repair spending, and talk about the extent to which you're seeing price elasticity, you know, where within the various product categories you might be seeing that. In the aggregate, what percentage of maintenance and repair is really showing elevated levels of price elasticity versus, you know, more nondiscretionary inelastic pattern? I guess the way I would approach that is, you know, when it comes to maintenance and repair, it really depends on the item. For instance, you know, when we talk about maintenance, a big portion of the maintenance business is chemicals. There, we've seen a decline in trichlor pricing in some areas, frankly, because of inventory that was purchased in anticipation, frankly, of higher usage, that people are trying to get rid of before the end of the year, because you don't want to winter over a bunch of chemicals, because every month they sit on a shelf and in a bucket, they become less potent. We've seen certainly some heightened activity to get rid of some chemicals. Frankly, right now, the demand for chemicals is very strong. We're seeing an offset in that in terms of the other chemicals, which would be balancers, shock, and specialty. Again, when it comes to an equipment, you know, my pump quit or the motor fails, I have a choice. I can fix it, or I can replace it. We haven't seen a big shift in the consumer behavior as it relates to, "Well, I'm not gonna replace it anymore, I'm gonna fix it." We look at our median order value, we look at our median line value, we look at our parts sales, credit, whole good sales, and we haven't really seen anything materially change there. When it comes to a break, fix item, the only thing that when in terms of price elasticity, if one of those components fails, it has to be replaced. Chances are that when that happens, that's not something that is negotiated at the distributor that says, "Hey, I can buy this cheaper here or there." They're in... They pick up what we have because they're there for many other reasons other than we may be a nickel cheaper or more expensive. I don't really see a lot of price elasticity on nondiscretionary items. Discretionary items, you know, a little bit different story. As I mentioned, you know, robots, for instance, which are a great product for pools, have gone up in value. That's where some people are looking at it and saying, "Hmm, maybe I'll wait till next year on that. I think we're at the top of the hour. Okay. We'll take one more question. Our last question comes from Garik Shmois of Loop Capital. Go ahead. Hi, thanks for squeezing me in. I know it's a little early, but just wondering how you're thinking about product inflation into next year, if you're seeing any indications from your suppliers on how they're thinking about pricing, if we're returning more to kind of a normal 1%-2% inflation environment or any color you might have a bit early into next year would be great? Yeah, very early, very early to give you an accurate answer to that question. I can tell you that, where my head is at right now is I believe that it's going to be above normal once again. T he reason is because everybody's SG&A costs and operating costs, you know, whether it is, whether it is rent, whether it is trucks, people, labor being obviously the biggest component, none, there's been no retreat in any of anybody's operating expenses. I can't see manufacturers only passing on the historic 1-2. I would expect it to be higher. I could be wrong, but I would expect it to be higher. Okay, thanks. My follow-up question is just on Pinch A Penny, just because we had a retail competitor speak of the need to draw down inventories and accelerate pricing pressure. As a result, it looks like your results in Pinch A Penny held in quite well in the quarter. Are you seeing any of those similar dynamics with respect to incremental pricing and in-inventory destocking that has occurred? Yeah, I, the Pinch A Penny franchisees. They operate a great business. Our model is different than most of our competitors as it relates to the publicly traded entities. You know, we're happy with the performance, as I mentioned, they're seeing a similar pattern in that, you know, the non-discretionary business is holding up quite well. Some of the equipment, as, you know, specifically like cleaners and such, are more discretionary, I should have one. I don't have to have one. You know, if I have an older one, I might be able to get by another year with it. Though they're seeing some hesitation at the, for the consumer at that point, but that, frankly, is baked into their, into their performance, which is why that they're flattish. Given the underlying conditions, we're actually pretty happy with that. Yep, makes sense. Thanks again. This concludes our question and answer session. I would like to turn the conference back over to Peter Arvan for any closing remarks. I just want to thank everybody for your continuing interest and support in PoolCorp, and thank you for joining us today. We look forward to continuing to lead the industry for the remainder of the year and beyond, and providing the highest level of value for, of service for our customers and our suppliers. We'll be discussing our third quarter 2023 results on October 19th of this year, and look forward to talking to you all then. Thank you very much. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.