Good day, and welcome to the Pool Corporation second quarter 2024 conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's remarks, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touch-tone phone. To withdraw your question, please press star, then two. Please note that 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. Welcome to our second quarter 2024 earnings conference call. Our discussion, comments and responses to questions today may include forward-looking statements, including management's outlook for 2024 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 are included in our press release, or posted to our corporate website in the Investor Relations section. As we introduced last quarter, we have included a brief presentation on our investor website to summarize key points for our press release and call comments. Unless otherwise stated within our prepared remarks, all comparisons refer to second quarter 2024 versus second quarter 2023. We are now ready to begin with comments from Pete Arvan, our President and CEO. Thank you, Melanie, and good morning, everyone. As we've recorded this morning, we generated $1.8 billion in net sales during the second quarter, reflecting a solid performance in the maintenance portion of our business during the busiest time of the year. This performance showcases our crisp execution, progress on strategic initiatives, and our ability to continue gaining share by providing an unmatched value proposition. As we discussed in our June release, the trends we observed in discretionary spending for new pool construction and large renovation projects and some larger discretionary items, faced continued economic headwinds, while the non-discretionary demand is solid and in line with our expectations. Our customers, who primarily focus on new pool construction and renovation and remodel, continue to report lower demand for low to mid-range pools, while demand remains solid at the higher end. The trend remains unchanged from recent quarters. A similar pattern is seen in renovations. High-end renovation project interest is reported to be solid, although the summer when people are using their pool is the slow season for renovation. Similar to new construction of low-end pools, smaller renovation projects are being deferred frequently in this environment. Dealers are recording more inbound calls. However, many consumers remain hesitant to pull the trigger in the current economic cycle. We view this as a positive sign for the future. So far this year, we have made progress in several strategic areas of our business that excite us and drive our ability to capture future industry opportunity and extend our leadership position going forward. We remain deeply focused on our customers and areas of our business where we can position ourselves for sustainable future growth as we leverage the power of our widespread and highly integrated distribution network. We have strengthened our commitment to providing our customers exceptional service and value-added tools to grow their business while advancing our digital ecosystem development. Adoption of our POOL360 tools continues to increase. We closed the second quarter with 14.5% of our sales completed on our POOL360 digital platform, which is our highest level to date, as our customers experience next level service and convenience, which ultimately creates capacity not only for POOLCORP, but for our customers as well. Our new digital marketing programs continue to gain traction as our dealers experience unmatched capabilities in driving demand for the brands that they carry and lead generation for their core business function. We are also increasing utilization rates at our chemical packaging facility. Since we acquired the chemical packaging operation from Porpoise Pool & Patio, we have increased the production at the plant by almost 60%, which gives us, again, unmatched capabilities and drives incremental profitability for our business. We continue to expand our sales center network, adding both convenience and needed capacity to support our growth as the industry's installed base continues to grow and we continue gaining share. So far this year, we have opened new sales centers in line with our strategic plan. Now, moving to our second quarter results. Total sales in the second quarter declined 5%, which is an improved trend compared to the year-over-year changes that we have seen in recent quarters. As we mentioned in our press release, the last week of June showed a notable improvement in the daily sales, which was sparked by favorable weather and strong execution from the team. Our maintenance business is strong, our software platforms are gaining traction, and our building material products perform better than new pool construction trends and external permit data would suggest. While we take some encouragement from this slightly improved trend, we are maintaining our top-line guide along with our year-to-date result sales trend. Once we pass the midpoint of the third quarter and into the fourth quarter, the discretionary portion of our business can have a greater impact on our total sales based on the seasonality of the industry. So we also considered this dynamic in our full-year guide. Our gross margin for the second quarter finished at 30%, down 60 basis points from the prior year. Remember that last year, we were still selling through our strategic excess and lower-cost inventory in the second quarter. Lower levels of our higher-margin building materials sales also inhibited the gross margin in the quarter. So our ability to deliver 30% gross margin under these circumstances highlights some of the underlying structural improvements on supply chain, value-added pricing, and our strategic priorities. From a profitability standpoint, we produced an operating income of $271.5 million and an operating margin of 15.3%. Although down from the 17.6% operating margin from the same period last year, it reflects continued strategic investment in technology, a continuation of planned new sales center openings, acquisitions, and further expansion of our Pinch A Penny network. Melanie will give you a more detailed commentary on expenses. While we are, without a doubt, managing controllable expenses, we also continue to invest in the long-term success of our business, recognizing that we are working through an economic cycle and that the business is getting stronger. We finished the quarter reporting diluted earnings per share, including the $0.01 tax benefit at $4.99 per share. Looking at sales by geography, Florida saw the strongest performance, with sales being down just 1%. In Texas, sales declined 6% as we observed incredibly wet conditions through May, making construction difficult and impeding maintenance spend. California and Arizona were down 5% and 8%, respectively, with a similar overall trend of solid maintenance and aftermarket sales, dragged by lower new construction and remodel. In total, our year-round markets were off 5%, while the seasonal markets were down 6%. Europe was down 11% and remains challenged with tough consumer sentiment and was further impacted by cold and rainy weather and late pool openings this season. We continue to make operating improvements that will position us well in this area when sentiment improves. For Horizon, net sales declined 6% compared to the second quarter last year, and at the same level of sales decline as we saw in the first quarter. Our irrigation business is more impacted by commodity pricing than the swimming pool business and has seen some irrigation project deferrals in both commercial and residential during the quarter. Moving to our product and end market details, the 1% increase in chemicals reflects a 3% growth in volume, with a 2% deflationary impact on price, still primarily driven by trichlor. We see the positive effects of our efforts in this area, particularly noting that our private label chemical sales grew at double-digit rates and outpaced the growth of the rest of our chemical portfolio. On building materials, the 10% quarterly sales decline is better than what we are seeing in overall new pool builds and our remodel expectations. Equipment sales ended flat for the quarter and is an area that we have seen improvement, particularly around lights, pumps, heaters, and parts. Remember that our equipment results exclude cleaners, which is a discretionary area that remains challenged. The equipment performance is noteworthy, considering the new pool construction trends and the maintenance of our aftermarket business. As an example, we estimate that pumps used for maintenance versus new pool construction is 4:1, so we expect our maintenance and repair business on equipment to continue to hold up well. Price on equipment came in at up 2%-3%. Related to price in other areas, we did see some pressure during the quarter on certain commodities like pipe and rebar, which show up in our building materials and irrigation business results, and on chemicals, as discussed. Commodity prices move with the market and represent a relatively small portion of our overall business. Looking at our end markets and commercial business, sales increased 16%, rising after a flat first quarter and in line with another travel-rich summer and openings of community pools. Sales to independent retail pool customers declined close to 6%, which represents sell into those stores. We believe that this is reflective of consumers being more selective on some discretionary purchases and a later start to the season in some markets. Our Pinch A Penny franchisee sales to their end consumers collectively increased 4%, which reflects a high concentration of stores in year-round markets and a strong customer value proposition. Circling back to POOL360, we are pleased with our progress since launching our POOL360 Service platform in February and the POOL360 Water Test application last summer. As we have discussed, these tools ultimately link into our enhanced B2B POOL360 platform, the foundation for our digital ecosystem. Our POOL360 Water Test tool provides optimal water chemistry recommendations to ensure safe water and an enhanced swimming environment directly tied to our private label products. To date, we are very pleased with the number of retail stores using the software, which we soft launched after the season began in 2023. Our retail solutions team has been fully engaged with water test in the first half of this year and continues to onboard dealers. As peak season comes to a close and customers have more time to schedule onboarding, we will again be focused on driving our technology and offering in conjunction with our 2025 retail and service programs. POOL360 service allows our customers to expand their businesses by automating manual tasks like quotations, scheduling, routing, billing, and collections, all while providing direct purchase access to the POOL360 tool. Orders processed through the traditional B2B POOL360 platform increased to 14.5% of total sales this quarter, growing from 13% in the second quarter of last year and 11% in the first quarter of this year. Technology is a key source of differentiation and continues to be an effective tool to grow sales and create stronger partnerships with our customers. We continue to strategically expand our network, opening another three sales centers in the second quarter and acquiring one. Our second quarter acquisition offers us a premier presence in the Atlanta market with a central location. Combined with our established presence in the market, this gives us the greater ability to serve the entire metro to fulfill demand in this major Sun Belt market. These additions bring our global sales center network to 445 locations. Our Pinch A Penny franchise network added three new stores, each in the strategic Texas market, ending the quarter with a total of 292 franchise stores. Continuing to build on our franchise network, along with expanding support offerings provided to our independent retail dealers, will allow us to expand our reach and continue to capture the do-it-yourself maintenance market. Taking all of this into consideration, in view of the peak season activities and our current outlook, we are confirming our full-year diluted EPS guidance range of $11.05-$11.45, including an updated $0.20 estimated benefit from ASU. Even under somewhat challenging operating conditions, our strong cash flow allowed us to return a total of $173 million to our shareholders through dividends and share repurchase so far this year. During the quarter, our board increased our quarterly dividend to 9%, marking the fourteenth consecutive year of dividend rate increase, and increased our repurchase authorization to $600 million, reflecting our commitment to generating returns for our shareholders. For the remainder of 2024, we plan to center our focus on execution and our strategic growth initiatives. From an industry perspective, pools and expanded outdoor living space remains highly attractive to homeowners. Pools remain one of the most frequently searched terms in the online real estate sites. Home values remain strong. Demographic trends, such as Southern migration, the large millennial population, were driving household formation and continued new home builds, all support the long-term industry dynamics, even during a period of higher interest rates and suppressed existing home turnover. As we have seen for well over a year now, high-end consumers appear to be making up a large portion of the new pool builds again in 2024. It is unclear when the mix will shift based on the amount and timing of interest rate reductions and the economic indications needed for consumers to feel less pressured. We are best positioned to provide the widest product offering in the industry, support enhanced outdoor living features and aesthetics through our NPT branded products, and partner with our vendors to unveil the latest available automation offerings. We remain ready to serve our customers with everything they need to help them create the outdoor living oasis that people want, while providing the tools and support to grow their business. Although we expect a lower number of new pools to be built this year at roughly 60,000 new units, this still represents a 1% increase in the installed base of pools that will need to be maintained going forward. We remain relentless in expanding our network to best serve the professional and do-it-yourself maintenance customer, and improving the customer experience, enhancing our capacity creation, and launching our industry-leading digital ecosystem. I will now turn the call over to Melanie Hart, our Vice President and Chief Financial Officer, for her detailed commentary. Thank you, Pete, and good morning again, everyone. We reported net sales of $1.8 billion in our seasonally largest second quarter, a decrease of 5% from prior year. We experienced an approximate 1% inflation benefit during the quarter. From a product perspective, price increases on equipment sales continued to hold in the 2%-3% range. While seeing positive volume trends on chemicals, there were negative effects from pricing on chemicals and other commodities, impacting sales by 1%. Selling prices, specifically for chemicals, will likely remain lower than last year for the remainder of the year. From an end market and business line perspective, as we stated in our recent update, the trends regarding new pool construction and remodel activity are less than projected at the end of last quarter. As discussed in our June pool season update release, we now expect around 15%-20% lower levels of new pool construction compared to prior year, which impacted total sales by around 3% for the quarter. As discussed, we believe that remodel activity may be down as much as 15% for the full year, and that lower level of remodel activity adversely affected total sales by about 2% from prior year during the quarter. Declines in sales at Horizon in Europe had an approximate 1% negative impact on total net sales for the quarter. Our gross margin for the first quarter finished at 30%, down 60 basis points from the prior year. As we expected, gross margin in the current year is lower than last year, when we were reducing our inventory levels and selling down lower cost inventory, which for the most part, has now been normalized, and we do not expect any significant quarter-over-quarter changes from this effect in the second half of the year. Benefits realized over the last several years from growth of higher gross margin building material sales did not occur in the quarter, although other factors, such as acquisition contributions, pricing optimization, and supply chain actions have benefited gross margin and should continue to support margins going forward. Operating expenses this quarter were $259 million, $18 million higher than prior year, representing 14.6% as a percentage of net sales.... The year-over-year increase in the quarter of 7.4% is higher than the 2.6% increase reported in the first quarter, as we had a higher level of spend in the quarter to accelerate our sales center network expansion and technology development. Specific to the quarter, through July, we have opened up eight new sales centers and have also rolled out several enhancements to our customer-facing technology platforms, providing our customers with even better digital tools for use during the peak pool season. Additionally, we closed three Horizon locations, two in June and one in July, where performance did not meet our return criteria, and we did not see appropriate near-term improvement opportunity. Expenses related to these locations were close to $1 million during the quarter and will not be continuing into the rest of the year. These locations were projects we used to evaluate different product or location offerings and had characteristics outside of our traditional Horizon business, and thus does not reflect any changes to our expected results on the remaining part of the business. In light of the mid-season sales trends, we intensified our focus on controllable expenses during the second quarter in an effort to improve cost leverage and will see the benefits of these incremental efforts as expenses in the second half of the year are expected to increase in the low single digit range, with the third quarter expenses expected to increase similar to first quarter and slightly higher growth expected in the fourth quarter. Operating income of $271 million was down $56 million, or 17%, compared to prior year. We continue to operate with less debt outstanding and were able to reduce interest expense to $2.8 million during the quarter compared to the second quarter of last year. Overall, second quarter net income of $192 million compares to $232 million in prior year. For the quarter, our results reflect a $0.01 benefit from ASU. Diluted earnings per share of $4.99, decreased 16% compared to $5.91 in the second quarter of 2023. Moving to our cash flows and balance sheet. Second quarter cash flows remained strong, reflecting normalized contribution after early buy deferred payment terms, which came due during the quarter. Cash flows from operating activities of $172 million year-to-date is on pace to meet or slightly exceed our target of approximately 100% of net income for the full year. On the working capital side, our accounts receivable days outstanding of 26.8 days remains consistent with the 26.9 days from last quarter. Inventory of $1.3 billion is $97 million less than prior year. As of June 30th, 2023, we had completed $186 million of our stated inventory reduction goal of over $200 million during 2023. Thus, the prior year second quarter number already reflected some destocking from the end of the prior year. Our inventory days on hand have reduced from 141- 131, a similar improvement to what we reported in first quarter. Our prior year inventory positions were normalized as we got to the end of the season at the end of the third quarter. Total debt of $1.1 billion is $68 million less than last year, as strong cash flows provided funds for repayment. Debt leverage ratio of 1.4 as of the end of the quarter, was just below our 1.5x-2x target, reflecting significant capacity for funding future growth opportunities. Moving to capital allocation, we continue to support the ongoing business and organic growth with $34.9 million of capital expenditures, including new sales center openings. We completed another acquisition during the quarter for a total of two additional sales centers added through acquisition year-to-date. Also, during the quarter, our board of directors increased our quarterly dividend by $0.10, or 9%, to $1.20 per share, reflecting our confidence in the future earnings beyond the current economic cycle and expected ongoing strong cash flows. The board also increased our share repurchase authorization back up to $600 million, adding $316 million in additional repurchase capacity. We made repurchases of $68 million during the quarter and an additional $10 million through today's earnings call. We currently have $572 million remaining under our share repurchase authorization. Looking ahead to the second half, our expectations for pricing for the remainder of the year are similar to actual results seen to date. The estimated lower number of new pool builds and reduced renovation activity are expected to continue to negatively impact sales around 4%-5% collectively for the year. Horizon and Europe are expected to represent an additional 1% decrease. Seasonal gross margins held up well in the second quarter, although impacted by lower building material sales year-over-year. For the remainder of the year, we expect gross margin to be in a similar range to last year, with internal strategic initiatives offsetting the drag from building materials. Full year gross margins, we anticipate to be approximately 30%. Operating expenses for the full year, as mentioned above, are expected to see a low- to mid-single-digit percentage increase year-over-year and will include continuing technology investments of approximately $20 million and costs associated with the newly opened greenfield locations, estimated to be around $12 million, and the acquisitions we've completed to date. Our rate of expense increase, after considering inflation and these incremental investments, reflects substantial efficiency improvement benefits from our capacity creation and operating initiatives. Full year interest expense is expected to come in closer to $50 million from our previous estimated range of $50 million-$53 million. Our annual tax rate is expected to be approximately 25%, excluding the ASU benefit, with a lower rate to be reported in Q3 and a slightly higher rate, similar to our second quarter rate, in the fourth quarter. Excluding the effects of additional share buybacks, we anticipate that fully diluted weighted average shares outstanding will be approximately 38.5 million shares for the third and fourth quarter, and 38.6 million shares for the full year, reflecting a reduction of approximately 140,000 shares from year-to-date share repurchase activity. Consistent with our June update, we expect that our 2024 diluted EPS will range from $11.05- $11.45, including the $0.20 of ASU realized year-to-date. We completed our third annual corporate responsibility report last month. This year's report included expanded disclosures, in particular around our Scope 1 and Scope 2 emissions and our workforce, and it is also aligned with the SASB framework, a leading framework that identifies important environmental, social, and governance topics typically most relevant to stakeholders. As we wrap up our comments today, we are reiterating our focus on managing the business through the current cycle, while continuing to invest in strategic technology tools, sales center network expansion, and selective acquisitions. That will enable our long-term growth, superior operating performance, and attractive shareholder return. We will now begin the Q&A portion of our call. We will now begin the question-and-answer session. To ask a question, you may press star, then one on your touch tone phone. If you're 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 please limit yourself to one question and one follow-up, and then you may re-queue for additional questions. And at this time, we'll pause momentarily for the first question. Our first question today will come from Susan Maklari with Goldman Sachs. Please go ahead. Thank you. Good morning, everyone. Morning. Good morning, Pete. My first question is, maybe talking about pricing and the gross margin. You mentioned that you're seeing some success on some optimization initiatives there. Can you talk a bit about how we should think about that coming through over the next couple of quarters, and what it could mean for the gross margin over time? Sure. As you know, Susan, there's a lot of components related to, related to gross margin. If you just look at the simple transaction count that we'll have between now and the end of the year, it's gonna be several million transactions made up of a variety of products. So of course, you have mix that plays into that. And as Melanie mentioned, and I think I mentioned in my comments, mix as it relates to construction material, which is typically a higher margin product, is not particularly helping us this year with the decline in new pool construction and renovation and remodel. So that would be a headwind, and but I, I don't think it gets any worse than what it is right now. I think that just kind of continues. And then we mentioned that there are things that we've done around our strategic pricing, and I think things that we have done related to our private label programs and our supply chain initiatives that help. So as I mentioned, you know, the gross margin rate that we saw for the quarter of 30%, I think is a very admirable. We're very pleased with the outcome for the quarter. So between now and the end of the year, I mean, we would maintain that it is gonna be approximately 30%. Might it stray a little bit up or down, depending on mix? It sure could, but I think it's generally gonna be in that range, and I think that's supported by the activities that we've been working on, as I mentioned. Okay. That's helpful. And then it sounds like the POOL360 investments are gaining some nice traction as we think about the first half of this year. Can you give a bit more color there on how some of that is coming through, and how you're thinking about that as we think of the back half of this year and then maybe even into 2025? Sure. So I'll talk about the three separate applications, and they all basically, as I mentioned, are part of the POOL360 ecosystem. So if I start with the water test software that we have, you know, that is tied to our private label program. So the dealers that are on that, they're full line stocking distributors of our private label chem programs. They have, you know, kind of best-in-class water testing and prescription developing solutions that they can give the consumer when they come in. There's also a CRM function in there, where they can capture the data about the pool and about the consumer, which helps them every time the consumer flows into, goes into the store. But as you can imagine, there's a selling season for that, right? So during the season right now, when typically the pool retail stores are very, very busy, is not the time that any of them are going to convert. So this is the season where the people that signed up before are leaning into the software, and they are using it, and frankly, they're helping us with feedback on features and functionality, which we're using to develop our software, because as you know, with software, you're never done. There'll be a constant stream of enhancements that continue to improve the user's experience. So good progress on the water test. We still believe it or not, there are still some dealers that are onboarding even this time of year, but we expect that as the season winds down, that we'll see a much larger number of dealers that onboard during the off-season. Similarly, if I refer to the POOL360 service, it's really the same cycle. So everybody in the pool industry right now is busy. So the service folks that would have to onboard on the software and load their data into the software, so that they could derive the benefits, as I mentioned, which is scheduling, it's routing, it's one-time service, it's pricing, it's everything that they need to essentially run their business. This is again not the time of year when we expect to see a lot of people onboarding. But we are doing some selling this time of year. So we have a roadshow that's basically going around the country and going into several key markets where we are spending time with the customers. And frankly, the feedback we're getting on that is extremely positive because people see the benefit in the tool, and that, you know, unlike the original version of POOL360, which didn't have nearly the same benefits for the customer as it did for us, that tool is in particular designed to provide most of the benefit for the pool service company, which again, expands their capacity, allows them to grow, allows them to tap into our digital marketing program, and frankly, become stickier with us. And then, of course, you have just our POOL360 platform, which we talked earlier, or we talked about on the last quarter call, that we have updated significantly to improve the user experience. That's really kind of a year-round tool that allows people to put their order in, put an order in priority pick, avoid the lines at our sales center. And again, we're seeing more adoption on that as well. So overall, very pleased. We never expected that this was going to be an overnight success. We thought that it was gonna be something that was gonna take time to get the customers comfortable with. And then frankly, the more people are on it, then their voices are the best form of advertising that we can have. So overall, very pleased. Okay. That, that's great color. Thank you for everything, Pete. Good luck with the quarter. Our next question will come from David Manthey with Baird. Please go ahead. Thank you. Good morning, everyone. Melanie, quick question for you on the gross margins. I think you said in your monologue that, the back half of this year would be similar to the back half of last year. And if we just run that through, we're coming in a little bit below 30, the 29.7, 29.8 range. Is that what you mean by approximately 30%? Yeah, I mean, I think that range, you know, within 20 or 30 basis points, you know, as Pete mentioned, there's so many different components that go into gross margin. It's certainly very hard to pinpoint, you know, this early in the year. We know that the full year margins are going to be impacted by those building materials, that lower level of building materials. And we've seen that, you know, so far to date, and expect that that would continue throughout the rest of the year. You know, we are, because of our purchasing, higher purchasing from last year, we're seeing, you know, slightly higher vendor incentives. But, you know, a good portion of that is being offset by, you know, the flip side to that is higher purchases also include higher freight in. So that's impacting it. And then, you know, we do still expect to see that chemical pricing coming in a lower year-over-year for the rest of the year. And then, we are continuing to see, as we had mentioned last quarter, that our larger customers are really outperforming some of the smaller customers. So, I think, you know, with all of those factors in play, you know, your estimates there winds up in a very reasonable range. Yeah. Okay. And then, I know it's too early to maybe talk about 2025, but when we're thinking about that 30% Mendoza line, if new pools and major renovation and the building materials are roughly in line with the maintenance as we go forward here, again, I think you picked up a bit of a benefit in the first quarter from a reversal of an accrual or something. But as you think about that 30% into 2025, maybe just, qualitatively, what are the factors that could improve gross margin from this year relative to next year, assuming that the mix doesn't change all that much? Well, so assuming that the mix doesn't change, which, you know, we certainly don't know when, but we are hopeful, and we know that it will change at some point, and we'll get those benefits that we're missing out on in the current year related to the building materials. But outside of that, you know, what we're really focused on right now are things that we manage and we control. So we're very much focused on our efforts around pricing. We're continuing to focus on our expansion of our private label chemicals, as well as some additional actions that we're taking on the supply chain side. I appreciate it. Thank you. Our next question will come from Scott Schneeberger with Oppenheimer. Please go ahead. Thanks very much. Good morning. Pete, one for you and then one for Melanie. Pete, a common question is just the confidence, and it's tough post-pandemic on anticipating these years, what we're gonna see with regard to new pool build and renovation. And so, the heart of the question is: How confident are you here with this reset guidance level for the remainder of the year? And maybe a little bit of discussion into visibility you have into that. Thanks. Yeah, I think that's a good question, and one, as you can imagine, that we spent a lot of time discussing here and discussing, frankly, with our dealers... So, on one hand, you know, I look at the new construction activity. If I look at permits, and then I look at, you know, our building material sales, it appears that we are, we're doing better than the market would indicate in terms of new pool construction, meaning that my sales of building material products are not down nearly as much as the permit data would suggest. I think overall permits are down about 17%. I think our building material sales as we reported are much better than that, albeit still off double digit. So the comments we're getting back from dealers, which I mentioned, is that there's a lot of in-- I'm missing a lot. There are more inbound calls than they've seen earlier in the year and towards the end of last year. So inquiries are, inquiries are good. I think people are waiting for a sign to say, all right, the Fed is actually serious about cutting interest rates, the economy is going to expand a bit, and the consumers get a little bit healthier. You know, when as I mentioned, if you look at the online real estate sites and you look at the words that are being searched, you know, the word pool comes up near the very top of the list. So people still want a pool. I think this year was a tough year. Frankly, it was worse than what we anticipated in the beginning of the year, hence the guidance update that we put out in June. But at this point, I think we're fairly comfortable with the level that we see, and dealers are not telling us that it is getting any worse. And I think we're slightly outperforming the industry in our participation in the number of pools that are being built. Great, thanks. Appreciate that. And Melanie, for you, just on managing the margin, the operating margin, just a few things here in today's call. I think it was three locations closed in Horizon, and I heard a $1 million impact. I didn't get the context or the timing on that, if you could repeat that. But are you... And then you've talked also about supply chain efficiencies. I'm just curious, what if you could take us a little deeper on both as you're pursuing efficiencies in the model, particularly in a year like this, where you're seeking out some cost savings. Thanks. Yeah. So, the $1 million was the number for the quarter as it related to those three sales centers that we closed. So that was the expense in the quarter that will be non-recurring throughout the remainder of the year. And then on the supply chain, you know, there's, you know, multiple different things that we're focused on there. There's areas that we're focused on around product costs that we impact the gross margin, but specifically as it relates to the operating margin, the biggest driver there is gonna be fleet and delivery expenses. And so we're very much focused on that. As we look to expand in different markets, we are able to to leverage our vehicles and leverage our drivers and leverage our deliveries. So that's one of the things that our competitors, you know, don't really—they don't have the ability for that same model that we have. So particularly as we continue to expand our NPT branded building material offerings, we have the ability within a market to utilize one location to do those deliveries. And so the freight expense, which is a significant part of our overall expenses, is an area that we've been focused on. As well as we've also continued to expand our CSL, so that's for us, our central shipping locations, of which we have four within the network. And that allows us to bring in product at a lower cost from our vendors and then redistribute it within the network. It allows us to better manage our inventory over time, as well as to have lower cost and lower delivery, and then more product availability on a quicker basis to our customers. Thanks very much. Our next question will come from David MacGregor with Longbow Research. Please go ahead. Hello, David, perhaps your line is muted. There we go. Sorry about that. Thanks for taking my questions, and good morning to everyone. I wanted to just start off by talking about some of the share growth and just the extent to which you're exceeding market growth right now. Can you talk about the composition of that, that difference and the extent to which some of that might be acquisitions versus other factors? Yeah. As, as you know, David, the hallmark of Pool is we're an organic growth company. So if you look at the acquisitions that we've done this year, they're important, but they're relatively small, certainly in the grand scheme of things or context of the whole company. So the growth that you're seeing is really driven, from a share perspective, it's driven organically. It's driven by our new sales centers that open up in the, in the critical areas and the places that we need, better capacity, and quite frankly, where we improve the value proposition for our customers. If you look at the concentration that we have, of locations in the market, and frankly, the focus on customer experience, you won't find that same, concentration or focus on customer experience with anyone. So if I look at, you know, so you're probably wondering, well, so why, how do you think and where does it show up? And if I look at our chemical business, you know, our volumes on chemicals are up 3% this year. And that is with a late start to the season, tougher weather in many key markets, and the fact that the volumes are up 3% when the install base is not up 3% is an indication that we are continuing to take share, because we are the places that people need product, and we are focused on customer experience that is second to none. And then, you know, when you add the private label capabilities that we have on chemicals, that's certainly a big differentiator. You know, as I mentioned, on new pool construction, when we look at our building materials sales, I mean, nobody would be happier if they built more pools this year than me, maybe Melanie, but certainly I'd be, I'd be happy. But if I look at the permit data and what I believe to be the drag in new pool construction, and then I look at our building materials, where certainly there's not a big lift in price, that it certainly shows that again, we're getting a bigger slice of the pie. And then again, when I look at equipment sales, which, you know, we're pleased, equipment sales overall are flat. Heaters is a key area for us where, you know, our, our heaters were one of the first areas that took off during the pandemic, and they also had one of the biggest corrections. You know, that is a product that we're starting to see growth again, and which is very encouraging, as well as, you know, things like, you know, pumps and light and, and chlorination and such. So, overall, I just think that there has been a tremendous focus on customer experience, and making sure that nobody does it better for the customer, and that we continue to provide those value-added services that there is no equal to in the industry. That's helpful. Thank you. My second question, really with respect to, operating margins, and just what is the opportunity to achieve, you know, operating margin improvement at the store level? And I know at the analyst meeting, you talked about the focus those centers and trying to improve four walls profitability at that level. In a softer environment like we're in right now, do expectations around that get pushed out a little bit, or do you think you can still maintain the momentum? I mean, there, there's a few groups, right? So certainly, even in the focus location, even in a down market, there is certainly an opportunity to continue to improve operating margins, and it's really a function of execution, right? It's a function of doing things right in the sales center and managing the inventory, managing the customer experience, and managing our costs and ultimately growth. I mean, the biggest lever you have for operating margin improvement is growth. And as you can imagine, or would imagine that our focus centers are the ones that are gonna be, you know, trailing the rest of the business in terms of sales growth. Now, there's a couple of reasons for that. One is every new sales center that we open, by definition, goes on the focus list to make sure that it gets the appropriate attention, given the investment that we just made. Virtually every acquisition that we make operates well below the fleet average, so those two go on the focus list. So, and if you look at our overall operating margin, you know, if you look at a continuum, it's not like the mean and the median are the same number. There's a fairly wide distribution in operating margins. So we see even in a down market at the individual sales center level, there's still plenty of things we can do. Having said that, overall, the biggest lever that there is, is sales growth, right? Sales growth in a down market becomes much more difficult, but it is, it is achievable, and we have, we have some locations that are up year-over-year. But getting back to the cadence of continuing to expand on a predictable basis, the operating margins really comes with, you know, when the market turns and the market starts to grow and we get back to that long-term growth algorithm that we talked about, which is the 6%-9%, which won't come really until we see the reversion in new pool construction. Do we think that's coming in? Yes. Do I think it's gonna happen between now and the end of the year? As we mentioned, we do not. Very helpful. Thanks, Pete. Our next question will come from Lauren Ravalli with William Blair. Please go ahead. Hi, team, Lauren Ravalli on for Ryan Merkel. First half sales were better, given a stronger last week of June, attributable to hotter weather regionally. Are you seeing these trends continuing into July with hotter weather? Is demand tracking better than expected? Yeah, I would tell you that, the results that we see in July so far are encouraging. They're strong, similar to the last week that we saw in June, and that's really a function of we're in season, it's hot, we have, we think, the best value proposition in the industry, and that's what's driving the business. Thank you. I'll take the rest offline and pass it on. Thanks. Our next question will come from Steve Volkmann with Jefferies. Please go ahead. Hi. Thank you, guys. I don't know if I missed this or maybe you didn't or don't wanna say it, but if we have kind of the recurring revenue business sort of flat this year and the building products, I don't know, let's call it down 15% or something, is there any way to ballpark the impact that has on the gross margin, the dilutive impact? So I would probably ballpark it in this manner: So when you look at the way that we have historically, you know, built up the bridge from the 29- 30, we said that, you know, roughly half of that was acquisition benefit, and then the remaining half of that, the 50 basis points, was really made up of a combination of the benefits from the building materials, the pricing, the CSL expansion, and the private label, with those, you know, kind of roughly distributed evenly within that mix. ... Okay, so not huge. And I guess maybe longer term, bigger picture question, maybe for Pete. But, you know, pre-COVID, and I guess pre you, Pete, the long-term algo here was kind of growth the way you guys have kind of laid it out. But it included sort of a flattish gross margin with leverage on SG&A over time. But it sounds like you're talking more about gross margin upside than over the past, you know, over the next, I don't know, call it five, 10 years. I don't want to put words in your mouth, but does the new algo actually include a positive trend in gross margin as well as leverage on SG&A? I think longer term, Steve, the way to think about gross margins is we do believe that there is upside in gross margin, but it's not gonna come, it's not gonna come overnight. And frankly, there isn't a silver bullet that we do this and gross margin goes up. I mean, we've talked about the areas that we're focused on that improve gross margin. We've talked about the work that we're doing around strategic pricing. We've talked about improving the mix of business that we have. We've talked about leaning into our private label products, in particular, our chemicals. We've talked about improvements in supply chain and leveraging our CSL, which all contribute to in a positive way to the gross margin. Now, that's gonna be offset by competitive pressures, which are in the market. Really nothing new there, but there are certainly competitive pressures that we have to deal with every day. But if I were to give you a longer-term view, that says, you know, can we continue to leverage SG&A? Yes, virtually every facility we have has the ability to leverage SG&A with sales growth. Now, as we have mentioned, you know, when we look at our cost basis, you know, certainly there's upward pressure on wages, and there should be. Certainly, every time we renew a lease, it is certainly not a bargain, or it's not on our side. The landlords have the advantage right now because there's a scarcity of facilities, in particular, in the areas that we wanna grow in. So while we're having to work hard on the SG&A leverage, and I think over time, that there is continued upside on gross margin. I don't think you're gonna see it go 30, 31, 32, 33, 34 successively over the next 4 years. But do I think that we have enough things in our deck that we are working on to continue to drive that number up? Yes, I do. Okay. Thank you, guys. Thank you. Thank you. Our next question will come from Trey Grooms with Stephens. Please go ahead. Hey, good morning, and thanks for taking my questions. I think the first one that I have is kind of on cash flows, you know, and maybe the flow through there. You know, you pulled back inventory a bit in the quarter. You know, and as we look at the full year, should the year-over-year improvement in working capital, should we continue to see an improvement there, or you know, is there anything you know, on the working capital front that we should be aware of in the back half, Melanie? Yeah, there, there's nothing unusual in the back half of the year. So, as we would typically expect, the third and fourth quarters are very good cash flow years for us. And, you know, we do think that for this year, you know, that we should be able to, you know, slightly exceed our target of 100% of net income from a cash flow standpoint. And, you know, the biggest benefit, certainly the biggest driver of that, typically is going to be inventory. Perfect. Thanks for that. And, I guess, you know, one last one for me is, on the pricing side, you know, you mentioned that you were seeing, you know, some lower pricing clearly on commodity, but, is there any other areas where, you know, you're seeing any kind of pricing pressure outside of, you know, like, like we were saying, you know, in the commodity kind of impacted front? Yeah, I think what we said is that there's a few areas that we're seeing pressure on pricing. So commodities are gonna fluctuate, as you mentioned. There's certainly competitive pressures, and we mentioned that on the last call because we had folks that were essentially trying to generate cash to make their early buy payments. So we saw some pretty ridiculous pricing being delivered to the market, which we knew wasn't sustainable, and it wasn't. So that, you know, that certainly has abated. And then I guess overall, when I look at just competition, I would say larger customers, you know, on the construction side, as we mentioned, you know, even though new builds are down, there are people that are getting the lion's share of what's being built is the larger customers, and certainly larger customers have a lower margin profile. So, that's certainly from a headwind perspective, the areas that we currently see. I guess what's important to point out here is none of this is new, right? None of this is new. If you go back and you look at our reports over the last 10 years, the comments I just made, you will find in every one of them. There's nothing new in that. Yep. That's super helpful, and thanks for the color on that, Pete. But, you know, the, the one question we still get from time to time is, and I know you touched on this on the last call, kind of with your thoughts, but, maybe any update on, you know, if you're seeing any kind of change in behavior, you know, out of Heritage now that Home Depot has had them under their umbrella for, I guess, a month or so. But it, it sounds like the answer to that is no. ... Yeah, there really isn't. I mean, it, as you can imagine, I'm sure there, it's way too soon to have any any impact from their new ownership. So nothing has really changed in that. And frankly, as I said, if you go back and look at the market over the last 10 years, remember, all Heritage did was turn around and buy the existing distribution that was out there. So much of what they have is the same competitors that we had before. So these same patterns from a competition perspective, and frankly, when you don't have the value add that we do, the best way to compete with us is on price. But again, you know, and I, and I have to point this out to our folks, too, it's the same pattern that's happened for years, and, and I expect it, I expect it to continue, but it's, it's nothing that we lose a lot of sleep over. I'm hopeful that with Home Depot helping run the show, that they become a little more responsible. Yep. Okay, thanks, Pete. Makes sense to me. Good luck. Our next question will come from Garik Shmois with Loop Capital. Please go ahead. Oh, hi. Thank you. Just on OpEx growth, I think if I heard you right, the growth rate is moderating in the third quarter, but then increasing somewhat in Q4. I'm just wondering as to the variance there for modeling purposes. Then, you know, it might be earlier, but, you know, do you think operating expense leverage could revert back to more normalized levels in 2025? So, as it relates to the difference between the third and fourth quarter, the bigger difference there really is that the fourth quarter has less variable expenses that we would be able to take out from an efficiency standpoint. So the percentage increase is really just the fixed cost, primarily on the rent side. That's gonna be a bigger driver in the fourth quarter versus the third quarter. And, you know, as we look forward from an expense leverage standpoint, you know, we have looked across the network and you know, taken the opportunity, as we mentioned, with some of the Horizon closure, to really evaluate our cost structure from the ground up. And so believe that the decisions that we've made this year will allow us to, you know, be quicker on our feet in getting that expense leverage as we move forward with our top line sales growth. Got it. Follow-up question is just, you know, just more very short term, just with the pickup in June, the last week in June, and that's continued here into July. Is it primarily on the non-discretionary piece, you know, products that, you know, you likely would have sold, if not for the weather delays earlier in the second quarters? Or are there any other green shoots that you're seeing that could, you know, point to maybe a little bit more optimism on a broader base recovery? No, it's, it's really, it's the maintenance spend, right? So the more the equipment gets used, the more people that are in the pools, then the larger the demand is for those products. And then, you know, we are, we're enjoying a bigger share of that based on the differentiated value proposition that we have. But I'd love to tell you that I'm seeing green shoots on construction or renovation, but as I mentioned, this really isn't renovation season, so we don't really know. And on construction, I still think there's a lot of people that want a pool. As you know, the dealers are saying: Hey, the phones are ringing, people wanting quotes. They wanna know, but I just think they're waiting for a little better economic environment to pull the trigger. Understood. No, thanks for that. I'll pass it on. Thank you. Our next question will come from Sam Reid with Wells Fargo. Please go ahead. Awesome. Thanks so much. I know it's still too early to be thinking about 2025, but maybe just a quick thought from your vantage point on the top line algo next year. You know, you're seeing, you know, kind of muted new pool construction, and there obviously are, you know, some pools that exit the base due to scrappage and other dynamics like that. So maybe just talk through kind of the achievability of the algo next year, you know, if you don't get that, you know, let's call it 1-2 point contribution from new pools entering the base. Yeah. So, you know, certainly we would expect that, you know, looking at kind of what we've seen on the, the impact from the new builds and the remodel activity this year, even though those are kind of collectively bringing down sales expectations kind of 4-5. And so, you know, if that's, let's say that's flat next year, then you would see, you know, you know, impact, kind of positive or negative, from that activity, kind of a year-over-year. And then you would see the positive impact coming through from the maintenance activity on the incremental, you know, 60,000 or so new pools that get built this year. Thanks. And then one final one. You know, just thinking through your chemical packaging operations, it sounds like you've done a great job of scaling that. I think you mentioned up 60% since you purchased it. Maybe just- Talk through the margin benefit you've gotten from those chemical packaging operations and whether there's any, you know, kind of incremental margin beyond that we should be contemplating in our models. Thanks. Yeah, I think it's a piece of the margin improvement that we have seen, and the margin profile is really different by product. So there are certain products that have a much better margin profile. Others are gonna be certainly better, but not as much, and we really don't parse that out. And the one thing I would remind you is that, you know, our view on the chemical packaging operation is we need our chemical partners. We will never be sole sourced in that plant on our chemicals because of surety of supply and redundancy. So, you know, even if I could supply the entire business out of that facility, and have, you know, incremental basis points of gross margin by doing that, I wouldn't do it because I wouldn't put all of the eggs of the company in one basket. So our chemical business is going to be a blend of our partnered suppliers and the Suncoast facility. Certainly, the things that we run through the Suncoast facility are margin accretive to the business. They vary by product. It would be, you know, at the high end is going to be, you know, your liquids, and some of the balancers, and then when you get into trichlor, you know, there's certainly an advantage, but nowhere near the differentiation that we see on the other products. That's super helpful. I'll I'll pass it on. Thank you. This will conclude our question-and-answer session for today. I would like to turn the conference back over to Pete Arvan for any closing remarks. Yes, thank you all for joining us today. We look forward to our next call, which will be on October 24, when we release our third quarter 2024 results. Thank you for your support, and enjoy the rest of your summer. The conference is now concluded. Thank you for attending today's presentation. 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