Pool Corporation (NASDAQ: POOL) - Investor Day 2024

Welcome to Pool Corporation's 2024 Investor Day. I'm Kristen Buers, a finance director at Pool Corp and member of our investor relations team. We are very excited to have all of you here in person and would also like to greet the folks on the webcast today. Before we get started, I must remind everyone that throughout the presentation today and in our comments and in responses to Q&A, we will make forward-looking statements. These statements are covered under the Safe Harbor protections of federal securities laws. Actual results may differ materially from projected results, and a list of the significant risks and uncertainties that affect our business are in this slide and should be read in conjunction with our Form 10-K. Our presentation today will contain non-GAAP measures. The reconciliations to the most closely comparable GAAP measures are in the appendices to our slide deck, and the slide deck will be posted on our website in the investor relations section, where you may also find prior earnings releases and non-GAAP information should you need to look at those. We have a lot that we want to cover today, so I'll very quickly take you through our agenda. Pete will kick us off with an overview of Pool Corp and the industry, and then you'll get to hear from various members of our executive leadership team covering the strategic initiatives that they've been focused on. Then Melanie will wrap that up in the financial section of the presentation, followed by Q&A. We have a 10-minute break planned after the technology section, and then the formal presentations and webcast will end right at noon. At that point, those of you that are here with us will have a quick lunch, and I'll go over the logistics of what to expect for the sales center tour. We'll have a couple buses taking us over to the sales center, so stay tuned for that. Just a friendly reminder to make sure cell phones are off. We're going to leave a door propped open in the back, but the doors to the room will lock when they're closed, so we have key cards that you can take with you on the tables, but either way we will let you back in. Without further ado, it is my pleasure to introduce our president and CEO, Pete Arvan.

Thank you. Good morning. Lots of familiar faces, and very happy you joined us today. I appreciate you all taking the time to travel to Austin. I think we've got a very exciting day for you. We do Investor Day every two years. The last time we did it was right after we acquired Pinch A Penny, so we were brand new into the ownership of that. So we'll talk a little bit about that, we'll talk a little bit about the industry, we'll update you on some things, our current view of the industry, and we'll highlight some of the areas of focus that the team has been very hard at work at. Before I start, though, what I want to do is introduce my team. Most of our senior leadership team is in the room, but I want to ask them to just stand up and give you a wave so you know who they are. Over the breaks or during the tour, you can spend a little bit of time with these folks. They're an exceptionally talented group of people that are certainly the backbone of Pool Corp. Some of them you know, and there's some new faces and some very familiar faces to some of you. So I'm going to ask them to stand up. So Melanie Hart. Melanie, you all very familiar with Melanie. She is my partner as the CFO of the company, been with the company for 18 years. She started when she was four, but Melanie's been with the company for a very long time and works very, very hard, and I know we're very close with all of you. Kenny St. Romain. Kenny is one of the very earliest employees of the company. Kenny's dad is the guy that originally founded South Central Pool, which was SCP. So to say that Kenny has spent his entire life in the pool business is an understatement. You're going to hear from Kenny. He runs all of the North American pool business. Chris Nef, which is there next to Melanie. Chris is our Vice President of Strategy and Corporate Development. Chris is new since the last time we got together. He actually joined the company about eight months ago. He heads up the corporate development piece and also helps with strategy, and he joined us from Boston. He was previously the president of Boston. Kendall Large, where's Kendall? So Kendall is our Vice President of Marketing. Kendall doesn't get a green dot because she was actually part of the group two years ago when we got together. Kendall came to us through the Pinch A Penny acquisition, and she runs marketing. Luther Williams. Luther is our Vice President of Human Resources and our Chief Human Resource Officer. Been with the company about six years. I've just passed my seven years. Luther came right after I did and does a phenomenal job helping us make sure that we maintain our status and prioritize being the employer of choice. Phil Stevens, where's Phil? So Phil might be a new face for some of you. Phil's not a new face to the company. He's been with the company for a very long time. He was part of one of the original Horizon acquisitions and still runs our Horizon business, which is our green or irrigation business. Jennifer Neil. Jen is our Senior Vice President and our Chief Legal Counsel. Been with the company for 21 years. I've been here for a very long time and may have crossed paths with some of you through the years, and certainly instrumental to our long-term success. Ike Mahaley. Ike is our Vice President of Supply Chain. Ike and I worked together back during the GE days, so he joined us a couple of years ago. Ike runs all of supply chain operations and logistics. And then Donna Williams. Donna runs our Vice President of Product Management, so that would be for our private label products, and been with the company for 16 years. And then we have Todd Marshall. Todd is our CIO and has certainly been instrumental in the development of the technology platform that we're so proud of and that you're going to see today. And not on the chart is Jim Aish. Jim is our Senior Director of Customer Solutions. So think about Todd and Jim as kind of a tag team as far as the technology goes. So Jim's job is to translate the customer need into the spec that Todd's guys build, and Jim's job is to drive the implementation across the network for our software solution business, which is very new and something we're exceptionally proud of. So that's the team. I've got about an hour to walk you through our view of the industry, what's new with Pool, kind of give you a teaser of what you're going to see later today. But we have presentations. Kenny's going to talk to you about what's going on in the blue business. Chris is going to give you an update from a strategy perspective. Todd and Jim are going to walk you through the technology platform. So we've got a very exciting presentation for you, and the good news is that basically everything you're going to hear about today you'll be able to see when we go to the sales center, because our tour later today is to our NPT Design Center, which is our newest Design Center in the network. So we have over 100 of these NPT Design Centers, but this one is kind of ground zero for us from an innovation perspective, because we reimagined the process that the customers go through and what the customer experience is. In an NPT Design Center, remember we have really three distinct customer journeys. We have the homeowner that's going to go in there to pick out product and pick out services or pick out the accessories for their pool and all the surfaces. And you'll see that it's not just a matter of walking in there and saying, 'Where do I start?' They've actually curated a very good process which we think results in the best customer experience. You're going to see the services. There's an office actually in the middle of our Design Center that our builders use. Some of our builders don't actually have a Design Center, so they come there, they use our facility to take the homeowners through the process of building out their pool. And then we have the subcontractors that basically go to the back portion of the building, the warehouse portion of the building, because they're the folks that are coming in there every day to pick up plaster, pick up tile that's going to be applied every day. And then of course we have our hardscapes that are in the building too, but most of the hardscapes we would actually take out and deliver. So very exciting trip for you. And the technology initiatives that you're going to see today, you're going to learn about Water Test, you're going to learn about Service, you're going to learn about Pool 360. And the good news is all of those will be set up and on display for you, so you can look, touch, and feel those as you're walking through the sales center. I think you're going to find that really interesting. So the title of the presentation is 'Experience the Pool Corp Difference.' Now, I know there's a lot of familiar faces in the room. There's some folks in the room that have owned the stock from the very beginning, and I think that's amazing. If you owned the stock from the very beginning, the dividend is actually more than what your basis is for the stock today. So certainly the folks that got in really early have had a tremendous run. But part of the reason is that we're in a very unique industry. We're in an industry that grows upon itself every year, and Pool Corp is a very unique company because if you think about what we do and how we do it and how we invest our money and how we perform and how through our over 6,000 employees we create value for everybody in the channel, it makes us very unique. We've gotten bigger, we've gotten better, we've gotten stronger. We continue to invest money to make sure that we are the preferred channel to market for our suppliers and that we're the easiest place for our customers to do business. Remember, our business is a portion of our business is delivered, a portion of our business is pickup. 70% of our transactions take place at the sales center. So our network, where our locations are, is absolutely critical. The staffing, the speed at which we can get people in and out of those facilities is critically important too. And that's one of the differences. Because remember, one of the things that I could say is that what is different about Pool Corp is how we do it, but it's not the products. There's not a single product that you can buy from us that you can't get someplace else. Now it might be a different brand specifically when you have our proprietary product, but you talk about a 3-inch tablet. We have our proprietary brand of chemicals, we have Regal and EasyCare. You can't buy those any place. All of the Regal and EasyCare tablets in the world come from me. But you can buy a 3-inch tablet from somebody else. So what we do, if you think about a pump or a filter or a heater, you can buy that same heater someplace else. So we don't have the luxury of saying, 'Look, what we have is totally unique, and if you want that product you have to do business with us.' All the product that we carry you could buy someplace else. So it's the value proposition that we wrap around it is how we differentiate ourselves, and that's what we work very, very hard to do. So let me give you an update on the profile of the business. We're about a $15.3 billion market cap, plus or minus. We did about $5.5 billion in revenue last year, about just shy of $750 million of operating income. We're still headquartered in Covington, Louisiana, although with the acquisition of Pinch A Penny we also have a campus in Clearwater. If you were with us last time we did Investor Day, you got to see that. So we basically have two major offices for the company: Clearwater and Covington. It's about 200,000 products, which is really easy to say, but when you think about it, it's 200,000 products that we have to manage the supply chain for, we have to manage product availability for, we have to manage pricing for, we have to manage delivery for, we have to manage warehousing for. So 200,000 products is no small undertaking that Ike's team certainly takes the lead on. We have over 6,000 employees now in our company that make what we do possible through all of their hard work and time and effort. We have about 2,200 plus suppliers, about 125,000 unique customers. And remember I said that about 70% of our transactions take place at the counter. So if you come into our branches in the morning, the busiest time, if you look at Google Maps and you look at our locations, it'll tell you when we're the busiest. It's always in the morning. Why? Because people come, they get product that they're going to use every day. Some of our customers come once a day, some of them come once a week, some of them come multiple times a day depending on the nature of the job that they're working on. So our locations where we are is certainly a critical part of what we do. We're up to 439 sales centers today. 439 sales centers. When I joined the company in January 2017, I think we were about 360, so we've added almost 100 sales centers in that time frame. We operate in 12 countries, 42 states and territories. So you can see we have quite a footprint and quite a network to take care of our customers. So from a market available, this is some information you've seen before and some maybe not. But the U.S. residential swimming pool market we think is, based on the '23 data, about $12.2 billion. That would be the North American market. The commercial business we think is about $2.4 billion. The U.S. irrigation and landscape, which is part of our Horizon business, we would consider to be about a $6 billion total market. But remember we only play in a portion of that. Our focus, which I'll get to when we get to the Horizon slide, we're basically a Sun Belt focused business. So although it's $16 billion in total, that's not our target market area. Hardscapes is about $3 billion, and that spans the green business and blue business. And then international is about $4 billion. So in total, it's almost a little $37 billion of available, and about 70% of our markets are serviced through distribution. That's a very important fact for an industry like ours, which means that what we do is critically important to the entire supply chain and how material moves. So from a market perspective, about 93% of our revenues come out of the United States. Europe is going to be about 4%, Canada is going to be about 3%. The middle of the slide should be no new news to everybody in the room. About 62% of our business is the maintenance and repair, about 14% is going to be the new construction, and 24% is going to be renovation and remodel. Now that pie graph moves every year depending on new pool construction. So there was a time a few years ago when we were building 120,000 pools, when obviously the new pool construction would have been bigger. But what you would expect over time as the markets have changed, and I'll show you a slide later on as you look from 2019 to 2023, the markets have changed, the percentages have changed. Still very similar, but the maintenance and repair as the installed base continues to get bigger, that continued to grow. From a customer mix, the professional contractor is about 82% of our business. So that's the contractor for maintenance and renovation and construction. And then you have of course the maintenance piece, which is just the people that come in to service pools weekly. That's about 82% of our business. About 14% of our business is retail. Now when I say retail, remember we're not in the retail business. We're the preferred supplier to the retail trade. So we cover the backyard retail space in two ways. We have about 5,000 independent retail customers that we sell to, and after the acquisition of Pinch A Penny in 2021, we also operate the Pinch A Penny franchise. Every one of the Pinch A Penny franchise stores, which we now are close to 290 stores, every one of those stores is independently owned and operated. So we basically operate as the franchisor, and then we operate the distribution business that fulfills most of the products that they sell. So if you look from a product perspective, equipment is about 29%. We've said over the years it's 29-30% of our business. So based on the '23 numbers, it's 29% of our business. Building materials is about 13%, chemicals is about 14%. And those of you that have followed the company for many years know that at one time chemicals was closer to 10%. Chemicals is a big focus area for us. You're going to see more about that today. That's part of that recurring revenue maintenance stream that happens every week. Chemicals have to go in the pool. It's not a matter of if you want to do it, you have to do it if you're going to keep that pool swimmable and safe and clean. So we like that business, so we've been growing in that space. And then kind of the all other category is going to be that 40%, and then of course commercial products is 4%. Commercial is interesting because there really isn't a clean break on commercial, because the people that are doing work on commercial pools also do work on residential depending on. If you look at a large hotel complex pool or a competition pool, if you walk into the equipment room, what you would see in that equipment room would look nothing like what you would see on a residential swimming pool. It's very large equipment, it's very complex equipment. It's heaters that are 1 million or 2 million BTU heaters, and a standard heater for a residential pool is going to be that 250,000 to 400,000 BTU. So you're talking massive heaters, you're talking 20 horsepower pumps, 30 horsepower pumps. So that's a much smaller portion of the business. But when you get into smaller but still commercial pools, what we would talk about in that area would be the HOA pools, hotel, multi-family apartments. Many of those pools use the same equipment that you would find on a large residential pool, because the equipment is really sized to the body of water. So many of the hotels and apartments that have pools, some of them are 30,000, 40,000 gallons, which would be on the larger end of a residential pool. So that equipment package and that contractor base is going to be very similar. So if you look at the 2019 to 2023 build, in 2019, 78,000 pools got built. Although the final number is not out for 2023, our assessment is that it's going to be somewhere between 70 and 75,000 pools. I think it's going to be closer to 70,000 pools. So on one hand, I would say, 'Gosh, I would have been happier if it was 78,000 pools or if it was 90,000 pools or 120,000 pools from a couple of years ago.' The good news is that it was still 70,000 pools. So there's 70,000 more pools today to maintain than there was a year ago. I don't know how many pools are going to get built this year. In our guidance, we've said that new pool construction could be flat to down 10. And people say, 'Well, what's the number going to be for the year?' And my answer would be, 'If you can tell me what interest rates are going to be for the year and what the economic environment and the weather are going to be for the year, I'll tell you exactly how many pools are going to get built.' So what I can tell you is pools are still highly desirable, but there's a lot of contributing factors that will determine how many get built. But the important thing on this page to look at is that although it was 70,000 pools, it's still 70,000 more pools to maintain through their lifetime that will need weekly maintenance, that will need to be remodeled and upgraded every 10 years or so. So this is one of the most unique things about our industry: it grows upon itself every year. And that's why we love the model. But if you look at the discretionary, it was 84% in 2019, and it's a little bit higher than that today. The TAM was about $10 billion, now we think the TAM is about $12 billion. So again, what we love is the fact that the market gets bigger. The inflation that has passed through the system over the years, which Melanie is going to cover in her slides, has stuck. That's a permanent part of the industry. The industry is simply more valuable today than it was pre-pandemic. So look at our numbers from 2019 compared to 2023. In 2019, we were a little over $3 billion compared to the $5.5 billion that we did in 2023. We went from, we always used to say our gross margin was steady in that 29% range. Gross margins went from just shy of 29% to 30%. Our operating margins went from 10.7 to 13.5. Operating margin 2024, what we look for is again continuous profitable growth. We're still investing in expanding our network. We are investing in creating customer tools, which is one of the most exciting things that you're going to see today. What have we done over the years? We've continued to expand our network of branches so that we are where the pools are, so that we are located where the pools are, so that we are convenient. Why? Because these are products that customers come and buy every day. So just think about the installed base of pools. You've got about 5.5 million inground pools, you've got about 3 million hot tubs, and you've got about 3 million above ground pools. So it's about 11 million bodies of water. There's almost an infinite combination of products that operate on those pools. So making sure that we have a very wide and very deep inventory and that we have it placed close to where the customers are and that we make it accessible digitally as well as physically to the customer base is what we do well and is what we will continue to do well. So we continue to expand our footprint of branches. Part of our value proposition is that footprint and continuing to expand to make sure that we are where the pools are. The product breadth is something else. Every year, part of our growth is introducing new products. Every year, helping pool contractors upgrade the existing equipment pads. Every year, creating, helping our customers create demand for those upgrades. Why? Because those are things that improve the overall quality of the pool owner's experience. I can tell you that a pool with automation or no automation, if you jump in, you're both going to get cooled off and you're going to get wet in either one of those. But if you have a pool that is run by automation, as an owner you will have a much, much, much better experience. People used to say, I think I told you guys I built my first pool in 2018. Never had a pool in my entire life. I've been a boat guy my whole life, never had a pool. What I always heard about pools were, 'Oh, they're a pain in the neck.' So you're looking at a guy that travels about five days a week. I'm Mrs. Arvan's pool guy, not because I'm cheap, but because I think I need to know how to do this and I want to understand what our customers go through. But the only reason that I can be the pool guy and only spend 15-20 minutes a week maintaining my pool is because of the automation package that I have on the pool. So there's a big difference. People say, 'Oh, I spent hours and the water turns green.' If you have the right equipment, if you have the right technology, you can really change the homeowner's experience. For the DIY, for the 'do it for me,' doesn't really matter so much. But remember, 65 to 70% of the pools are DIY, and there's an enormous opportunity to continue to modernize the installed base of pools. Superior customer solutions is something that's very important as well. Over the last few years since I joined the company, one of the things that we've talked about over and over again is capacity creation, capacity creation, capacity creation. And that it was necessary to lean into capacity creation so that we could continue to improve our operating margin, to improve our leverage, to drive our productivity. What we've been working on this year and what you're going to see is really kind of the next generation, where we're taking capacity creation not just for us, but we're taking that to the customer. So these technology tools that you're going to see today are designed really to improve the productivity and create capacity for our customers so that they become more productive and they have more capacity to grow. Now, we've always focused on making sure that we provided a good customer experience, so that we had what you needed where you needed it in the branch, and we were open when you needed to be open, which is why in our business we're open on Saturdays. Why? Because our industry operates on Saturdays. So why we open up at the crack of dawn every day? Because our customers are there at the crack of dawn every day. So we've always done that. We started working on something called speed at the counter, which Kenny's going to talk a little bit about later today. We started working on speed at the counter. Why? Because we realized that people just want to come in, they want to get their product, they want to leave. I'm probably one of the most impatient people that you'll ever meet, and I just hate lines. And when I looked at the lines in our facility, what I realized is that every time somebody was standing there waiting, it was opportunity lost. Which is why we started working on that capacity creation and why we measure speed at the counter. I can tell you in any one of our sales centers what the speed at the counter is at any given time during the day. We have a standard that we drive people towards so that we make sure that we address one of the customers' biggest concerns, which is speed. They just want to be able to get their product easier. Part of that now is the digital solution. We've done things to make the sales centers faster at the sales center, which you'll see today. But now we've also done things with our digital solutions where they can essentially do their shopping on their phone or on their tablet or on their laptop. They can place the order, they can put it in priority pick so that when they get to the sales center in the morning, it's not a question of speed at the counter because their order is already done. We have a thing called Blue Streak. A portion of our locations, which again Kenny will touch upon, a portion of our locations operate in Florida, for instance, it's a liquid bleach market. So we have customers that come in every day with trailers or with trucks with jugs in the back. They go and they pick up liquid bleach, which they dispense all day, and then they come back and they fill those jugs up. Well, before, they used to have to go and fill the jugs up and then go inside and say, 'I got 50 gallons of bleach, 100 gallons of bleach, whatever I got, and I also need one of these, two of these, and four of these.' We basically took that technology, we put it on a tablet, Blue Streak tablet, so that our employee, instead of waiting inside the branch, is standing next to the bleach tank. They can order what they want. We also have acid, we have sand, we have salt, the common things that they would need along with the bleach right there. They pick those up, they sign with their finger, and they can leave and avoid the line altogether. So that's really all about customer solution. The NPT Center that I talked about that you're going to see today is designed for those of you that have built a pool. Understand just how much there is to picking out things for a pool. Before I built a pool, I had no idea how complicated it was to pick out everything. I've built houses before, and I've had to pick out tiles and wall and all the other stuff. But for a pool, I guess I never really understood all the selections that need to be made. That can be a very arduous task. When I did it, when I went through the process in 2018, I can tell you that I got a lot of help obviously from our folks, but I can tell you it was a very daunting task. But we've taken that daunting task and we've curated a solution, which you're going to see today, which we think is a much better customer experience, which allows us to show everything that is available to the customer in the most expeditious fashion. And we augment that with digital tools so they actually can see what it is. They can look at the products, they can touch the products, they can feel the products, and they can also see the digital rendition of those products as well. And then of course, the high operating margin leverage for us is part of our heritage. It's what we do. It's what we do every year. We have this relentless pursuit of improvement. We are a performance-driven culture. And again, that's easy to say, but to get 6,000 plus people every day that wake up and understand that whatever we did yesterday, we need to do better today, is easier to say than do. But this is something that our business has performed and demonstrated over and over again. We've done a lot of acquisitions over the years, and I can tell you after talking to some of the people that we've acquired, one of the biggest differences they notice is that there wasn't this pressure to improve every year that comes with being part of Pool Corp. So that's one of the transitions that people have to work through. It's not just whatever I did yesterday is okay for today. It's like, no, whatever we did yesterday, we need to do a little bit better today. And that's firmly embedded in our culture. So if you look at this slide, really the takeaway is the installed base of pools, as I talked about, is expanding every year. The desirability, which really gets into what's the long-term outlook for our industry, swimming pools are not going out of favor. The reason that the number of pools being built is down compared to what it was over the last couple of years is really a function of economics. It's not that people don't want the product. Because if you break the product up into price points, the very high-end pools, that business was good, that business is good, and that business will be good. Why? Because those people have money. They're going to get what they want. They want a swimming pool, they want to do renovation remodel, they have the cash. It's not a question of can I afford it. It's I want what I want, and they get it done. That business is good. If you go across the country and you talk to high-end builders, the high-end builders still have a backlog. So the most sought-after builders, it's just like home construction. Home construction is down as well, but if you want a certain builder in a certain market, the best of the best, most of the time those guys aren't going to say, 'I can start your house tomorrow.' Same with pool builders. So the high-end business is good. The kind of middle of the pack is okay. Where we're most challenged with swimming pools is really at that entry level point. Why? Because the price of the pool has escalated quite a bit. The average price of a swimming pool now is about $74,000, and that's up from $40-some-odd thousand not too many years ago. When you couple a $74,000 price tag with a 10% to 14% interest rate, that makes the payment pretty big. As I mentioned on one of our calls last year, I said, 'Look, a lot of these swimming pool sales for new construction anyway, that deal is closed at the kitchen table.' So there was somebody sitting at the kitchen table saying, 'Listen, I can have you swimming in X number of weeks for a payment of $700, $800 a month.' Well, that $700 to $800 a month payment of a few years ago is now $1,500, $1,800 a month, which is putting it just out of reach of some of the folks at the entry level. But the important factor is it's not a question of 'I don't want a pool.' I'd like a pool, but until interest rates come down, we think that part of the market is still going to face significant headwinds. The renovation and remodel market is good. About 10% of pools have to be renovated or should be renovated every year. But again, you can break down renovation that same category. At the higher end, there's some folks that say, 'I'm doing renovation,' and renovation people could spend $200,000 on renovating a big pool. That business is good, was good, will be good. We call renovations, we look at that and say that's really kind of semi-discretionary, because eventually at some point you have to do it. It's like the exterior surfaces on your house. You can have a leak in your roof and you could patch it up, but eventually you have to change the roof. You could have paint that's peeling and you could touch it up, but eventually you have to do it. Same thing with a swimming pool. I can put it off if I don't have the money this year, I can put it off for a year or two, but eventually I have to do it. But the renovation business we think is still good, and we think that the aging installed base as it relates to the equipment and the fact that there is a lot of opportunity on the equipment side to continue to modernize that equipment pad, which is more energy efficient, it's greener, more ecologically friendly equipment pad, it's quieter, and certainly it is much more laden with features as a connected device that you can control with your phone. And then overall from a demographics perspective, where's everybody moving? I looked at a survey that one of the big moving companies put out the other day. Basically it said the destination states are what you would expect: Florida, the Southeast, Texas, Arizona are destination states. So people are still moving into the climates that have year-round markets for swimming pool. The number of people that are working from home is still significant. I think the number I saw was still over 25% of folks are still working from home at least part of the time. So overall, we feel really good about the long-term desirability of swimming pools. I don't think they're going to go out of style. I think that healthy outdoor living and having a pool or a spa or a hot tub or an outdoor kitchen in your backyard is something that will be in vogue for many years to come. So if you look at the new pool construction, again this is not a lot of new numbers for what you've seen. But if you say the installed base of pools is about 5.5 million, as I mentioned, about 10% of those would be part of the renovation market every year. And the chart behind me basically shows that we think there's a correlation between new home construction and new pools. Now typically speaking, new pools don't, in some markets in Florida for instance, when the market was really hot, if you wanted to sell a house you had to have a pool. Then they disconnected that and said, 'Okay, you can close on the house and then somebody else builds your pool.' But typically pools follow construction. There's usually a two to three year lag. Somebody builds a house, gets everything set up, and then they'll put a pool. And there's some markets, some parts of Florida, that the pool and the home construction are very closely tied. But overall there's a bit of a delay. But you can see there's a bit of a correlation. As construction picked up, so did new pool construction. As new single family homes cooled, so did new pool construction. So this slide is I'm sure of great interest to all of you. Our long-term growth algorithm is the 6 to 9%, and there is a lot of factors that make that possible. Now we get a lot of questions about, 'Is the 6 to 9% real? How do you get to the 6 to 9? Do you still believe the 6 to 9% is still possible?' And the answer is on this page. We think that again, there's not a whole lot of new information here. Inflation over the long term we think is in that 1 to 2% range. The installed base, even with the downturn in new construction this last year with 70,000 pools, is still in that 1 to 2% range. So the number of pools gets bigger every year by that 1 to 2%. Maintaining that 1 to 2% makes the installed base even larger. So the industry growth is in that 4 to 6%. Then it's what does Pool do? How does Pool outperform that? So it's new products and it's market share growth. If you went back a couple of pages where I said if you looked at the TAM where the market went from $10 billion to $12 billion, and you looked at Pool Corp's performance over that same time, look at this slide. If the market went from $10 to $12 billion and then our sales went from $3.2 to $5.2, what does that mean? That means share growth. And why does the share growth happen? Share growth happens because of all the things that we do to make Pool Corp different. It's not because of the product. It's not that I have something that nobody else has. I have the same products that everybody else has. But how I make it available to them and the value that we add to that product for the dealers is really second to none. So new products is part of it. You'll see on the next slide, you're going to see the new products are more expensive than the older products. So every time we're replacing a pump or a heater, if a pump has a shelf life or a life in the field of 7 to 10 years, every time somebody buys a new pump there's a bit of a sticker shock. They're like, 'Wow, the last time I bought a pump it was...' Yes, the inflation on the pumps compounds every year and it just makes the industry even bigger. Acquisitions, we do acquisitions every year, but it's about 1%. Chris is going to talk a little bit about that. Why is it only 1%? It's really because of our size. It's just math. There aren't that many distributors out there that if we acquired everybody that was left, that would move the needle. And when we do our acquisitions, we look for a strategic fit and we also look for a cultural fit. Because for us and our ability to greenfield, which is something that we perfected over the years and Kenny's going to talk a little about that, we're damn good at the greenfield. So our return on greenfields is great. It's not like, 'Hey, we open a bunch, some of them make it, some of them don't.' Every one of our greenfields makes it. Every one of them has a performance that has to be approved by me before $1 is spent, and that's a commitment for what that branch is going to operate at from a budget perspective, from a margin perspective, from a sales perspective, from an expense perspective for five years out. So our success rate with greenfields is really good. And what does that mean? It means that when acquisitions are available, we don't have to overpay. There's a value that everything is worth. I don't have to buy something to be in the market because I'm in almost all markets today. So then that gives you the extra 2 to 3%, which is how we get to the 6 to 9%. And we're very comfortable with this. Now in any given year, as we've seen this last year, you could have weather impacts. They happen. And we've seen the downturn in new construction over the previous year, and it may be down 10 again this year on new construction, maybe flat, maybe down 10. As I said, there's a lot of factors that contribute to that. But overall, we feel really good. The installed base is going to get bigger. We're going to continue to grow share. We're going to continue to introduce new products. This number will fluctuate with the economy, but overall that's a great long-term number. So our best-in-class customer experience. You guys know over the years we talked about execution, execution, execution. It was one of my predecessor's favorite words. Manny would say, 'You know what, we focus on execution.' And he's right. Doing what we do and exactly how we do it was very important to Pool Corp over the years. We have taken that execution focus though, and I would tell you that we have a bigger focus on customer experience with that execution. So again, it's really about creating more value for our customers. Product education, product resources. If you look at our network, the largest number of sales centers, vertically integrated chemical offering. Those of you that were at the last Investor Day and you've been on our calls, you know that as part of the Pinch A Penny acquisition came Sun Coast Chemicals, which is a packaging facility for chemicals. So we make our own tablets, we make our own liquids, and we bag our own balancers. Now do we do that for the entire company? No, that plant doesn't have the capacity to serve the entire company. And some folks have said, 'Well, why don't you expand capacity?' Well, we've actually stretched it quite a bit. We've actually tripled the output of that plant. But I will never put all of our eggs in one basket. We all saw what happened right before the pandemic when the Biolab factory burned down in Louisiana. I would never put Pool Corp with all of our eggs in one basket. So we like the chemical packaging facility. We like what it does to our margin profile. We love what it is from a capabilities perspective. It allows us to do private labels for our largest customers that want their own brand. But it's always going to be just a part of our chemical offering. And then of course, the largest selection of pool finish and pool tile. I think a lot of people know this, but maybe some not. We're also the largest provider, largest seller of pool tile and pool finish in the industry. And those are proprietary brands. Those are two of our largest private label brands in the company, which again Chris is going to talk about. And then this is something that again is new. We talked a little bit about it on our call, but Todd and Jim are going to talk about it. It's our new digital ecosystem, which we really think is game-changing. Now just for context and for expectation setting, we're early. We are very early in the game. We've just started rolling it out. So Pool 360 Water, we rolled out in the back half of last year, and Jim and Todd are going to talk about that. And we're also going to talk about Pool 360 Service, which we launched just 30 days ago. But the potential for this is tremendous, because it really is a game-changing experience for our customers, and you will learn why. So from an industry perspective, powerful distribution network, integrated supply chain, performance excellence, capital strength. Capital strength is something we've got a very strong balance sheet. We've always been very judicious at capital allocation. Melanie is going to talk about that. But that's important. You got to have a strong balance sheet so that you can lean into opportunities, and you got to have an execution focus so that we generate that return on invested capital that you all demand. One-stop shopping for 200,000 products, 2,200 vendors. That proprietary B2B online customer access to the largest inventory in the industry. Nobody else has that. Nobody else has that. So from your phone or from your tablet or from your iPad, you can search inventories, you can get product, you can get product shipped across the country. You can also pull up schematics. So if I'm at a job, if I'm a service guy, I'm at a job and I'm looking at a pump and I say, 'Well, I need a part on the pump because it's leaking,' with my Pool 360 app I can pull up the schematic of that pump and I can say, 'Oh, I need the impeller and I need this seal.' And from that app, I can order it, put it in priority pick, have it available at the sales center so that when I get there, first of all I know that we have it in stock. I don't have to call. I don't have to drive over and say, 'Hey, do you have this?' I can check before I go. Because in any given market, we have multiple sales centers. So I might look at the sales center that's very close to where I'm working, because our customers work in a distributed area too. So they may actually work with us in multiple sales centers. So they can say, 'Do I have the product? What location has it that's closest to me?' And I'm going to order it, put it in priority pick so I can just go grab it and return to the job. That's capacity creation for our customers. We have comprehensive product lines from industry leading manufacturers plus our own private label products. And then again, the Pool 360 platform and the marketing programs that go with that, which I'll talk about here in just a second. So if you look at our brands, when I look at this page, what I get from this page is that this is a listing of where the value is in Pool. So the two brands which kind of go without saying, which is why they're not on the page on the left, is SCP and Superior. That is the largest network of pool wholesale supply houses in the industry, hands down in the industry. We have the best reputation, we have the broadest footprint. We also have over 100 NPT locations, which again you're going to see one today, and Chris is going to talk to you about what our strategy is there. When we did the acquisition of Pinch A Penny, we added that. When the chart was done it was 280. You'll see what our growth rate is, but I believe as of this morning we're up to 289 stores. So we've really accelerated the expansion of Pinch A Penny, which gives us better access to the DIY. We love that business. Why? Because that's the higher margin maintenance and repair recurring revenue part of owning a swimming pool. Regal and EasyCare are two private label cornerstone brands in the chemical industry. Those two are also tied to our technology, because you're going to see and maybe have seen already our Water Test, which is here in the middle of the page. Pool 360 Water Test. Pool 360 Water Test is the technology that we allow the independent pool retailer to test the water. But the water test generates a prescription, the prescription generates a sale for Regal and EasyCare. So it's a pull-through kind of, it's just a flywheel effect. The more water tests you do, the more Regal and EasyCare product that you sell, the more product that the dealer is going to sell, and the more products that we're going to sell. And I'm not going to steal a lot of their thunder with what's in each one of those software packages, but they are extremely powerful. Sun Coast is the chemical packaging, and Life is the spa chemical. But again, Pool 360, the initial one, that's the foundational order entry system that we've had for many years. But if you noticed, this year we were able to move the needle quite a bit on adoption of Pool 360. Why? Because we listened to the customers that said, 'This would be a great tool, but it would be better if you did this, this, and this.' Between Todd's team and Jim's team, we've gotten a lot of customer feedback, we've addressed a lot of those hurdles, which have brought a lot more users into the family on 360, which for us is a great capacity creation benefit for us and certainly for the customer as well. Pool 360 Water Test, I'm going to let them talk to you about. And then Pool 360 Service. Pool 360 Service is the first time that we've actually had software that the customers can use to run their business. So Pool 360 Service is not just for buying product from me. What we did is we tied it to our B2B platform. So the way Pool 360 Service works, it allows a pool service company to essentially manage their business. You load all the customers in there, you load the CRM so you know the names, you know the lock code to get in, the gate code to get in, you know what the dog's name is, you know everything about that pool, and it's shared across the network. So there's a CRM portion of it. You can build your schedules, you can build your route. So think about a professional pool cleaning service. If you're going to clean 400 pools or 1,000 pools, that is not something that you do with a piece of paper, although some of our customers actually still do it that way, the smaller ones. But the bigger you get, you need technology to assist. So you build your routes. Now remember, these businesses are all operated by people, and you know what happens with folks that work some days. Somebody doesn't come to work. Well, if I have a route built and Melanie is supposed to clean 14 pools today, Kenny's supposed to clean 10, and I'm supposed to clean 10, and Jim is supposed to clean 10, and Jim doesn't show up, well now there's chaos. Because now I got to figure out, 'Okay, I gotta, somebody's got to clean Jim's pools. What do I need to know about those pools that Jim was supposed to clean? How do I add those to Kenny's route, my route, Melanie's route so we can get that done?' That's all done with a couple of touches to the screen. You can reallocate the screen, and then all that information goes with to Kenny, Melanie, and me to clean the pools that we were supposed to do for Jimmy. So from a route management perspective, it's tremendous. It allows them to build their customer. So when they're done for the month, because they add the customer in a profile, they add the billing, they build the customer. They can do one-time services. So if I go to clean Kenny's pool and I see that his cover is leaking and it needs a gasket, I can go, because we've linked it to Pool 360, I can look in Pool 360, I can see how much that gasket is, I can see where it is. So I can go to the homeowner and say, 'Hey, while I'm here, what I saw is you need a gasket. It's going to cost you $7 in a $25 service call, or whatever, it's going to cost you $32 to do that. Do you want that done?' Yes. They can sign with their finger at the same time. They place the order with the sales center, so the next time they go to the branch, the product is ready and they can go back out and turn that around. So it's the first time that we've developed software that really is designed to add capacity and productivity for our customers. And then there's more behind that in terms of our ecosystem that Todd and Jimmy are going to talk about that we're still developing. Now again, part of this is the marketing programs that go with it. Because with that CRM data, most of our customers want to grow their business. So with the customer data that's in the CRM, our digital marketing team can help build custom programs for the customer so that we can help grow their business. So again, if you look at this slide, important facts. $43,000 is what the average price of a pool was retail value. Right now those are $74,000. And then you could see the impact on renovation remodel. So renovations were $10,000, now the average is $20,000. And again, that can vary tremendously. You could spend $200,000, you could spend $110,000 on what people call a renovation. But the point is that the opportunity is still strong and that the value, the installed base continues to get bigger, and the value of each one of those opportunities is also growing. On this slide, I guess the takeaway for me that I want you to be cognizant of is if you look on the left, this is surveys from recent customer surveys, which is likelihood of adoption. So automation, robotic cleaners, variable speed pumps, LED lighting. You can see that the adoption on those products is growing, and that kind of goes to the TAM growing and the modernization of the existing technology that's on the field or on the pad. So if you look at pumps, here's the inflation. This is the selling price increases that we've seen through that same period. Again, this simply just makes the opportunity bigger. It continues the flywheel effect that says the industry continues to grow upon itself, not only with the increasing installed base but the value of that installed base. So here, think about the way pools are serviced. DIY is as I said before, 65 to 70%, and from a pro cleaning it's the balance. That's skewed by geography. So if you go into South Florida, almost everybody has a pool service. Why? Because there's such tremendous density, it's actually quite affordable for people to have somebody else take care of their pool. If you go into the seasonal markets, there's much more DIY in the seasonal market than there is in the year-round markets. But big four states are still the big four states. But those of you that have been tracking the company for quite some time have seen how Florida is closing the gap on California. California still has the largest installed base of pools, fact. But Florida is growing faster. Florida eventually is going to pass California for the number of installed base of pools as the population growth in Florida continues. Texas is a great market. Arizona is a great market. At one time we used to say it was about 50% of our business. Now those four states make up about 54%. So when we look at the maintenance side of the business, pool service households, it's about 1.7 million households. It's just math. It's at 35% of the 5.5 million inground pools. The average price again, it's skewed. So if you get out into the seasonal markets and larger pools, you're going to come out to this side. Smaller pools that are in a kind of enclosure of the bird cage as we call them in Florida, much easier to clean, much smaller, they're going to be much cheaper. But the average is going to be in that $150 range. So what makes us different? Why are we the best supplier? One is the field sales force that we have. Two is the convenient locations which I talked about. Instant access through Pool 360, which again is something that nobody else has. Nobody else has a network that is tied together on a desktop perspective and from a mobile perspective. Speed at the counter again. I know we're faster. We know it. We can see it. Our customers tell us that one of the reasons they come to us is because they can get in and out faster. Blue Streak again is part of our speed. And then product knowledge and hands-on training. Kenny's going to talk about the number of hours, thousands of hours that we spend in training every year. And the reason that's important is remember I talked about the number of possible combinations of equipment pads. If you think about the number of possible combinations of equipment pads, if you think about the number of 5.5 million pools that have to be maintained, the number of conditions somebody may see, our counter folks and our outside salespeople are really like triage. So they're like, 'Have you ever seen this before? Yes, I have. You should look at this. You should look at that.' So one of the other reasons people come to us is because of the tenure of the people that we have in our facilities. They've been doing this for a very long time. I promise you there's somebody that knows the answer to that question. And if they don't know, one of our technology tools is they can send it out on Yammer, which is an interconnected loop they send out to the entire company that says, 'Does anybody know what this is? Does anybody know when this was made? Does anybody know where I can get one? Or does anybody know what to do?' And the answer comes back like that, because we have inside salespeople that are sitting there across the country, and invariably somebody knows. And that is extremely powerful, because people come to us for our knowledge. Lead generation and multi-channel marketing programs. Again, we're not just a supplier. We're not just a supplier. Yes, we want them to buy their products from us, but we want to give them capacity to grow their business, which is the technology. We want to use that data to help them grow their business through our digital marketing programs. If you're a small service company, you want to grow your business, that's a pretty daunting task. They're good at cleaning pools, but they're not marketing geniuses, and that's expensive. So we have the expertise, they have the relationship with us, we have the information, and we can help them grow their business. And that's part of our Edge programs that you're going to learn more about. So for the DIY market, again we said almost 5.5 million pools, 11 million bodies of water. We have about 5,000 retailers which I mentioned, and about almost 290 independent retailers. The average cost at retail for maintaining a pool for those of you that are upgrading or updating models, about $1,800. The addressable wholesale opportunity there is about $3 billion. So Pinch A Penny, what does it do for us? And what has it done for our retail program? I would have told you before we bought Pinch A Penny that we were hands down the best supplier to the professional service trade in the industry, hands down. But I would tell you I would have told you then that our value proposition for supporting independent retail was not as good as it was for the pro trade. With the acquisition of Pinch A Penny, we acquired some tremendous expertise and a lot of talent for what is important to the retail trade. Our value proposition for the independent retail trade has improved.

Tremendously, and you're like, well, how? What is that? Well, we sold chemicals for a long time, right? We sold chemicals since the beginning of Pool Corp. But if you looked at our chemical lines from a retail perspective, we were not the premier line. Our line was not complete; it was not curated for the retailer. When we merged the talent backend from a retail perspective, they looked at our lines and said, 'This is good, but you really need this, you really need this, and you really need this.' We got the technology for the water test, which basically came out of Pinch A Penny. We took the basic technology that said, 'Hey, this is how you test water and these are the prescriptions, right? These are the prescriptions on the dosages,' and we tied those dosages to those products. So before, we were saying, 'Hey, we have chemicals, do your water test and figure out what you're going to need.' Now we've addressed one of the biggest concerns for a retailer, which is consistency on that water test and what do I do based on that water test, and how do I ensure that a customer doesn't go in for a water test and walk out and go down the street and get that product? And the reason they don't do that is because our water test is tied to those branded products. So number one, we've completed the brand. Number two, we're building, through our digital marketing efforts, brand reputation and expertise around the brand, right? Number three, we've tied the dosages to the software, which again, for the retail world, is part of that flywheel system, right? Just to keep things moving and keep things internal. So the connected software programs that we've talked about too, they now everybody has access to Pool 360. You also have, for the ones that have service, our product availability for the retailers is also improved. Kenny's going to talk a little bit about some of the other techniques that we've done, some of the other things we've done to enhance our product offering for the independent retailers. And again, this brand is very important, right? Right. Our brand, our proprietary brand of chemicals, those were our brands. I would tell you we weren't spending enough time building those brands, making them highly desirable so that it wasn't just an algicide, but it's a Regal or an Easy Care algicide. And that Retail Edge marketing program, same thing we talked about for how you grow the independent retail, how you grow the service business, how you grow the builder business. So we have Retail Edge, we have Builder Edge, and we have Service Edge. And that really is part of our digital marketing program, which again helps our customers grow, helps them be more efficient, and helps them grow. And we're going to grow right alongside them. Pinch A Penny franchise is a highly acclaimed model. You can see we have lots of awards, lots of awards. It's just to give you a little bit of information on it. Again, all individually owned and operated, so we don't operate any of the stores actually. I think we operate, by law, we have to operate one, so we have one store. Last year we had our first store in the Pinch A Penny network do $10 million. For a franchise business, that is huge. So if you're going to invest in a franchise, to say, 'Look, I'm investing in one that we've already had one do $10 million.' You know, when I first went to my first Pinch A Penny show and I met the show owners and they were doing awards, the number of stores that were $1 million and $2 million, the list was pretty long. I'm like, 'This is, there's a long list of people that are growing very rapidly.' So $2 million is the average revenue for 2023 for the store. Multiple streams of revenue because it's not just the retail store, they also do services, and of course, very integrated with our pool renovations because some of the stores are also getting into renovation. So there's a natural tie-in with our NPT products. If you look at the expansion of the stores, go back before we bought it, you can see the number of stores that were ending. I love the slope on that line because you've seen how many more stores we opened in 2023 and how many we intend to open going forward. Again, concentration was highly concentrated in Florida, a couple of stores here, a couple of stores here in Mississippi and Louisiana, and then Texas would be our next big state. And then you could see on the left, and those of you that are on social media may have seen our advertising for franchise owners for the West. We'll have our first doors open in Arizona this year, and we'll continue across the country. So it's about 5% of revenue for Pool Corp. So we're growing that part of our business. The franchise sales network was plus 3% for 2023. Now you might be saying, 'How excited can I get about 2023?' You should compare that 2023 to one of our publicly traded retail stores, and you will see that that 3% growth for the full year of 2023 stands very tall, and we're very proud of that. So it's an opportunity to leverage our footprint. We've more than tripled the output of our chemical plant, as I mentioned, and it really is an innovation engine for our company. So now I'll talk a little bit about the rest of the backyard. So again, the North American pool business is about 83%, Horizon is about 8% of our business, Europe is 4%, and as I mentioned, Pinch A Penny is 5%. So this is a quick slide on Horizon and fills with us. So if we have other questions on that, you'll be with him, he'll be with us for the rest of the day. But you can see Horizon is still growing. We have a strike zone for Horizon. I mentioned that TAM is for the whole country, but that's not our intention, right? Our intention is here, sunbelt focused. So it's a new business that is heavily dependent on landscape, irrigation, and lighting, and most of that happens during new pool or during new home construction. So you know, I don't think we want to have a bunch of stores that are up here in the snow belt. So we'll continue to build out our footprint. It's irrigation centric. We've added over 20 sales centers since 2019. The business is growing, it has nice operating margin, and again has the same opportunity for operating margin expansion that comes with leverage, which is driven primarily by growth. This is our footprint in Europe. Europe has been a challenging market over the last couple of years for a variety of reasons, which we've talked about before, but still a good part of our company. We're the number two distributor. It's about 4% of our revenues. Certainly we're more weighted to new construction in Europe than we are on the maintenance side. We've added three new sales centers since 2019, and we've opened up our first CSL, which is a central stocking location in Europe, to improve our backend and operational efficiencies. That will help us improve operating margin over time. But we like Europe, but Europe is a challenging environment. It's a cycle. When things settle down in Europe, the market there is good from a size perspective. I guess the way we think about it, France, which is the largest market in all of Europe, would be about the size of the Texas market, right? So it's much smaller than the US market overall, but still enough density that it provides opportunity. So I'm a couple minutes over, so whoever said I was going to be over lost the bet or won the bet because I'm over by four minutes. But now I'm going to turn the microphone over to Todd Marshall, who is our CIO, and Jim Aish, who is our senior director of customer solutions, to talk to you about one of the most exciting things that we have to show today, which is our technology difference. So thank you.

Thanks, Todd. So for those of you who don't know me, I'm Jim Aish. I oversee the operations of our consumer software solutions, or what we like to call our Pool 360 business solution. A little background on myself: I've been about five years in the pool industry. I came over as part of the Pinch A Penny acquisition, where I oversaw their finance and IT functions. And since the acquisition, I've spent a lot of time focusing on driving our technology solutions and making sure that we're delivering value to our customers, saving them both time and efficiencies when they're running their businesses. So I wanted to pull back up this ecosystem slide that Todd discussed and really focus on a kind of simple question, but one that I think is really important: why software? Why is Pool Corp doing this? So first up, the B2B application. It's been around for a while, and you know, we listened to what our customers said, we took back their feedback, and we added a lot of features and functionality to it, which ultimately made it a more utilized tool. But that was just the start of what we had called a larger plan. In 2023, last year, we launched Pool 360 Water Test in conjunction with three complete chemical lines: Regal, Easy Care, and Life for Spa, which was aimed at partnering with our retail dealers. It really was aimed at driving value in their stores. And now, if you spend some time with some retailers, the chemical brands, the chemicals they sell, that is the heart of the retail store. It's also one of the primary foot traffic drivers. So by developing Pool 360, we were saving our customers time and money at the water test counter and putting expertise in their hands, all using our chemical brands. Next up, and this is when I'm super excited about because it's such a massive project and it's also extremely fresh, as Pete mentioned earlier, 30 days ago, is Pool 360 Pool Service. This is aimed at our customers that do everything outside of the retail store, whether that's weekly pool cleaning or maybe it's installing a new equipment pad or maybe an outdoor kitchen. This is working with those type of customers, elevating their business, taking time and the ability of managing their business on multiple softwares, putting it into one kind of place to run their business. And before we jump into the details of these software programs, I want to highlight an important point: this is all operating inside of the Pool 360 ecosystem, in the sense that all of these products that we create under the Pool 360 monitor are integrated. A customer inside of Pool 360 Water Test becomes a service customer, and they're already inside of Pool 360 Service. This is saving our customers time with duplicate entering across multiple software platforms, and they can focus on ultimately what matters: the customer. So let's jump into last year what we saw with Pool 360 Water Test. So with Pool 360 Water Test, we sent prescriptions with our chemical brands to thousands of customers on a weekly basis at locations across the United States and most recently Canada as well. This means that consumers are associating our brands, Regal, Easy Care, and Life, with the professional solution for their pool's problems. Now, no one walks into a pool store and says, 'Hey, I'm really excited to buy some chemicals today.' No, they're looking for clean, safe, crystal clear water. And so that's why Pool 360 is focused on delivering the solution, the crystal clean water, to the customer. It's important that when a customer comes in, they trust and they can take stock in the fact that when I'm reading a prescription, it's actually going to solve my pool chemistry issues, because the solution is ultimately what the customer is looking for, and it is more important than any individual product we could provide. So let's jump into some numbers real quick. Last year, standing in lines at Pool 360 Water Test dealers, we recommended 4.1 million pounds of Regal, Easy Care, and Life chemicals to customers. This means that no matter who was performing the water test on the other side of that counter or on the other side of that keyboard, that correct application, that accuracy, and that expertise got in that customer's hands. And that's an important piece of note when we're talking about any of the software applications that we sell as part of Pool Corp. We don't just provide the software, we don't just provide the chemicals. There's a host of trainings, there's a host of support, technical and also chemical, available to these customers. And to take it a step further, we are generating a whole bunch of information using these programs, and we have marketing expertise that we can allow our customers to leverage their data and come up with marketing solutions that they could not generate themselves and is available nowhere else except at Pool Corp. Next up, the product that we just released: Pool 360 Pool Service. About a third of pools across the country are professionally maintained by a pool service professional, and we see these guys, these girls, inside our branches every single day, and we see the pain that they face running a business of this type. Whether it is figuring out how to route my techs to the pool in an efficient manner, saving time, gas money, and depreciation on that truck vehicle, or maybe it's the full day they spend in the back office figuring out who to charge how much and sending those invoices out on a monthly basis. This is where we could provide value. And then we added in a host of features that we, as Pool Corp, as a distributor of the physical goods they use and consume every day in their business, could actually provide. So first up, inside this product, you're going to see that there's a CRM. Again, it's integrated across all of our solutions. A customer from water test is a customer inside Pool Service, and inside Pool Service, all of their pool details, their structure information, that's tracked and recorded for the most professional of monitoring. Next, we're going to talk about what is the tech side. So I'm managing my business, I'm routing my tech sufficiently using Pool Service, but ultimately the tech has to perform the work to get paid. So we put a mobile piece of this software right inside of the Pool 360 mobile app, you can download on the app store today. So if you're flagged as a service technician, you're going to see service on your Pool 360 app, where you go to replace a gasket or a skimmer basket when out in the field and do priority pickup in the branch, and you're going to see your day tasks, your day pools, the ability to take pictures. All of these things are deliberately inside of the Pool 360 app and integrated so the techs can run their day and focus on taking care of the customer in a quality way without juggling applications. But we wanted to take the integration a step further. We also have that piece that Pete mentioned, the one-time services, which is your installs, your kitchen outdoor kitchen installs, your heater installs, you name it, your repairs. That function is also integrated with Pool 360. And let me tell you how that works. When you're doing an estimate, you go through and you say, 'Okay, you want a heater, you want some plumbing, you want this,' and you have to develop out that process. Inside Pool 360, you're now going to have access to what your real-time pricing is using your Pool 360 account, so you can apply margin to that job when you're quoting that customer, ensuring that you're profitable. Take it a step further: I can't do the job without having the goods. I can add that item to my Pool 360 cart, check it out in priority pickup, and knowing, 'Hey, Mr. Customer, here's your quote. I already know I can do it because SCP or Superior has delivered me the product. I know how much I paid for it, and I know I'm getting paid at an attractive margin.' These are the sort of things that we can provide our customers inside of the Pool 360 ecosystem, and these are some of the differentiators we wanted them to understand. And the capacity that they spend doing administrative tasks can be refocused on growing their business, taking care of that customer, getting into a new line of business. Finally, another very big piece is that billing piece. The billing module inside a Pool 360 Service is complete. With a click of the button, I now can bill my customers their custom rate along with any of the additions that they had, instead of figuring out, 'Oh, I got to bill Mr. Smith $150, I got to bill Mr. Aish $170.' All of these are tracked and done with a click of the button. So this is just kind of the start, and I know me talking up here about software is not necessarily super explanatory, so today on the field trip, we're going to have live demos. I'm going to show you guys what this looks like. I'm really going to show you some of the power that our customers are going to see using the Pool 360 ecosystem. So with that, I thank you guys. I'm going to hand this back off to Todd, who's going to touch on some of the data that we're gathering in these and how we can plan to leverage that. Thank you.

All right, so we're going to go ahead and get started here. My name is Chris Nef. I'm the vice president of strategy and corporate development, and I'm going to talk to you about strategy today, our strategy to grow and drive profitability in the business. So to kick things off, I want to start with this quote because I think it is extremely relevant to this business. And as Pete mentioned, I've been with the company roughly eight months, and this is really one of the main reasons why I joined this organization. We have a unique opportunity to shape and transform the future of this industry by creating and shaping consumer demand, driving growth opportunities for our customers, and creating capacity for our customers to fulfill that demand and fulfill it exceptionally well. And that's what I'm going to talk to you about today. So I'm going to cover three primary elements of our strategy: margin enhancement, foundational growth strategies, and then tailored customer strategies. And let me take a minute to talk about our customer strategies, which Pete touched on quite a bit in his presentation. When we think about our opportunity to grow share in this industry, we start from the customer. So it's, as Pete mentioned, not about products, it's really about solutions. And so we spend a lot of time deeply understanding not only our customer base but the consumers that they are serving. We're mapping out consumer journeys, we're understanding the challenges that our consumers and our customers face, and that drives our solutions. So again, it's great products, technology, training, education, and marketing strategies all wrapped into one that are really powerful for our builders and remodelers, our service providers, and our retail customers. And I'll walk through those in the following slides. And then we have our foundational growth strategies. Again, this is our disciplined and thoughtful deployment of capital in how we think about acquisitions and our sales center expansions. And then lastly, from a margin enhancement perspective, there's three levers that I'm going to focus on today: expanding our private label portfolio, our higher margin private label portfolio through the value propositions that we offer, continuing to focus through continuous improvement on driving cost and efficiencies in our operations, and optimizing our pricing. As you heard today, we have 200,000 SKUs, we have 125,000 customers. There's a tremendous opportunity from a pricing perspective to capture opportunities, and that's what I'll talk to you about today. So we're going to start with these customer focused strategies. Again, you're going to see me use the term Builder Edge, Service Edge, and Retail Edge. And again, the foundational element of these is customer research and customer understanding, again both consumers and our customers, and how we bring them together. And the builder and the new construction journey, I think, is a really great way to talk through how we think about this. So if you're a consumer looking to build a new pool or renovate your existing, the first step is, 'Okay, who am I going to use? How do I find the right builder to support me?' And that is challenging in our industry today. So with our NPT Backyard app, we allow consumers to start to explore options on their pool, start their journey online, and our digital marketing tools allow consumers to connect with builders. We bring leads to our NPT aligned builder network, and that really starts the journey. And then the design and material selection, as Pete mentioned, and you'll really see this in our Austin showroom today, the breadth of materials and colors and combinations is overwhelming. And what we do in our design centers is we essentially, with our knowledgeable, trained staff, support those consumers on that journey, making sure that they are confidently selecting the right materials for their construction. And then we wrap it up with what we do exceptionally well through our Pool 360 e-commerce solution. And again, builders in this case are one of our customer segments with the highest adoption of this tool because it's really seamless, it's really easy to order products and be confident that the products are going to be delivered on time and complete directly to the job site, making for a great consumer experience. And this customer testimonial, I think, really wraps it all up perfectly. You know, we are creating partnerships where our customers are only using our products. We are creating essentially captive partnerships where they have no reason to go anywhere else but work directly with us. And again, it's product, its experience, and its technology all wrapped together to make for a really powerful value proposition. All right, now let's jump to our service customers. So again, the most fragmented and largest of our customer segments. We have service providers that are servicing 100 pools all the way up to 100,000 pools, so a very diverse set of customers. And our service providers, if you think about how they're planning their day and running their routes, the breadth of our network is a huge advantage because their day and their purchasing decisions are largely based on convenience. They're trying to get in and out of each of the pools that they service, and many of our service providers are stopping at our sales centers multiple times a day. And so not only having the number of locations in a convenient place to go to, but also our focus on speed at the counter, that is extremely critical to moving customers in and out of our sales centers efficiently and getting them back to work. And then, as Jim walked through for you today, our Pool 360 Service business application is going to be extremely powerful for our business, allowing customers to efficiently and effectively run their business, creating ultimately better consumer experiences, unlocking capacity for our customers, allowing them to continue to grow their business. And then we add on that our marketing tools. So our digital marketing programs leverage our scale, and this is particularly important with this customer set because many of these customers are owner operators. They certainly don't have the capability to do a lot from a marketing perspective. Most of their marketing is word of mouth, maybe some flyers. Now they're tapping into our digital marketing tools, again bringing leads, leveraging our data to drive leads to those customers. And now we've already added the additional capacity with them using our technology to allow them to service more customers on a weekly, monthly basis. And that is how the growth engine really evolves for these service customers. And then lastly, retail. So as Pete mentioned, about a third of consumers are using a third party to service their pools. Well, the other two thirds are ultimately walking in the door of our brick and mortar retailers. And this is the vehicle that allows us to connect with those consumers. So our Retail Edge program, again, extremely powerful combination of class-leading products. We wrap that together with our technologies, our water tests and pool service. And it's important to understand that many of our retailers are also servicing as well, so both of these tools are extremely powerful. And the water test, as we mentioned, is the foundation of any pool specialty retailer. That is the cornerstone of their business, and our technology is prescribing our brands time and time and time again, extremely important. And then again, with this customer base, marketing and driving consumers through your doors is extremely critical to their business. And this is again where our digital marketing scale can be leveraged easily and efficiently with all of our retail customers. So that gives you a sense of how we intend to grow above market, grow share, expand the pie through these capacity creation initiatives again for our customers. Now let's talk about some of our core growth capabilities. As Pete mentioned, we have a long history of executing acquisitions and expansions extremely effectively. And so our acquisition strategy, our pipeline, is built around opportunities to expand geographically. In some cases, acquiring distributors allows us to accelerate or supplement our organic growth plans. We're also looking at opportunities to expand our private label portfolio through acquisitions, and where appropriate, we'll also look at opportunities for vertical integration. And then our sales center expansion strategy. So we've mapped out opportunities over the next five years, so we have plenty of opportunities identified. We do an excellent job of understanding construction trends, where growth is happening, in markets where we need to be positioned to be successful. And now it's essentially a function of finding real estate, making sure we have the talent to lead those sales centers, and expanding once we have identified those opportunities. So we're targeting, again last year we certainly exceeded this, but we're targeting around 10 new locations a year. And then again, our disciplined approach from an investment perspective, we expect to achieve a 25% ROIC within that four-year period. All right, so now we're going to move from growth to margin expansion. And again, I want to focus on three levers: our private label portfolio, supply chain excellence, and pricing optimization. So with private label, again, I can't say this enough, it's actually not solely about product, but we have relevant and very temporary product lines. It's also about all of the services and the technology and the tools that we wrap around those products that makes for an extremely compelling value proposition, and in most cases allows us to charge a premium in the marketplace. Customers are willing to pay for that value. As we talked about today, our chemical brands are class-leading, but it's the technology, it's the marketing, it's everything that we wrap around that chemical portfolio for our retail and our service customers that really creates the value. And then again, for our builder customers, our NPT line, we've got the most contemporary and the broadest line of tile and finish, but that's only a piece of it. It's the design experience, it's the delivery network, bringing that all together is what really creates the value with our private label brands. So again, this is an area we'll continue to grow, we'll continue to expand, we'll continue to identify opportunities to broaden the portfolio of brands and also to increase the depth in some of the categories that we participate in today. And then supply chain operational excellence. You know, as a distributor, again, this is part of our continuous improvement journey. And there's three areas that I wanted to highlight. From an inventory perspective, we're leveraging our talent and technology to refine our inventory planning and forecasting processes. That's allowing us to achieve industry-leading service levels while continuing to manage our carrying costs. And then from a distribution freight optimization perspective, we talked about our centralized shipping locations. Again, that's an opportunity where we can aggregate inbound freight, working with our vendors, utilize those centralized locations to deploy to our sales centers, and that is a tremendous efficiency driver for the business. We'll continue to leverage that. And lastly, one of the areas that I think we're really unique in is our level of vendor collaboration. We're working closely with our vendors to take out costs and also to identify exclusive products through our vendors that we can leverage for differentiation and in many cases margin enhancement. All right, so last but certainly not least, pricing. As I mentioned, 200,000 SKUs, 125,000 customers, that creates a tremendous amount of price combinations. We've been focused over the last year at standardizing our pricing structure, which allows us to do a few different things. It reduces the number of price variability across any given region or any part of the country, making it easier to manage. We have now created a pricing structure that allows us to price appropriately to each of our customers based on what they buy, how much they buy, and what the opportunity is across all of the different product categories that we sell. We've also optimized our market pricing across product categories and across markets. Again, we have unique dynamics across the US because in many parts of the country we're competing with different competitors, and there are just unique price dynamics that occur across the country. And so we've done a great job now really understanding that and pricing, whether it be a pump or a part, thinking about demand elasticity and how we should be pricing appropriately. So what this allows us to do now with this standardized structure is we've taken what was 600 million pricing combinations down to about 15 million. That allows us now to deploy technology, which we expect to do over the next year or so, that will make it significantly less cumbersome to manage our pricing, allow us to maintain our pricing in a much more efficient manner, and ultimately capture pricing opportunities as they arise. All right, so again, to sum it up from a strategic perspective: focused customer strategies that are driving partnerships versus purely transactional relationships, that is our Edge; foundational growth strategies, again deploying capital in a highly efficient and disciplined way, a thoughtful way to support our growth endeavors; and then lastly, our three margin levers: driving mix towards our private label portfolio, continuing to focus on cost management, and price optimization. All right, so that concludes my portion of the presentation. Now I'll hand it off to Kenny St. Romain, who's going to talk to you about how we have an intense focus on performance management. Thank you.

Thank you, Chris. Good morning, everybody. My name is Kenny St. Romain, and I run the oversight of North America pool business. As Pete mentioned earlier, I've been with the company for 38 years. So really, coming out of school, I joined a tiny company called South Central Pool Supply. My dad was the founder a few years before that. And so I've been with the company for 38 years, and I've seen it grow from a company that our meetings were half the size of this room, so now our meetings are ballrooms of 1,500 people. So I've been around for a while and seen a lot of change in the company. And it took me a while to realize what is so great about the company. It's really we're a great company in a great industry. Okay, I'll say it again: we're a great company in a great industry. Now, how many industries are out there where you wake up and you have a tailwind of inflation that we can always pass through, and the installed base of pools is growing? So we have a nice tailwind to help us grow our business every year. So what a great place to be. You know, great industry, and the future is still amazingly bright. So back to my dad a little bit. He sold the business in 1993. He sold it for $32 million. So I used to give my dad a hard time: 'You left a lot of money on the table, Dad, because we're now a $15 billion market cap, you know.' But he said, 'I'm fine, you know.' So again, great company and a great place to be. So I want to talk about what drives our performance, okay? And really, the key is our performance as a company sets us apart. It's what makes us different than our competition. It's what allows us to grow every year, okay? There's really three parts of that, okay? Our model. Our model is our playbook. We execute it every day. It's how we grow the business every year, okay? Every year, we're a bottoms-up company. We challenge at the individual sales center how we're going to grow, and every sales center has their appropriate challenge depending on their situation. But we, our job is to execute the playbook. But we're, like Pete said, we're very big on continuous improvement. So everything we do, we're always looking for ways to get better. We measure a lot of things. I tell my employees that this is not like college or school where your results are private. In a company, your results are public, okay? And the numbers you have, they identify how you're doing. So we're very big on continuous improvement, finding ways to get better, okay? We also focus on our operations, okay? Our operations allow us to continually raise the operating margin. Things like capacity creation allow us to stay in facilities longer, to avoid hiring more people by simply getting better at what we do, okay? And the third, and I think the most important, is our focus on the customer. Terms like customer experience or the voice of the customer, they tell us where we need to go and how we got to get better. So we're very big on being a value-added supplier to our customers. That's how we get better. So this slide right here, it tells you a lot about what our customers want, what our customers are looking for. Through thousands of interviews with customers and sales calls, etc., what they're looking for is quick service and in-stock inventory, okay? Quick service. And if you look at the picture, that happens thousands of times every day. You have customers pulling up to our locations, and they're picking a product, and there are many other customers doing the same thing. So in theory, you can have a bottleneck, a line. So the job is to get the customers in and out quickly so they can do more work. If we can save them on average five or ten minutes a day, throughout a week they can clean two more pools. So very simple, but that's what the customers want. So we've kind of structured the business to be the perfect place for our customers to go. It starts with our number of locations. We have a vast footprint, okay? In many markets, we have multiple locations to service the customer. It's about being geographically near the pool where the customers are working. We have a lot of, we're very big on, you heard the expression 'speed at the counter.' That refers to the amount of time they can get in and out of our facility. So we set goals, and when we started tracking that years ago, we've come way down from that point, so we've gotten better there. We have product showrooms, okay? Our showrooms are, we typically have warehouses with a counter in front, a warehouse in back. But as we evolve, we're putting more product up front because a lot of our customers, like the one you're looking at here, they buy a very narrow range of products. So the stuff they grab, if you put those items near them, they can grab it themselves and check out much quicker. And of course, we have metrics to measure our success in this area. The second thing is having the product in stock, okay? Just like when you wake up on Saturday and you go to Home Depot, for example, and you're going to work in your home, and you go to Home Depot, you got three things you want to buy. And if they don't have one in stock, it screws your day up because the work you're planning on doing you can't do, or you got to go chase it around somewhere else. So our model is to create one-stop shopping for our customers, everything they need in stock to make their job easier, and running out as little as possible, okay? Because if the one thing they need we don't have, it messes their day up. So we put a lot of effort into having the right inventory in stock. We go through a lot of vendor data on what sells in a market, so we know what we should be stocking, etc. Again, stockout is a measurement, so we measure how many times we stock out. We hold management, from me on down to our managers and operations managers, it's a bonus plan item. It's that important. We have it in stock to take care of the customer. We also have our footprint to have product in stock for the customers. But all of our locations are not configured the same way. We have differentiation, okay? In some markets, we have a different mix, and in other markets, we have different types of customers that pick up, and inventory turns. We continually modify the way we stock, okay? As we have here in Austin, say five locations, we don't stock everything at every location. Some categories we stock very deep, call it a depot of that product category, to handle the market. So we market manage certain classes of inventory so we're not being redundant on big dollar categories. It doesn't affect our customer service, but it allows us to have one deep inventory on certain categories versus having it evenly dispersed throughout the marketplace. So, how we help our customers to grow, okay? We focus on the customer experience, like I said. We have to give them tools to help them find more time to run their business. So again, tools that we give our customers to help them grow: utilization of our network, giving them product closer to where they're at, okay? When they show up, a lot of the customers can order on Pool 360 and they can go to the priority pick line, okay? Which is like everything else today, bypass the line, your order is waiting for you. So we have that in place in virtually all locations where the customers that don't want to come in can simply send an order in ahead of time on one of our ordering tools and have the order waiting for them. So it's a very effective way to do it. Blue Streak is a tool that we use extensively in the high surface area markets. In essence, it's a drive-thru, okay? The customer pulls up, the employee walks up with an iPad, and we know they buy a very narrow range of product, so we surround that area with all the product they're going to buy with frequency. So in essence, we're reaching very short footsteps away, grabbing the product, putting it on the customer's vehicle, okay? And processing the entire transaction on an iPad, okay? So that's worked very well for us in the markets that have the right attributes for the heavy walking business. We have call centers. Call centers are for the customers that don't want to order online, okay? They simply are driving in their pickup truck and they want to call and they say, 'Give me a price, give me availability, let me know if you got it in stock, where's the nearest location I can get it?' And they'll call, and we get hundreds of thousands of calls a month on our call center, okay? And again, with technology getting better, we can see the call center slowing, but not every customer is going to want to use Pool 360, so we're going to kind of see more of a migration to the electronic tools and less in the call centers, etc. But for those that want it, we do have it, okay? We also have tools to expand productivity. Like I mentioned, Pool 360 is key. That is going to be the hub for our customers' needs for the future, and we're going to continually expand that with the service tool, as Todd and Jim talked about a few minutes ago. The Pinch A Penny distribution, as everyone knows, when we bought Pinch A Penny, they operated a DC in Clearwater, Florida, and they were hauling product all the way to Texas out of there, into Louisiana, throughout Florida, and all that. As they were running into Texas, it was a stretch, it was an inefficient stretch, and it cost more to do it. But they were so focused on providing that white glove service that their franchisees got so used to receiving from the organization. So we really realized that as Pinch A Penny expands West, we can do a better job providing that same white glove treatment but providing it through our existing CSL or through our branch locations in those markets, okay? So as we continue to evolve here, we'll be having hybrid locations of sales centers that can service traditional business but also have the facility set up for the white glove Pinch A Penny supply part. So that's evolving, and that could be clearly a way to operate more efficiently and provide good service. Let's talk about the customer service, okay? Our customers, 70% of them pick up at our locations, okay? So we have a tremendous amount of interaction with customers, and they rely on us for a lot of knowledge, okay? Because they come across a lot of products and things they don't know, and they come to our employees and they look to us for answers. So we have extensive training to make sure that our employees at the counters are trained and can take care of those customers. We also deploy product specialists and trainers on an as-needed basis. Think of your product specialist as a specialty sales team. We deploy them when we have a category story with a big opportunity to grow, okay? It may be pool finish, it could be tile. These are categories that require more sales expertise, but they also require a training force to teach the installer how to apply those products. So we're evolving more in this area. We're getting bigger in training. As we train these installers on our products, they, in essence, are in our network because they're installing our product and they're being certified to install our product. So very important that we keep training in that area. We continually, again, our customers look to us as a resource. We continually bring them new profit centers for their business. It could be a retail store that only sells retail but they don't offer pool renovations, okay? So it could be where we're connecting that retail store with the simplicity of how to hire a subcontractor and how to renovate a pool, how to re-tile, re-plaster a pool. Or it could be a retail store where we're bringing them grills, okay? Grills from the backyard, which is a great profit center for retail stores. So we continually bring ways for our customers to become more profitable. In addition to that, we have geographic product differentiation. Our employees must know what's sold in that area. A great example would be if you're on the East Coast where package pools are very big, we must know how to measure a liner for a pool, we must know how to write up a vinyl liner pool package, a package pool. But if you go to another part of the country, like the West Coast, for example, where there's a lot of auto covers, which is a very complex sale, you got to have the inherent knowledge of how to write up, how to install the product, etc. So a lot of geographic differentiation. But our customers are a standalone island, okay? They need us to help them grow, okay? Our customers fight competition that sometimes has scale, so they have us in their corner. We bring to them marketing programs that, standalone, they can't do. They don't have the ability or it would cost too much to go do it themselves. So with our scale, we do it for them. Putting that together, we also have the NPT showrooms. You're going to see it later today, and I think the NPT showrooms are a great way to upsell the consumer. So many products that you see in these showrooms, the consumer would never see with a builder making a sales call at the home. The builder wouldn't bring a fire pit or a tanning ledge and many upsell products, nice decking products. They go into our showrooms and they see, they're willing to spend the money, but sometimes our builders are restricted on what could be sold. So this kind of lets the consumer see what's available, okay? And it's various levels of NPT showrooms depending on the market size. The commercial category, again, I refer to this as an early inning category. It's a big, robust category that it's 4% of our sales right now, but we have a path ahead for continuous 10 to 15% growth, okay? So it's a growth category for the company. We're focusing on it. Probably the why we like it the most is many of our existing customers that we're selling lots of products to now, and we have existing relationships with right now, they're buying commercial but they never came to us for those products because the commercial category is call it 20 years behind the residential market, okay? It flows in different channels, it's more product sold direct, okay? So as we roll this category up and we build a compelling offering, more and more of our existing customers that buy a lot of commercial products elsewhere are now learning they can get it from us without sacrificing at all on actually getting better service, okay? We're also creating competitive advantages when it comes to commercial. And on the residential side, we have big, robust inventories across North America. On the commercial side, by and large, the entire industry doesn't stock it, okay? So we're starting to build deeper inventories of commercial. So think of it as tier one, tier two, and tier three. Tier one is like the hotel here product. They buy it, it's semi-residential, some specialized commercial things. We stock that in every market, okay? Tier two, we have right now some commercial warehouses scattered around the country that have the more true commercial items, okay? And it's all about getting the product to the end user quickly, okay? So these commercial warehouses do a great job with that middle tier commercial stuff. But what's new and what's really exciting is the, call it the tier three, the heavy commercial, okay? We have realized that we're selling a lot of product that no one else can stock, and we have a lot of usage, okay? So take a big institutional size heater, okay? I sold 15 last year across North America. No one stocked it, okay? Because no one stocks a 1.5 million BTU heater. Well, I've got usage of 15, I can turn that multiple times, and I can create the world's best competitive advantage by having it in stock. So if you look at the picture in this pool, our tier three warehouses will have more starting platforms, racing lanes, commercial ladders, the stuff really no one is stocking up there now. And we're not going to be adding expense with standalone facilities. We're simply carving out space in existing facilities where we got extra space, okay? So highly, highly profitable endeavor there, okay? And last to round out commercial is that we're adding talent. We're adding more commercial expertise to, like Pete's example, you go into the equipment room and it is complicated. It's a lot of stuff that typical employees don't understand. So we're adding the talent that can help us to speak the language to the customers that buy and service that product. So a compelling category that we're very excited about for the future. Okay, so another way we win is employee training, okay? We simply have the best trained employees in the industry, okay? We got to that point through various ways of training, okay? We did 15,000 hours of training in our facility in Plano, Texas, called The Edge. And we train sales force, we train operations managers, we train the buyers. We train every employee level in our Edge training facility. We also run our MIT program out of there also, which is training 25 new recruits every six months that then move into the field, okay? We did 10,000 hours of training at our sales conference, and that's a lot, highly focused on areas we want to grow on. So if we're going to focus on tile, we may have classes on how to set tile, how to sell tile. We have a lot of focused training at the ISC, we call it, on where we want to go growth-wise, okay? We also have our vendors that we kind of script them on what they need to cover to our employees. We have 20,000 hours on safety training, which is our number one priority. And we have another 2,000 on this related on, call it field training. Every sales center does our own individual training events. So we're very big on training to get our employees up to speed.

Thank you, Kenny. Great. Hi, good morning again everyone. I'm Melanie Hart, I'm the company's Vice President and Chief Financial Officer. It is really great to see so many of you who I have the pleasure of getting to visit throughout different opportunities during the year. Seeing you all in one place and getting the opportunity for you to meet others on the team, and later on today to experience our MPT showroom. When we last met in 2022, also when we were together in 2019, what we talked about and what we shared with you is our vision and our expectations for our long-term sales growth. As Pete told you earlier, our long-term sales growth trajectory has not changed. But wanting to start off today's presentation just to show you that what we said we were going to do, we have actually exceeded those expectations when you look at what we've accomplished since 2019. Now we all know, and we've been very transparent about the fact that a portion of that growth was related to market conditions and inflation, but much of that growth is related to some of the things that we've been working on internally as it relates to our sales growth expectations, what we've done to grow market share, and what we've done to grow profitability. So when we stand here together today, again as Pete said, we are bigger and better than ever. The $6.40 that we delivered to you in 2019, we are now looking at 2024 at $13.04. So our scale has significantly improved from where we were just a few short years ago. We've talked about sales growth. We finished up 2023 compared to 2019 at a 73% sales increase. So this is the first time you're seeing the bridge to 2023. Certainly the biggest component of that continues to be inflation. We did see a little bit of activity within 2023. We've seen some impact of chemicals and commodities bring down the overall inflation slightly. But really what's key to this is when you look at the core of the business, in particular the equipment side of the business, the fact that the inflation we've seen over the last couple of years that's built up into our sales base continues. The key for that is within our industry, when you look at the aftermarket, more products are sold in the aftermarket than they are in new pool construction. With that, the price sensitivity as it relates to inflation and those products just doesn't exist because of the use of the majority of our products. We continue to see increases from the growing installed base, from the growing new pool construction even with a little bit of pullback in 2023. Those always continue to be additive to our overall revenue base. We're also continuing to see expansion from the new products. You saw today we've talked about how the box that we move are more expensive, not just from an inflation standpoint but also from a technology standpoint. What the homeowners want, the new products that our vendors have introduced into the market since 2019, are helping to drive our revenue growth and also some of our efficiency gains as we move forward. We've also mentioned we've seen a little bit of impact from the international markets. Europe's been a little bit sensitive, and also Canada. From the cycle standpoint, that's not unusual, and we would expect to see that rebound pretty quickly. That's gotten us to our $5.5 billion that we finished up 2023.

The other key that I think we've done an amazing job of proving out to you in 2023 is that our senior and our tenured management team have the skills. When you think about that 21 years of experience, our management team has the ability to run our business profitably. They know what to do and how to run their business in order to make it flex to the overall sales volume. That was very apparent in 2023 when we were able to manage our expenses. The reason we're able to do that is not just the skilled team, but also the structure of the company. The majority of our expenses are actually very variable. When you look at over 60% of our expenses, they are our people cost as well as our freight cost, which again are directly tied to our volume related expenses. When Todd and Jimmy talk with you about our investments in technology and what we're doing, the key there is that we are looking to share the capacity creation that we've talked to you about that has made us successful. We are looking to share that knowledge, that experience, that opportunity with our customers. So we're expanding the use of Pool 360. You'll see that we've been investing in that, we've been working toward it, we've been improving it. We talked on our first quarter earnings call that we're going to be investing an incremental $20 million this year in these technology investments. So you'll see the activity and the returns that we're expecting to get on that. We have been incrementally improving the total dollar value of our sales that have been going through the Pool 360 tool. Our expectation will be that we would see a faster ramp now because of our increased investments we're making. I'm sure that we'll get plenty of questions today on how do we best know is water test working and is Pool Service working. Our metric here, because we talked about that integrated ecosystem, our metric is going to be the business and the value that we're getting through Pool 360. Long-term gross margin enhancement. When we stood here in 2019, we told you that our gross margins were stable at 29%. Now when you think about our long-term growth expectations, we talk about stable margins at 30%. That is a big step up. We have seen in the intermediate period some benefits from our investments in inventory from some of the things we did around the supply chain when we saw higher levels of inflation. But once you factor all those things out and look at where we stand today, what we finished up in 2023, as we go forward, 30% is what we would consider the new stable margins. It's made up really of two pieces. One, we did see a benefit from our Pinch A Penny acquisition, so that was around 50 basis points. The remainder of that is a combination of many of the strategic things that we've been working on since we last talked in 2019. It's things such as what we're doing in the supply chain, the expansion of our use of our CSLs, our center shipping locations where we can bring in product from our vendors at lower cost and leverage that within the network. It's our expansion of our private label and our Plex products that not only are they a premium in the market, they also have better gross margins for us. As well as that product mix, when you looked at it, we talked about many of those being pool-specific proprietary products. When you look at our tile, you look at our pool finishes, not only are they higher margins as part of our building materials, but they're also special to us. It's not something that the homeowner can go and pick up at a mass retail. Those particular products, and we'll see some more of that when we look together and walk the showroom in MPT, those are pool specific for various different reasons. Those are unique to us, and that will help to continue to improve and drive our margins. We say we're going to continue that goal of incrementally improving, but we're going to continue to see seasonal fluctuations as it relates to product mix, our customer preferences, and our overall customer mix within a quarter.

When we heard from Chris, he talked about all of the things that as we look out, he talked about how he intends for us to continue to grow sales above market and the actions that we're putting in place right now. He also talked to you about specifically some of the areas that we look to be improving on our product portfolio, on our pricing initiatives, and those are going to help to improve our gross margins. Kenny then came back and talked about what we do within the sales centers every day, how we serve our customers more efficiently, how we've expanded on that customer experience so that we are better and our customers are better as well. When you go back to Pool 360 and what more do we get from the value from this, this is really going to be in helping us to deliver the fact that we're going to be able to deliver higher sales growth at a less growth in our expense base. That's the measurement and the metric that we're going to be looking forward as part of that. The other thing that I think is really key to our business and what makes us different and what sets us apart is that we've grown top line, we've had some benefits from the industry, we've had some other benefits from external factors, but what we have done is we've been able to take that growth and we've really turned it into profitability. That is key. Not everyone was able to within that time frame manage their expenses, make smart investments to be able to get to profitability, and we were able to accomplish that. We would expect that the design and the way that we operate our business will continue as we move forward. When you look at our cash flow, I'm very proud particularly of 2023. We told you at the beginning of the year that our expectation was that we were going to manage our working capital, that we knew we brought in that inventory because we knew it would get us more market share, it would benefit our margins, and we were going to take that out of the chain. We did that. That's going to allow us to do what we say. As we move forward, we're going to be able to continue to generate that cash. Typically, we're going to see about 100% of net income generated as cash. What that allows us to do is to continue to fund the other growth initiatives that we're looking for from the capital allocation standpoint. The good thing here is that our expectation moving forward is it's going to be consistent with what it's been historically. I'll show you later on the slide what that has gotten for the company and what our returns have been. In this particular instance, consistent is good. We are a very capital-light company when you think about what we invest in the ongoing business. We're looking to invest about $50 to $60 million. That's a similar number to what we did in 2023. What we got for that includes our 14 sales center openings, includes what we invested in helping Pinch A Penny grow out their network at more locations than they've ever been able to grow, also includes what we had to do to add in our greenfield but also to update our existing locations when you think about some of the technology and some of the improvements that we've been doing in order to be more efficient. We get all of that as well as our backend technology that helps to run the Pool 360 tools and applications for the customers, the hardware and components and everything that are necessary for that. That is all included within that $50 to $60 million. We are very effectively managing the way that we apply that capital within the business. In addition to that, we're going to continue to do the acquisitions as Chris mentioned. We're doing those when it makes sense from a culture standpoint, from a particular standpoint. We're only going to do those strategically as necessary because we have gotten to the point where we're very successful within our greenfield applications. We know that we're going to make sure that we're investing in acquisitions as it makes sense. We also have a very strong history of continuing to increase our dividends. Typically, we would expect that would be between $150 to $200 million that we'd spend on those dividends. Lastly, we look at share repurchases as our excess cash. We did a really nice job on our share repurchases overall. When we look at it, we want to make sure that we're maintaining a very diligent capital structure. We finished up the year at 1.4 times. Our expectation is that we would be between one and a half and five, so well within our expectation overall. We're also very proud of the capital structure that we have currently because it's a very nice blend that allows us to have lower than interest market rates, and we have great relationships with our banking partners that really gives us the capacity that we need to expand. We're not limited at all. The one and a half to two times is a stated goal. We have much more capacity under our current debt arrangements that will allow us to continue to grow and invest as we need to moving forward.

When you look at our dividends, we have continually for the last three years actually increased our dividends double digits. That has allowed us to continue to outpace our dividend growth with our earnings growth. Currently, we have a 32% dividend payout ratio. We finished up with 2023 and a very strong history of growing that dividend over time. On the share buybacks, we also look at share buybacks both opportunistically as well as strategically. Our total share buyback for 2023, we actually finished at an average share price of $356. Overall, we were very pleased, and we know that the value that we invested in those shares is going to bring us value as we move forward in the future. This slide shows that we are decreasing our total shares outstanding. What that means is that our share buybacks are actually outpacing what we're doing from a dilution standpoint on our stock programs. What's most important in that and doesn't show up as visibly on the slide is the fact that we are reducing our shares outstanding, we are increasing the number of people within the company that actually participate in those share programs. We're actually increasing the usage of that as a tool as an employer of choice. We're increasing the usage, and more people are participating so that the management teams down to the sales center level are actually moving toward and they're focused and rewarded the same way as our shareholders are rewarded. That gets us to our total shareholder returns. We have continued over the long term to provide shareholder returns that exceed the S&P as well as our peer group median. That has continued, and a lot of that has to do with the way that we allocate our capital, the way that we're making the decisions every day to run our business has really provided us to continually increase our TSR over time, including our increasing dividends that we have put forth in the market. That gets us to our return on invested capital. This is one where when you take a step back and you look at what's happened within the industry and what we've been able to accomplish, this to me is probably the premier indicator of what we've done from an execution standpoint and an allocation standpoint to really showcase the fact that we're taking those earnings, we're sharing those back with our shareholders, and we are making the right decisions. Our superior return on invested capital is one that our entire management team is very proud of.

As we look at the investments that we make in the business, we also make those same very wise investments in our people and also in our communities. Our focus on investing back in the communities and our people and our locations is focus on how do we best create that capacity creation, how do we best make sure that what we're doing makes sense for the business and actually creates profitability within the business. We're able to do that by enhancing what we do within our facilities. It's things such as looking at alternative fuel, looking at energy efficient lighting, looking at route optimization. Those are the things that we're focused on the business that are good for the business as well as good for the communities and sustainable in the way that we operate going forward. We also have some opportunities that are unique to us from a business standpoint. One of the things we talk about within our cycle of replacement, repair, remodel is the fact that a vinyl liner pool needs to be replaced typically every 8 to 10 years. One of the things that we've set up is we've set up recycle stations so our customers can actually recycle those replacement liners when they complete the work at the homeowners. That again is just one incremental thing that we're doing in order to ensure that we're doing the best thing that we can from an operating standpoint. Many of the things that we've talked about related to stock ownership, to training, all of those things that have helped us from an employer choice standpoint and really has improved it, decreased our turnover, and improved the tenure of our overall people, and that makes us stronger and better and able to grow quicker and faster. The thing that I think that we're both proud of, and this is something that we've just started in the last couple of years, but this has been our partnership with the YMCA. For us, this is our ability and our way to be able to take the outdoor living life and expand it and give that opportunity to many more people. We've donated over $4 million to this cause. That has allowed us to provide swimming lessons for 42,000 children, it's allowed us to train 3,000 lifeguards so that they can continue to provide those swim lessons. With that, we know that we're actually sharing with the future swimming pool generation the ability to be able to swim and the joy that we have as part of our outdoor living environment. For us, this is the way that we make our swim pack every single day. It includes not just the monetary donation, it also includes the people at our sales centers volunteering their time. They go to these YMCAs, they share with these young children new bathing suits and towels. It's really all about the community aspect and not just about something that we do in order to promote the industry going forward. Just to wrap it up, we are a strong business built on a solid foundation. Our historical results certainly speak for themselves. As we look forward, we have a very solid financial model that really drives what's different for us. It's going to be continue to grow revenues, continue to expand our gross margins and our operating margins, and then we're going to utilize our capital in order to continuously improve our earnings per share. With that, I'm going to turn it over to Pete for some closing comments.

Okay, thanks for sticking with us today. I know we covered a lot of material. I hope you found it interesting and insightful. You can tell our team is incredibly excited about the future and the things we have in place. Nothing new, no updates on this. This was the guidance that we shared with you when we reported earnings for the fourth quarter and the full year and established our guidance. Really no updates on here, nothing new that you haven't seen before. If I talk about this one, it's basically the same thing that I had embedded in my presentation. I'm going rather quickly because I want to make sure that you guys have room or have time for the Q&A session that I'm sure you would like to have. On this page, we think 6 to 9% is very realistic. We think the 30% gross margins, the 20% basis point operating margin expansion again is very doable. I think we've got enough things in the pipeline. The economy's going to help, the weather's all a part of this. But basically, we don't really look at it as month-to-month and say what happened this month, what happened last month. We're really looking at the long-term setup and saying are we positioned, are we stronger, are we continuing to gain share. Last year, when you went over the revenue results, last year was a down year from revenue. Were we excited about that? No. What we were excited about though is we continue to take share. When you go back and look at the TAM and you look at the rate of the TAM expansion and you look at how Pool Corp has performed in that cycle, you look at the programs that we put in place and you look at what we're doing to assist our customers, I think our customers are buying into it. I think our ability to grow share is very evident. Based on what you saw from the team today, we have a lot more gas in the tank in terms of things that we have in place that should allow us to continue to do what we've always done, which is be the best provider of distribution products for the outdoor living industry. What is it? It's our network. That's the heart and soul of what we do. It's 439 locations. That's huge. We're good at it. We open up new locations. It's not like when we open up new locations, oh my God, the bottom's going to fall out. We have a very good process. In Kenny's page when he talked about the numbers and he showed that Focus List slide, I know some of you are very familiar with the term Focus List. One thing that Kenny didn't mention, it was implied but not mentioned, is that when we started this Focus List, as he mentioned, it was any branch that operates below a 10% margin. When I came to the company, it was 8%, and prior to me it was 6%. So we get better and better and better every year. When we open up a new branch, they're on the Focus List because we have to make sure that those investments pay. There's a proforma that was signed before we allocated that capital, and that's how you get to the capital allocator or the return on invested capital numbers that Melanie just showed you. That's all part of our disciplined operating program. If you looked at the bottom of that slide, if we just took everybody to the median on operating margin, that implies a $70 plus million improvement. So we have lots of room for improvement. Are we having to work through inflation? You bet. We have the same inflation in operating cost that everybody else has. But our capacity creation initiatives have served us well in the past, they will continue to serve us well. The digital tools and what we're doing for the customer again will do nothing but create an even wider moat around Pool Corp. We're very confident in that. Those digital tools, those customer facing tools, and that focus on the customer are unmatched in our industry, absolutely unmatched. The execution focus is not going anywhere. That's what we do, that's core to what we do. That performance-driven culture is core to what we do. Melanie just mentioned that from an equity perspective, we share equity all the way down to the sales center level. Everybody has the same incentives to perform, everybody has the same incentives to create value. That intention to create operating margin improvement, to grow the top line, to manage expenses, to grow gross margins by being the best supplier to an ever-growing market is what we do every day. Our operating priorities are unchanged from when I came to the company. We have four operating priorities: safety, growth, profitability, employer of choice. Safety is obvious. My dad said when I was a little kid, he said listen, money we can make, I can't make another one of you. So let's not do anything stupid. The only thing I actually really worry about at Pool Corp, the one thing that would concern me, is if somebody got hurt. Safety is our number one priority, whether it's in our trucks, whether it's in our warehouses, whether it's when we're at customer job sites. Safety is an absolute top priority because I can't fix that. Doesn't matter how busy you are, how much you've grown, how profitable you are, if somebody gets hurt or worse, no money doesn't fix that. Safety is top of mind for everybody every day. Growth is the second one. In a company like ours, we have to grow. We have this insatiable desire to grow every year. Last year obviously was an exception because of the market conditions, but what we did grow was market share, and we're damn proud of that. Profitability is the third operating priority. Growing for the sake of growth without expanding our operating margins while becoming more profitable is an exercise in futility. We have to make sure that we have the right programs in place to control our cost so that gross margin grows faster than cost, that we're making investments over the long term. We're not a short cycle business. We don't look at it and say we really need to do this but we shouldn't do it because I want to make this month or this quarter. We're investing our money, whether it's opening new locations, whether it's investing in technology, whether it's investing in people, we're doing that over the long haul. Of course, the digital ecosystem which you're all going to see when we go to the sales center, I would encourage you to ask questions in that session because Jimmy's going to walk you through it. You can see it. That's a subscription based model both for the water test and for the pool service. From our perspective, the value in that is really the pull through growth on all the products that we sell and the stickiness that it creates with our customer. Now I will ask the rest of the team to join me, and we're happy to take questions.

Hey, it's Ryan Merkel with Blair. First of all, thank you for all the details. The presentation was great. Pete, I want to start with Pool 360 and your growth expectations. Where do you see Pool 360 going as a percent of sales in three to five years? And then it feels like private label will be pulled up as a part of this. Where do you see the mix of private label going in three to five years?

Great questions, Ryan. Pool 360 today, we have a range. The thing about distribution, whenever you have a lot of locations like we do, the good news is that we have a range of performance. Today, our Pool 360 in total I think is about 13% of the business. Today, we have branches that are over 25%, we have some branches that are flirting with 30%. What that tells me is that we have the organizational capability to operate in that 30% range. I'd like to think that our ability to be north of 30% is very doable. But it's only going to happen if the tool is good for the customer, which is why we are so focused on making sure that this is not something that would be really good for me if you guys would do it but doesn't improve from a customer perspective. We have to make the tool so that it is a growth tool and a productivity enhancer for the customer. Today, as I said, we've got branches that are flirting with 30%, and I'd like to think that we could get the whole company at least to 30%. How much higher, I don't know. It's still very early in the game. We have to make sure that we bring the customers along and that we're providing that value. The same thing if you look at the private label programs. You can see we are investing in those private label products. We've added talent, we've added focus to those. Certainly the chemical space is a part of the business that we really enjoy, and I think we have a competitive advantage in that space. There was a time when we would say we weren't a packager, so we were basically buying from somebody else. Therefore, you could say our value proposition from the manufacturers was no different than anybody else's except for the fact that we bought more. But now you can say that we actually control our own destiny to some degree with what we do with the chemical packaging. We have our brands, we can do private label brands for some of our larger customers. Some of our very large independent retailers have their own brand of chemicals that we package for them. We don't do that for everybody, you have to have a lot of volume before that makes sense, but we're able to do it. Today, it was in that 25% range. I would tell you that I think that too can continue to grow. Where it maxes out, could we do 30%, could we do 35%? It really depends on the market. One of the questions we get is what product areas do we like. We like the chemical space, we like the maintenance product space, we like the building material space. I'll answer the question before somebody asks it. Somebody has asked me before about are you going to get into equipment. No, we have no intention of getting into private label equipment. Why? Because we believe there's a tremendous amount of technology and investment that is required to be good in equipment. It requires investment dollars. Our supplier partners, as Chris mentioned, our relationship with those partners is tremendously important. Consider that we're virtually everybody in the industry's biggest customer. The relationship that we have with our manufacturers is very unique. I've been in distribution now for coming up on 36 years, and I could tell you that the relationships we have being virtually everybody's largest customer are very unique. There's a tremendous spirit of partnership. I don't look at what the manufacturers do and say I can go offshore and buy a pump and slap a label on it and now I'll compete with my vendors. There's technology, there's value, and there's expertise that we have no desire to compete with because we don't think we can add any value to that. We'll stick to our lanes. Do I think that we could expand it to 30% higher? We could. Is it ever going to be the majority of our business? No, it won't.

And for my follow up, I wanted to ask about the retail business. You've improved the value proposition there. For most of my career covering pool, retail was one of the slower segments. Should we expect that that is now a high single digit growth category with some of the investments with Pinch? And is the margin accretive to the company average for the retail business if it grows faster?

Yes, we love the margins in retail because it's that high recurring revenue margin product. We also look at it and say our value proposition is probably most improved in that area. Our ability to capitalize on the DIY and help our retailers be better, because again that's our biggest channel to market. One of the other questions we get is are you going all in on Pinch? No, we're going to continue to do both. We have far more customers on the independent side than we do with Pinch. The margins are accretive. They're certainly very accretive with the franchise model and how that flows through the P&L, and they're certainly very accretive for the rest of the business because those tend to be your maintenance products which carry a higher gross margin. It's a big focus area for us because I think we have a bigger opportunity to demonstrate a differentiated value proposition.

I think I'm next, Pete. Yes, I am. Can you talk a little bit more about the commercial opportunity that you mentioned? When you think about that 10 to 15% growth, how much of that is coming from the market versus share? Who are you competing with there? And how do you think about the margin profile of that relative to the total company?

That business has broken down into similar categories. Number one, there is the construction side of that. Large commercial pool construction, there aren't that many built, but there are a number of pools that are built every year. That would be large project construction. From a margin perspective, that would be on the lower side just like any large construction project. But then you have the maintenance side of that business, which is the maintenance and repair side. Commercial, remember, spans from the pool that's right outside that door to an HMO pool, hotel, multi-dwelling unit, which would be a smaller pool. Margins on that are very good, especially on the maintenance and repair side. From a margin profile, the answer is it depends. Large construction projects are going to be smaller from a gross margin percentage, but if you look at the maintenance and repair products for that commercial segment, it's going to be pretty good. We like that. From a growth perspective, we think that we'll be able to continue to take share. The numbers that were on Kenny's chart from a growth perspective are growing faster than the market. We'll be able to continue to take share in that area because we think we are uniquely positioned to have a great value proposition for commercial. Believe it or not, there isn't a good equivalent to Pool 360 for commercial, nor have we yet curated part of Pool 360 to cater to that commercial pool operator. We have the technology backbone to do it, and now we have the expertise in the organization to focus on it. We think that we can be the most frictionless source to acquire product in that space, which should get us above market growth.