Pool Corp

NASDAQ:POOL

Earnings Call Analysis

Pool Corporation Reports Mixed Results Amidst Economic Challenges

In the third quarter of 2024, Pool Corporation's sales fell 3% to $1.4 billion as maintenance products saw steady growth while discretionary spending struggled. Gross margin remained stable at 29.1%, supported by a rise in private-label chemicals. Operating income reached $176 million with diluted EPS at $3.27. Looking forward, the company projects a 15% to 20% decline in new pool construction for the year and maintains an EPS guidance of $11.06 to $11.46. Management is optimistic about future growth opportunities, particularly in Florida, where demand for renovation and repairs is expected to remain strong.

Solid Performance Amidst Challenges

In the third quarter of 2024, the company reported a total sales decrease of 3% year-over-year, amounting to $1.4 billion. This decline was attributed largely to reduced discretionary spending and a challenging environment for new pool construction and remodels, which combined negatively impacted sales by about 5%. Nevertheless, maintenance-related sales experienced growth, indicating a shift in consumer spending patterns.

Resilient Gross Margins

The company's gross margin remained stable at 29.1%, consistent with the previous year's third quarter. This stability is crucial as it reflects effective supply chain management, increased sales from private label products, and a balanced product mix, despite some headwinds from lower-margin product sales.

Profitability and Earnings per Share

Operating income fell to $176 million, down 9% from the prior year, while diluted earnings per share stood at $3.27, a decline of 7%. This dip in profitability was largely due to external factors affecting sales but was helped slightly by share buyback activities.

Geographic Sales Trends

Florida stood out with a 1% sales increase, reflecting strong underlying demand in the state. Conversely, Texas and California saw declines of 6% and 3%, respectively, impacted by higher discretionary spending pressures and adverse weather conditions affecting maintenance needs. Encouragingly, the Horizon business reported a smaller decline of 7%, demonstrating some resilience in the commercial construction segment.

Strategic Investments and Future Outlook

Looking ahead, the company expects similar top-line pressures in the fourth quarter, anticipating a further 15% to 20% decline in new pool constructions for the year. Furthermore, remodel activity may decrease by about 15%, influenced heavily by labor and weather conditions. However, the strategic investments in customer experience and technological enhancements are projected to position the company favorably for future growth.

Strong Cash Flow and Financial Stability

Despite the sales decline, the company demonstrated strong cash flow management, generating $489 million year-to-date. It also reduced total debt to $924 million, representing a $110 million decrease from the previous year, while engaging in share repurchase activities totaling $159 million. The debt leverage ratio improved to 1.41, indicating a solid balance sheet and capacity for future investments.

Guidance and Potential Challenges

The company has reaffirmed its diluted EPS guidance for 2024, projecting between $11.06 and $11.46. Challenges remain, particularly in new constructions and remodels, which are expected to collectively impact sales by 5% this year. Furthermore, the anticipated expense growth for 2024 is expected to be in the range of 4% to 5%, reflecting continued investments in technology and expanded operations.

Earnings Call Transcript 2024-Q3

[Operator]

Good morning, everyone, and welcome to the Pool Corporation Third Quarter 2024 Conference Call. [Operator Instructions] also note, today's event is being recorded.

At this time, I'd like to turn the floor over to Melanie Hart, Vice President and Chief Financial Officer. Ma'am, please go ahead.

[Melanie M. Hart, executive]

Thank you, and welcome to our third quarter 2024 earnings conference call. Our discussion, comments and responses to questions today may include forward-looking statements, including management's outlook for 2024 and future periods. Actual results may differ materially from those discussed today. Information regarding the factors and variables that could cause actual results to differ from projected results are discussed in our 10-K.

In addition, we may make references to non-GAAP financial measures in our comments. A description and reconciliation of any non-GAAP financial measures included in our press release, will be posted on our corporate website in the Investor Relations section.

Once again, we have included a brief presentation on our investor website to summarize key points from our press release and call comments. Unless otherwise stated within our prepared remarks, all comparisons refer to third quarter 2024 versus third quarter 2023.

We will begin today's call with comments from Peter Arvan, our President and CEO. Pete?

[Peter Arvan, executive]

Thank you, Melanie, and good morning, everyone. Earlier today, we released our third quarter results, highlighting solid performance in our maintenance-related sales and continued progress on our strategic priorities. Our results reflect our team's coordinated efforts and our exceptional ability to fulfill our customers' needs and deliver an outstanding experience during the critical peak season. With our expanded product offerings, enhanced customer service tools and resources and the ability to quickly deliver through our expansive distribution network, we continue outperforming the market during the dynamic economic conditions our industry has experienced over the past few years.

In the third quarter, total sales declined 3% as we saw similar year-over-year trends as last quarter with an extra selling day this year versus last. Our maintenance product offerings generated steady sales growth, while the discretionary portion of our business continued to experience impacts from a hesitant consumer. We see pressure on entry to mid-level prospective pool buyers while demand for higher-end pools remains resilient.

We have made great progress on several of our strategic priorities from network expansion, capacity creation and pricing optimization to growing our private label product sales and increasing adoption of our POOL360 ecosystem.

Moving down to the income statement. Gross margins finished in line with prior year, signaling progress on our structural margin initiatives, especially considering the drag on our product mix from headwinds in new construction and renovation and remodel. Melanie will go to more detail on this in her financial commentary.

From a profitability standpoint, we produced operating income of $176.4 million and operating margin of 12.3%. We generated diluted earnings per share of $3.27, including a $0.01 tax benefit from ASU.

Looking at sales by geography, we saw sales grow by 1% in Florida with underlying demand holding up well to support Florida's growing installed base. This is the first major market this year to post a positive sales trend, which is very encouraging. Arizona sales were flat, which is also somewhat encouraging from a cyclical standpoint as it was one of the first areas that showed signs of a slowdown back in 2022. If I look only at the pool business for Arizona, they too had a positive quarter helped by excessive heat, which created headwinds [indiscernible] Horizon business there.

Texas and California sales were down 6% and 3%, respectively, reflecting the weak discretionary spending that is impacting our overall business. Texas also experienced excessive rain and cooler temperatures in July that adversely impacted maintenance needs during this key seasonal period.

For Horizon, net sales declined 7% in the period compared to the third quarter last year and consistent with what we have seen so far in 2024. Residential construction and remodel remain challenged while commercial construction is slightly better with demand relatively flat. Similar to the pool business, the maintenance part of Horizon's business is stronger, although it makes up a much smaller portion of the business, comprising approximately 25% of sales.

Europe finished the quarter down 1%. Much improved sequentially. This area has been challenged with a tough market and weak consumer sentiment since the spring of 2023. Europe's third quarter results reflect the summer season and peak pool usage and will likely be more impacted by a cautious consumer behavior in the fourth quarter due to the uncertain macro environment.

Turning to our product categories. Chemical sales increased 2%, supported by mid-teens growth in our private label chemical products and overall volume growth of 4%, exceeding the increase in the installed base. Chemical pricing has remained relatively stable, which is encouraging given the dynamic market [indiscernible] we have seen in the past.

Building Materials sales showed a 9% decline consistent with last quarter, and while reflective of a tougher new construction and remodel environment, performed better than projected industry estimates for new pool builds this year. This better than market building -- our market building material results highlight the power of our over 100 [ NPT ] showrooms, bringing our unique product offering to the customer with our design tools and the broader selection of decking tile and pool finish for our customers.

Equipment sales, which exclude cleaners, increased 1% this quarter, bolstered by a recovery in heaters and solid demand for pumps, lights, electrical products and filters. Some of this product category is nondiscretionary in nature. However, items like heaters and lights can be more discretionary and impacted by consumer sentiment. As we have mentioned, aftermarket equipment installations are roughly 4 to 5x that of new construction, and combined with price increases that have been realized in the market, these products are holding up well even with lower discretionary spending.

In our end markets, our commercial sales increased 7% during the quarter, showing continued strength through the summer, travel and community pool season. Sales to our independent retail customers declined 2%, these retail sales represent our wholesale sell-in to the retail dealer channel, which ultimately serves the [ DIY ] market. The improvement from what we saw in the second quarter reflects the strength of our service, product offering and the value that our retail trained sales support teams provide during the swimming pool season.

For Pinch A Penny, our franchisee sales to their end customers were flat, boosted by strong store presence in year-round markets and a premier customer and product service offering. We continue to make progress on our POOL360 platform initiatives. Orders processed through our B2B POOL360 application, the foundation of our digital ecosystem, increase of 14.5% of total sales for the quarter. While we are in the early innings of introducing our expanded suite of customer-facing tools, we consider this metric to be the most meaningful in measuring our progress at this time.

Beginning last year, we introduced POOL360 water test to our independent retail customers and have developed a similar application that is embedded in our POOL360 service software product which we debuted earlier this year just before the season began. We believe both tools, when combined with our incredible footprint, extensive inventory and growing private label brands provide a value proposition that cannot be matched in the industry.

As I mentioned, we are early in the game. We continue to add innovative features and provide hyperresponsive support for the early adopters to be sure that we that as we scale, we deliver on our commitments to our customers.

During the quarter, we embarked on a journey around the country with our POOL360 road show, taking the tools and training directly to our customers in key markets via a dedicated POOL360 team. Our employees' enthusiasm and dedication played a crucial role in generating awareness and excitement around our software solutions, showcasing the incredible value they bring to our customers. It's exciting to see our teams connect with so many pool professionals and their positive responses to our innovative new programs and solutions.

Our relationships with customers are deep as we have been their trusted supplier for decades in many cases. Combining trust and strong relationships with innovation and pool industry knowledge is enabling us to introduce feature-rich software to help our customers grow and improve their capacity while strengthening our ability to grow share into the future.

Now let me update you on our network expansion activities. We opened 3 new sales centers during the quarter, bringing our year-to-date openings to 9, well on track to achieve our stated goal of 10 openings this year. Our Pinch A Penny franchise network added 3 new stores, including 2 in the strategic Texas market, bringing their store openings to 11 so far this year and ending the quarter with a total of 295 franchise stores.

Now let me share how we see the remainder of the year shaping up. We would expect fourth quarter sales to be in line with the year-to-date performance. Considering our results through the peak swimming pool season and our fourth quarter outlook, we are maintaining our full year diluted earnings per share guidance range of $11.06 to $11.46, including updated $0.21 estimated benefit from ASU.

For the full year, we believe new pool construction could decline closer to 20%, but still fall within our forecasted range. This includes the potential storm impact on pool construction in Florida, where last year, approximately 6,000 pools were built in the fourth quarter. Given the storm damage and repair activity, it is not likely we will see similar levels of new construction for the balance of 2024 in Florida. We would expect new pool construction and remodel activity for the balance of the markets to be in line with previous guidance for the remainder of the year.

For the overall business, we believe maintenance and repair activity will be steady, with the notable exception of Florida, where it will be higher as storm damage pools are repaired.

Given the normal seasonality, maintenance will be less of a contributor in the fourth quarter in our remaining markets. Hurricane [ Francine ] and [ Helene ] in the third quarter and [ Milton ] in the fourth quarter created short-term disruptions to our business. We sustained only minor damage to our facilities with operations restored quickly so that we could help our customers repair the damage ahead of the busy season in Florida.

Looking ahead, we remain encouraged by several economic factors such as stable home values, record home equity levels, continuing Sunbelt migration and a resilient consumer and gradual interest rate easing. We expect a healthy setup for the industry dynamics and favorable growth opportunities in correlation with the broader housing market stimulation in coming years.

Swimming pools and outdoor living are still very desirable and no one is better positioned to capitalize on that now and in the future. Our industry is 20% to 25% bigger than in 2019. The past 5 years have been volatile compared to the industry history and with rapid growth, followed by a period of lower discretionary spending, but we believe it is coming closer to normalization.

Our network is the largest, most integrated in the industry, allowing us to provide the greatest variety of products, serve as an extension of our customers' business and to cultivate our vendor partnerships, providing what our customers need, when they need it and bringing the latest product innovations to market. Our efforts to elevate our customer experience help improve their business and operate with disciplined execution make us the best positioned to grow share in both periods of growth and normalization. We believe we are the clear market leader, and we are getting stronger every day.

Before I turn the call over to Melanie, I would be remiss if I did not once again thank our incredible team. Their knowledge, dedication and creativity and passion for the industry and customer experience are amazing, and I could not be prouder to be part of such an extraordinary team.

We'll now turn the call over to Melanie Hart, our Vice President and Chief Financial Officer, for her detailed financial commentary. Melanie?

[Melanie M. Hart, executive]

Thank you, Pete. Third quarter 2024 sales were $1.4 billion, a 3% decrease compared to prior year as maintenance sales trends continue to see an improvement in year-over-year comparisons. As the warm weather through the end of the season saw increased chemical usage.

The comparative trends are consistent with second quarter and an improvement over the year-to-date trend through the first half. The third quarter included an extra selling day compared to last year. Inflation provided a 1% benefit during the quarter as we saw a 2% pricing lift on equipment and other product sales that was offset by a 1% decline in chemicals and commodities. From a pricing standpoint, we noted no significant changes from the second quarter.

New pool construction and remodel activity combined negatively impacted total sales by 5% and [ Europe ] and Horizon sales declined together had a 1% adverse effect. No material sales impacts were noted from Hurricane Francine and Helene that occurred during the quarter.

Gross margin for the quarter was 29.1%, the same as prior year third quarter and consistent with our typical seasonal gross margin patterns as we exit the peak selling season. Positive momentum in our supply chain actions, including increased mix of private label chemical sales and higher vendor incentives compared to last year, when we had lower purchasing levels, were offset by a less favorable product and customer mix.

Product sales mix was affected by lower levels of higher-margin building material sales while customer mix was more heavily weighted to larger customers who typically have special pricing and higher volume-related discounts. We tightly managed operating expenses to 2% growth for the third quarter compared to last year. The lowest growth we expect to see for the year as we focus on controlling volume-related expenses as we wind it down from peak selling season activity.

Last year, third quarter expenses included approximately $2 million of costs associated with our annual sales conference that occurred in the fourth quarter of 2024. As a result, those expenses will impact Q4 this year, adding to an increased expense expectation in Q4 compared to last year.

During the quarter, we opened 3 new [indiscernible] center locations for a total of 9 year-to-date, which accounted for a 1% increase in the year-over-year expense. We continue to see progress on our technology investments with even more value-added features rolled out this quarter.

Interest expense was $12.4 million, down $1.2 million from Q3 2023, due primarily to lower outstanding borrowings during the quarter compared to last year. Operating income of $176 million was down $18 million or 9% with quarterly net income of $126 million, also down 9%. Diluted earnings per share were $3.27, down 7% compared to $3.51 in the prior year quarter, reflecting reduced [indiscernible] shares outstanding due to our share buyback activity year-to-date.

As we turn to our balance sheet and cash flow, we noted that accounts receivable days outstanding of 26.7 days, compared to 26.8 days from last quarter, continuing to reflect our excellent collection efforts as we work with our customers to support their business. Quarter end inventory totaled $1.2 billion, $79 million or 6% less than last year's third quarter, which reflected the completion of our stated inventory reduction efforts. We are continuing our focus on inventory efficiencies under more normal supply conditions, resulting in our current inventory days on hand trending 7 days lower than prior year, even with product cost inflation and inventory added for our new locations and acquisitions.

We continue to be a strong cash generator as we reduced our total debt to $924 million, $110 million lower compared to last year, while repurchasing shares totaling $159 million year-to-date. We finished the quarter with a debt leverage ratio of 1.41, slightly below our target range of 1.5 to 2x.

During the quarter, we amended our credit facility, increasing our borrowing capacity from $750 million to $800 million and extending the maturity date to September 2029. Our current low debt leverage and increased borrowing arrangements provides significant capacity to continue funding our capital allocation priorities and strategic growth initiatives.

Cash flow from operating activities of $489 million year-to-date reflects excellent working capital management, as we have realized operating cash flows of 123% of net income through the third quarter. Prior year cash flow benefited from our stated inventory reduction goals, which we completed at the end of third quarter 2023, resulting in a higher year-to-date benefit from inventory reduction of $150 million in 2023 compared to 2024.

As a typical part of our business, we will begin receiving inventory under our early [indiscernible] purchase programs with our vendors in the fourth quarter, resulting in an expected increase in inventory from third quarter to fourth quarter. We also received a cash flow timing benefit in the third quarter, for a deferral of quarterly estimated income tax payments for those impacted by Hurricane Francine. Tax payments that would have been paid September 15 are now due in February 2025. The fourth quarter December payment will also be delayed until first quarter of 2025.

We have utilized $50 million on capital expenditures, including our 9 new sales center locations opening to date. The 2 sales centers added through acquisitions have been fully integrated into the network. As noted above, we reduced outstanding debt, completed $159 million in total share buyback year-to-date and still have $507 million remaining under our share repurchase authorization.

As we wrap up 2024, we continue to expect similar top line trends in the fourth quarter as we have seen year-to-date. Sales will remain under pressure from a weak discretionary spending environment as our expectations for the full year still include 15% to 20% fewer new pools built versus 2023. As Pete mentioned, new pool builds can land on the lower end of that range given the restoration activity in Florida. Remodel activity may be down as much as 15% for the full year and will be labor and weather dependent in the fourth quarter.

The extra day in the fourth quarter of 2024 is expected to have less than a 1% impact to net sales for the quarter and the full year impact of the 2 additional selling days will also be a less than 1% impact. For the full year, we expect [ deflation ] to reflect similar characteristics to what we have seen so far this year, providing an approximate 1% benefit overall with equipment and other product categories, contributing a positive 2% effect and chemical pricing offsetting this positive benefit by 1%.

Chemical selling prices have remained stable since second quarter, but at current levels will continue to be a modest drag on the remainder of the year. New construction and remodel activities are expected to negatively impact sales approximately 5% collectively, and lower levels of activity for Horizon in Europe will affect total sales by about 1% for the year.

For the fourth quarter, we should see gross margins similar to prior year fourth quarter gross margins. Having finished the swimming pool season, we would expect that full year gross margins will be similar to the year-to-date rate for the third quarter. Any negative year-over-year impact from the higher levels of lower cost inventory on hand last year have been reflected in our first quarter 2024 gross margin comparison.

Second and third quarter provide more opportunities for focus on variable expenses during our peak selling period. In the much lower volume fourth quarter, the higher relative impact of fixed expenses, such as rent and insurance, additional sales center opening costs this year versus last year and our technology investments, combined with the sales conference expense timing shift in the fourth quarter, we would expect that the year-over-year expense increase for the fourth quarter to be closer to 5%. Combined with the year-to-date results so far, this will result in operating expenses for the full year in the range of a 4% to 5% increase year-over-year.

Note that the 2024 expense growth includes approximately $12 million in investments in current year new locations and $20 million of spending to develop and implement our significantly expanded POOL360 water test, POOL360 service and enhanced POOL360 platform. These technology investments are expected to provide future sales and productivity gains.

Interest expense for the full year is expected to be approximately $50 million. The annual tax rate will be around 25%, excluding ASU benefit. After consideration of the share buybacks completed in the third quarter, our estimated fully diluted weighted average share net-standing for fourth quarter will be 38.3 million shares and 38.5 [ million ] shares for the full year. We are confirming our 2024 diluted EPS range of $11.06 to $11.46, including the additional $0.01 of ASG benefit added in the third quarter and the $0.21 realized year-to-date.

During this period of industry transition, our management team has committed extraordinary efforts to effectively manage our dynamic business during this period of weak discretionary spending and softness in mutual construction and remodel and renovation activity. We continue to strategically invest in our business with new locations, accelerated growth of our franchise store network, acquisitions and enhanced technology initiatives, improving both our customers' experience and our internal operating efficiency. We will finish 2024 strategically better than we started it, positioning us well for future growth.

I will now turn the call over to the operator for our Q&A session.

[Operator]

[Operator Instructions] Our first question today comes from Scott Schneeberger from Oppenheimer.

[Scott Schneeberger, analyst]

I guess I want to start out, you guys elaborated a lot on the weather, but I wanted to follow up there. Was there any impact specifically from the hurricanes in the third quarter since they happened late in the third quarter, fourth quarter? Or is that more look ahead? And could that have a trickle through into -- I guess, how would you think about it as trickle through impact to next year given -- particularly in Florida, given what you've seen with permits? And then I'll come back with another.

[Peter Arvan, executive]

Thanks, Scott. So I guess here's what I would say. The hurricane happened, that was 2 back-to-back for Florida. They were late in the third quarter. So there was -- we were closed for a couple of days during the onset of the storm, and we realized probably a little bit of a pickup immediately after that. But the 2 -- from my perspective, the 2 really kind of cancel each other out. So I can't say that it provided any real benefit in the third quarter.

In the fourth quarter, we had another storm hit. It will be a similar scenario. We are close for a couple of days as the employees to shelter and we're protecting their homes and families and then we -- as I mentioned, sustained relatively little damage. I think the net effect on the business is going to be that there will be an uptick in demand for maintenance and repair, and that will come in a couple of waves in my opinion.

The initial wave, I would describe more as a triage, which is the most important thing of a pool that has been damaged from a storm is to get it clean, get the water balance and get the water moving again. Now depending on the nature of the flooding, that could have impacted heaters. It could have impacted automation, heat pumps and such that will -- and lights that will probably be repaired later because I think the dealers are so busy right now just trying to get water circulating. So I think we've seen an initial -- and are experiencing an initial lift now on maintenance and repair. I think there'll be another one that comes when they go back and say, okay, now I'll come back and fix the noncritical components.

At the same time, we're going to have headwinds in the fourth quarter, I believe, on new construction that I think will create some tailwinds on Florida new construction in the first quarter of next year.

[Scott Schneeberger, analyst]

I appreciate that clarification and [indiscernible] color, Pete. Melanie, on inventories, certainly from 2 years ago and then down from last year, and I think you said [indiscernible] completed the reduction efforts. I'm just kind of curious, as you -- are you happy where you are? Is there a little bit more? And how are you thinking about the prebuy season, particularly with regard to pricing, given where we are in the market?

[Melanie M. Hart, executive]

Yes. So we are happy with where we are from a current inventory level, certainly acknowledging that our inventory declined year-over-year are down more than sales. And so we look at that as gained efficiency and prudent management on our working capital. And so we continue to work on that path.

We've developed many new processes that allow us to better utilize our inventory throughout the network. And so our quest for consumer efficiency there won't end. But with that, we don't have any major reduction goals as we had coming out of the higher levels of inventory that we were carrying with the supply chain disruption.

As it relates to pre-buys, the preliminary increases that we've seen from some of the equipment vendors are in the 2% to 3% range for next year. So we would plan to participate those in that as we normally would, where we would be bringing on inventory that we would sell really prior from -- prior to the time that we would owe those payments from those early buys. So we would cover really kind of the early portion of the [indiscernible] prior to having some payments to the vendors.

[Operator]

Our next question comes from Ryan Merkel from William Blair.

[Ryan Merkel, analyst]

I wanted to follow up on the last question. I'm curious, what are you seeing from the OEMs on equipment pricing for 2025 at this point?

[Peter Arvan, executive]

Yes. Ryan, I would tell you that the -- as Melanie mentioned, it's in the 2% to 3% range. Some items are a little bit more. Some items are a little bit less, but we think about it in terms of 2% to 3%. We expect that will flow through the channel just like normal. So I don't really see much different rent at this point.

[Ryan Merkel, analyst]

Got it. Okay. And then a question on gross margin. You're guiding to approximately 30% this year. So how should we think about the fourth quarter? I think typically, it's up seasonally, but just calibrate us if there's anything to think about.

[Melanie M. Hart, executive]

Yes. So our fourth quarter margin outlook is that it will be similar to last year, which would be up from where we are in the third quarter. When we look at kind of the long-term guidance on gross margins, the 30% is the full year margin. And as you know, we typically see that vary seasonally throughout the full year with second quarter being the higher level.

When you think about this year's third quarter and fourth quarter margins, this is actually really, I would say, our first opportunity for normalized margins thinking back outside of the higher levels of inflation and the -- some of the supply chain disruptions. So if you go back and you look at our 2020 and our 2019 margins for third and fourth quarter, we are substantially ahead of where we were in both of those periods, so kind of a normalized look. And where we started is our 29% to 30% bridge that we've talked about on how we've gotten to our 30% long-term margin outlook. So definitely well ahead of where we have been historically for all the supply chain things that we've discussed.

And so when you think about, you know, we're not at 30% [indiscernible] third quarter. It won't be for fourth quarter because of seasonality. And then the other thing is I would mention for the full year gross margin, we would be where we are kind of year-to-date because there's just not a lot of impact in fourth quarter from a seasonal standpoint because it is our smallest quarter. But the 30% gross margin is really in alignment with our long-term guide, which does have built into that the sales growth and the operating efficiency leverage. And so the things that are impacting this year that are kind of outside of that normal top line algorithm is also impacting the margins.

But with that being said, we're very proud of -- its a step ahead that we are from the historical levels.

[Peter Arvan, executive]

Ryan, let me add one other comment to that. So when we look at gross margins, as Melanie said, when we look at -- we're actually pretty happy with where we are. When you consider the impact of the reduction in new pool construction and renovation and remodel. I mean, that is a significant driver of the enhanced gross margin and with new pool construction being well below where we thought we would be for this time period, I think our performance on gross margin is reflective of the team's effort and some wisely placed bets and investments that are helping us to improve gross margin.

So the comment on long-term gross margins being in the 30% range when we -- when you consider the impact of renovation and remodel and new pool construction, I'm actually pretty happy with the team's work and what we've been able to accomplish.

[Operator]

Our next question comes from Susan Maklari from Goldman Sachs.

[Susan Maklari, analyst]

My first question is on demand. You had some positive comments as it relates to the trends that you saw in Florida and Arizona during the quarter, which is -- in contrast to what we're hearing more generally, I would say, about the consumer, especially as it relates to some of the bigger ticket discretionary projects.

Can you talk a little bit more about what drove those trends? And how you're thinking about what that could suggest as we look out?

[Peter Arvan, executive]

Yes. I think it's a couple of things specifically in those areas and even, frankly, more broadly.

Number one, I would say that, the things that we had been focused on for the last several years, our strategic priorities are helping us gain share. So we are encouraged by the level of growth that we saw in Arizona and Florida, those were very nice to see, especially knowing how hard the teams have been working in a very, very tough and very competitive market. So I think it's a function of a couple of things.

It's a function of -- the markets are becoming more normalized, number one. Number two, I think the investments that we have made to improve our customer experience and ultimately, our value proposition, our efficiency, our customers' efficiency are garnering a favor with the customers. And for the business that is out there, I think we continue to take a disproportionate share of that and continue to build upon that.

[Susan Maklari, analyst]

Okay. That's helpful. And then the other thing that you noted is the progress that you're seeing on the POOL360 initiatives there. Can you just give us some more color on hows that coming together. Any feedback you got from the roadshow that you did? And how we should think about the further lift in sales going forward?

[Peter Arvan, executive]

Sure. It's a -- remember, when we debuted this, it's a complete ecosystem, right? So we built upon POOL360, which was just our B2B system. We completely rebuilt that and then we looked forward and said, okay, what can we do to create value for our customers, improve their experience, hopefully improve their business and help them grow. So we invested in a couple of different areas.

The first one was the POOL360 water test, which goes hand-in-hand with our private brands on pool chemicals, primarily our Regal, E-Z Clor and [indiscernible] the spa business. So the software is primarily is developed for the retail store that stocks our chemicals. It helps prescribe. It helps provide a uniform prescription for the water when homeowners bring their water in to test to figure out what they need for the pool. The reception that we've gotten on that has been very good.

As you can imagine, it's a -- for a retail store, chemical -- your chemical line is really a very big decision that they make because it's associated with their brand and in many cases, the dealers have been carrying specific brands for many, many years. So changes of that nature are not taken lightly. So as we rolled it out, we knew that it was going to be a slow adoption. We wanted to make sure that we were more right than fast. The feedback that we have gotten from the dealers has been consistently very, very good. We think that we'll continue to expand that. We've got lots of upside to continue to add dealers to that, but we're very proud of where we are today and the feedback that we are getting. And the feedback on the road show was in line with that.

If I look at POOL360 service, which has a much broader application, if you will, because that is something that all of our dealers can use, not all of our dealers, as you know, have a retail store, but almost all of our dealers and certainly, the largest group of customers that we have are pool service companies. That tool was specifically designed for them to create efficiencies on their side to professionalize their business, to create a tie with -- and improving efficiencies with how they procure material and also to help them grow their business by being able to tap into our edge marketing -- digital marketing programs.

So again, that too is going well. But as you know, we're in a seasonal business. So the selling season, we're really just beginning the selling season. So we rolled that tool out right at the end of the selling season for 2024. And then once you're into the season, that's not something that most companies are going to embark on. So we've got a nice backlog of customers that have seen the tool and that are interested and that we're in the process of onboarding. But again, we are trying to be good, or great, I should say, as opposed to being fast. So we are extending kind of hyper care to those new customers.

And again, the feedback for the customers that are using it is really good. And I know that people that will use it, that will see the benefits that we talk about. And more importantly, it will allow them to tap into our digital marketing programs, which will allow them to grow their business as well as gain the operating efficiencies.

[Operator]

Our next question comes from David Manthey from Baird.

[David Manthey, analyst]

First off, Pete, historically, your long-term growth algorithm was for 6% to 9%, that's inflation 1 to 2, installed base growth, 1 to 2, new pools, 1 to 2, giving you 4% to 6% industry growth and then pull out growing that by 2% to 3%, I guess, acquisitions 0 to 1.

And with all of those puzzle pieces when you think about the next 5 years, any reason to believe there would be a change to that formula? Or do you want to tweak any of those variables at all?

[Peter Arvan, executive]

No, Dave. I don't think so. The one thing I would tell you is the 1% from acquisitions, which was a much easier number when we were a much smaller business is going to become harder. There aren't a lot of acquisitions out there that can get us 1%. So most of the growth that we will get will come from share gain, the installed base growing, new products, so -- inflation and such.

So when I look at our long-term model, it's predicated upon, one, you return to a normal cycle on new pool construction. We need to return to the normal cycle on renovation remodel, which I believe both of those things are going to happen. We believe that we've invested prudently in our business to provide additional value to our customers, which will allow us to continue to grow share and to continue to drive operational efficiencies for both us and for our customers, which should help us from a share gain perspective.

I don't see any major changes in the pricing algorithm for how the industry operates, and the installed base continues to grow. This year, it's going to be closer to 1% net growth. But when we get back to a normal cadence on new pool construction, we'll be back closer to the 1.5 to 2x -- or 1.5% to 2% growth from installed base.

So long term, I think those are very much intact. The only caution I would give you is on the acquisition front.

[David Manthey, analyst]

Yes. Fair enough. Thank you for that color. And second, the value of new pools, if we look 5 years before COVID, a new pool is running [ 40,000 to 50,000 ] and then during COVID, kind of [ 21 to 23 ], it was [ 55 to 65 ] moving up. And Pete, back in February, you said that the average was looking closer to [ 80,000 ] at the time. I'm just wondering, has there been this year or do you expect in '25 or '26, any retrenchment at all in that average price, whether that's component prices coming down, content mix? I mean anything? Or does that number just continues to stair-step higher, do you think?

[Peter Arvan, executive]

I think there's a couple of things that could drive that. One is, obviously, the biggest component of new pool construction cost is labor. I don't really see a change in labor cost because of the inherent inflation that's been driven through the entire economy, and I don't really see wages dropping anytime in the near future. We're at essentially nearing full employment. So it's not like that there's a lot of people that are looking for work that would -- that could potentially drive down wages. I don't think that is the case, certainly, for this type of work.

I think inflation on the -- or the inflation of the cost of materials is also, I think, pretty sticky. If not, I don't see any of the major components coming down much. I mean you might see on commodities, you might see some deflation or inflation on steel or PVC, but those are relatively small in terms of the total cost of the pool.

You mentioned features. What I would tell you is, today, our new pool construction, we believe, is going to be off in that 15% to 20% range, which brings us to a number that we haven't seen in many, many years. A component of the $80,000 pool cost is the mix and that we're seeing higher-end pool being built versus lower end pools. So if, just logically speaking, if new pool construction returns to a normal cadence, you're going to have more entry level to mid-level pools, which could mix down the total cost -- or the average cost, if you will, but that's simply a function of more overall mix than defeaturing.

[Operator]

Our next question comes from David McGregor from Longbow Research.

[David S. MacGregor, analyst]

I wanted to ask you about the private label offering, and you've talked about leveraging that line with the investments in POOL360. Could you just talk about any plans or your thoughts longer term about expanding that private label offering? And also, while we're on it, how do the margins on that line stand up in this kind of environment? Are you seeing some narrowing in contribution? Or are they getting better? Any kind of color around that would be helpful.

[Peter Arvan, executive]

Sure. David, good question. I would tell you that the private label for us is a very important part of our go-forward strategy. But we're very focused in a few areas. So, for instance, the largest product category that we have as a company is -- which comprises 30% to 35% of our business is going to be equipment. So I don't see us getting into the equipment game from a private label perspective.

With the acquisition of Pinch A Penny, we acquired a world-class chemical packaging facility, which has allowed us to essentially refresh our brands. I mean, for the longest time, we had proprietary brands. We had Regal and E-Z Clor and [ Life ] for our chemical lines, but frankly, they weren't complete and they were a bit outdated. So with the acquisition of Pinch A Penny and the knowledge that we acquired on the chemical side, we were able to refresh those brands, and we're leaning heavily into those. They have been refreshed. They have been rebranded. They look great. We have a complete line. And frankly, they're as good as or better than any other product in the market. And we think that will continue to allow us to gain share in that space.

Because when you think about brands on chemicals, it's much more important on the retail side than it is on the service side. On the service side, they're buying essentially product in a bucket as long as it works, brand is really not a big part of that. Price is a bigger component of it, availability is a component of it, being in the right location is a component of it, all of those boxes we have historically checked very well.

Where we were weaker was on the retail side, and there are thousands of independent retail stores that are selling pool chemicals every day that we now can compete head-to-head with the best and the biggest in the industry, which provide us a nice opportunity to continue to grow. There's also some maintenance products, whether you're talking about cartridge filters or just tools, right, for the [ Pool Pro ], which is net poles, brushes and such, which are a big portion of the industry that -- and some parts where, again, our work on the servicing side, and product management side has allowed us to refresh those brands and bring something to market that is complete, that is unique, great product that we think provides an opportunity for us to grow and continue to take a bit more share, leveraging our footprint.

So we have almost, in total, almost 450 locations. From a transaction count alone through August, we had over 5 million face-to-face transactions with customers in our branches, which provides an enormous opportunity when you have a very good curated product line to help grow our business and enhance the customers' business at the same time. From a -- so we tend to lean into that very heavily because we see that as a very rich opportunity for us going forward.

And then certainly, on the margin side, when you're talking about our brands, the margins are accretive. They're better than when we're selling other products. So that, too, is a win for the business. So when you combine the enhanced marketing programs, the real focus that we've had on product management and product development, if you will, on the chemical side and Tools & Maintenance. And then you look at that across 5 million-plus transactions, and that was only through August, it provides a nice opportunity for us to grow for many years to come.

[David S. MacGregor, analyst]

Got it. A lot of potential there. I guess as a follow-up question, just with respect to the $20 million of technology spending this year. I guess it's early to think about 2025, but just your preliminary thoughts on directionally where that level of spending goes? Are we going to a more aggressive spend on technology next year?

[Peter Arvan, executive]

Yes. I don't think it's going to be much different, right, because we did a bunch of work this year that we won't have to do next year. We -- technologies went [indiscernible] near in the technology business. And I believe we're in the technology business now. It's -- you're never done. So we have to continue to invest to keep our tools current and value accretive to our customers and to us. So I look at the spend as a -- given our size and scale, frankly, it's not a lot of money. And I would tell you that early and it's early, we obviously haven't settled on our 2025 budget yet, but I don't see any major change in that number.

[Operator]

Our next question comes from [ Chirag ] Patel from Jefferies.

[Unknown Analyst]

Just wanted to kind of cover the competitive landscape that you're seeing currently, specifically, just the actions from SRS, if there's any sort of an impact in your business. I know it's still early days. Just trying to get a sense for how that kind of lays out as we go forward.

[Peter Arvan, executive]

Yes. Thank you. I would tell you, nothing really new to report on that side hasn't been -- we haven't experienced really any changes from what we've seen in the past. The industry obviously is more competitive now because the industry is smaller than it would be with a normal new pool construction and remodel and renovation market. So you have to be on top of your game in terms of value. We never sell on price, right? So we're not the price leaders never intend to be the price leaders. We sell on value and providing the best customer experience.

Some of our competitors, the only way that they can compete with us on price, is on price. Nothing new in that regard. We expect that to continue, but it's nothing that we haven't seen before. It will ebb and flow with demand as demand in the industry improves, than I would say competitive pressures will probably abate some. If the industry stays contracted, then I would expect competitive pressures to continue to be robust.

[Operator]

Our next question comes from Andrew Carter from Stifel.

[W. Andrew Carter, analyst]

I guess the first question I wanted to ask is about Chemicals, kind of comprehensive question.

Number one, it's been kind of volatile the past couple of years, price skirmishes or whatnot. Where do you see kind of the pricing now going into next year? Do you see any giveback from your manufacturers?

And then a second question on your chemical supply chain. There was obviously the plant fire in Atlanta, I believe it Biolab facility. There is a storage, I don't imagine it's not much disruption. You haven't called it out. But could you speak to kind of how your chemical supply chain, our procurement is different now than 4 years ago? Are you -- do you have just as much risk around one supplier? Or are you much more diversified?

[Peter Arvan, executive]

Yes. Thank you, Andrew. The -- our chemical supply chain is much more diverse than it was for a couple of reasons.

Number one, we have our own packaging facility today that we didn't have that procures product from multiple sources. So from a surety supply perspective, we're in a much better position than we were a few years ago.

Your first question -- the first part of the question had to do with pricing. I would tell you that, as I mentioned in my comments, overall chemical pricing, now there's some up, there's some down. But by and large, chemical pricing is fairly stable. And I don't think that at this point, I see any major changes in that.

As far as the disruption from the fire in Georgia, it really has no impact on us. And at this point, I would tell you, I think there's limited to no impact on the industry. So no major changes.

[W. Andrew Carter, analyst]

And then a second question, kind of thinking about new construction. I know that we're kind of -- we're at 59,000 units kind of the end of the year. I think that's where your guidance is. Going into next year, I know you need that piece of the business to grow kind of high single digits to hit your long-term algorithm.

Do you need rates to come down and see some easing in these next couple of months for consumers to make that decision next summer? Or could it be a longer lag in rate improvements or whatever or in just any kind of early indications of how you look at that market next year, now capital costs are still high, pool costs are still high, but anything help on that side would be helpful.

[Peter Arvan, executive]

Sure, Andrew. So here's what we're hearing from our dealers. Our dealers are telling us the phones are ringing, people want pools. Their people are asking for budgetary pricing in some cases where they've had pricing from the past, they are refreshing that pricing because there's still the underlying demand, they still want the swimming pool. So I would tell you that the overall demand environment is still cautious, but there still is demand.

If you go back to kind of pre-COVID days, you were talking about an 80,000 pool new build market, and we're down -- we're going to be 55,000 to 60,000 pools this year, which is obviously much lower than it was during the peak. But the -- in order for the return to, I would call, normal to happen, the housing market is going to have to loosen up a little bit, and that's not going to happen, I think until there's a little more movement on the rate side.

So I think the Fed's attempt with the first rate cut is good. I think it's going to take more than that. But again, from our perspective, the thing that's very encouraging is home values are still very strong and home equity levels have never been higher. So people have the ability to borrow. I think it's a combination of just the overall economic conditions in the country right now that are causing people specifically at the lower and mid end that would want a pool to say, I probably need to wait a little bit more to make sure that there isn't a relapse on the inflation side and our overall cost of living is going to increase.

I think they've seen -- we all accepted and had to absorb significant pricing for consumable goods, if you will. And I think over time, wages are catching up. I think that if the Fed continues to loosen the monetary policy and we get the housing market moving, then I would tell you that the first thing we would probably see is renovation and remodel would be the -- one of the first things we see pick up, followed by new pool construction.

[Operator]

Our next question comes from Trey Grooms from Stephens.

[Trey Grooms, analyst]

My line dropped off during the middle of the Q&A. So please forgive me if you've touched on any of this.

But Melanie, you reiterated the EPS range, $11.06 to $11.46. We're mostly through the pretty well through the pool season, as you mentioned, we're making our way through most of October, which I assume is typically the strongest month in the 4Q. So -- and you gave some pretty good color on some of the line items here. But I guess the question is, what could really kind of get us into either the low end or high end of this range, just especially given where we are in the year.

[Melanie M. Hart, executive]

Yes. So the fluctuations in the fourth quarter are going to -- certainly, weather has impacted how long pools within the seasonal markets stay open. So whether or not that will kind of extend into the back half of the fourth quarter.

The other thing is going to be the rate of the new pool construction. So depending upon how much, and how many, of those pools were actually impacting significantly in Florida. And then kind of the converse to that is going to be the labor market in Florida as it relates to some of that new construction.

So when I look at it to kind of the low end, we're going to be certainly on the low end of -- we could be on the low end if that new pool construction number moves down lower. We will make up some of that from the repair market in Florida, but it's not at the same kind of dollar increment as the building that we would see within that time frame. And then also the speed of recovery could impact us to count to [ skew ] to the higher end.

[Trey Grooms, analyst]

Okay. Got it. That's helpful. And then as a follow-up, and this is kind of getting -- maybe into cutting hairs here just a little bit or splitting hairs. But prior guide for inflation and pricing was 2% to 3%, I think it was headwind on the commodity and then 1% to 2% overall. That was the prior guide. And now it's 2% with that same kind of 1% headwind on the commodity, but overall is now [ 1 ] versus the [ 1 to 2 ].

Again, I know it's a small change, but anything to note there on maybe what maybe drove that slight change in the inflation kind of guide here for the year?

[Melanie M. Hart, executive]

Yes, nothing significant. The pickup in the chemical volumes impacted that slightly. Also some of the building material components were captured in that commodity level. So that's impacting it. And then really just the mix of products overall.

[Peter Arvan, executive]

Just so many factors that there's just a lot of factors involved in trying to pin that down. And as Melanie said, mix is going to be the biggest thing that impacts the overall impact of the business from inflation.

[Operator]

Our next question comes from Garik Shmois from Loop Capital.

[Garik Shmois, analyst]

I wanted to ask about some of the smaller end markets here. First off on commercial, I think it was up 7% in the quarter, down from up 16% in 2Q, still nicely positive. But just wondering if you can speak to maybe the deceleration in growth and maybe some broader trends on the commercial side considering it's been an area of focus for you.

[Peter Arvan, executive]

Yes. I wouldn't read too much into that. What I would say on commercial is the function of two things. There's kind of maintenance and repair and there's projects. So projects in the commercial arena, as you can imagine, are very large. So if a lot of it is timing. So it's when the large projects hit and when they invoice. And then when we look further out, we're looking at what does the backlog look like for commercial work.

And then there's a function of -- it's a focus area for us. So we continue to gain share in that area by investing in value creating things for our customers. So I wouldn't read too much into the 7% versus 16% because I believe when I looked at that, that it's mostly project-driven and when projects actually invoice.

And also just for -- to contextualize it, just remember, it's still a pretty small portion of the business in total. It's encouraging that there's certainly more opportunity there than there is on the residential building side in terms of investments in new construction and large projects, but it's also relatively small. So you kind of have to dimensionalize it, too.

[Garik Shmois, analyst]

Yes, of course. And then I guess just secondly, just on the retail part of the business, again, I apologize for focusing on some of the smaller end markets here at the end of the call. But Pinch A Penny's, I think, were flat in Q3, maybe a little bit softer than the rate of growth. Than the last quarter, but retail -- your sales into retail actually improved sequentially. So anything to glean out of those kind of diverging trends?

[Peter Arvan, executive]

No, I think that the overall consumer, so think about what a retail store is going to sell. Retail stores are going to sell things like chemicals, which are nondiscretionary. That part of the business from a retail perspective has been good. But things like robotic cleaners, right, our toys and games as such, tend to be much more discretionary. And when we have seen some headwinds this year on the retail side, the biggest area from a headwind perspective is on the cleaner side.

So you don't have to have a cleaner, but most pools do. I don't have to have a robotic cleaner. It just happens to be the best cleaner in the market, but the downside is they're quite expensive. So if you have a consumer that is struggling with cash flow and the idea of plunking down to $1,000 or $700 or $1,500 for a high-end robotic cleaner, which is more of a luxury than a necessity, is going to impact the retail buyer more than it would during normal times.

So I think the retail business is good. I think we continue to take share. I love our value proposition for the independent retailer. I love the Pinch A Penny value proposition. But we're also going to have to deal with the health of the consumer, too, and the more discretionary items are going to come under more pressure.

[Operator]

Our next question comes from Sam Reid from Wells Fargo.

[Richard Reid, analyst]

So wanted ask a follow-up question on your algorithm, but this time, approach it from a more near-term perspective. So it sounds like acquisitions will be less of a tailwind. And then you've obviously got fewer new pools entering the base from 2024 to 2025.

So I just want to maybe contextualize those two dynamics plus anything else that you think might be relevant for 2025 in the context of your 6% to 9% algo?

[Peter Arvan, executive]

I would say, and I'll let Melanie chime in if I missed something. I would say on new pool construction, I would -- and again, we haven't called 2025 number. So it's very hard for me to -- and the fact that I can't really speculate on what 2025 is because we don't have enough information. But certainly, for our long-term algorithm to be back and reflective of what is actually happening, we're going to have to see a return to more normal new pool construction. And it's just -- frankly, it's just too soon for me to tell you what I think the 2025 new pool construction season is going to be.

The acquisition, I'm pretty comfortable with what I said on that in terms of -- I don't think yet given our size that when I look at our acquisition pipeline, which we certainly have things in the pipeline, just none of them are big enough to really move the needle consistently at that 1% range over time.

[Melanie M. Hart, executive]

Yes. So specifically to the portion of the growth algorithm that relates to the new construction, being where we're going to kind of finish out the year, we're very far from normal. So if we finish this year, 55,000 to 60,000 new pools. Pre-Covid, we were around the 80,000 range. The growth that could be made up in order to get us there would be slightly ahead of the 1 to 2 that's in that current long-term algorithm.

[Richard Reid, analyst]

No, that's helpful. And then maybe switching gears and touching on Q4. So I wanted to get a sense for the sales number that you're seeing quarter-to-date this go around September -- or in October specifically, I want to say the guidance implies something closer to down 5% for the fourth quarter. Are you tracking at those levels quarter-to-date above those levels below? Just want to get a sense for that as we head into year-end.

[Peter Arvan, executive]

Yes. As you can imagine, October is a more critical month of the quarter. And October is tracking above the [ 5 ] that you cited. So that we're seeing strong demand in Florida right now as their renovation remodel -- I'm sorry, as the repair work goes on. The offset is that what we're not sure of is the impact on new pool construction for the remainder of the quarter.

So October -- October is good. And I don't -- I think the rest -- as I look around the country, I think we're performing well there. But it's -- the biggest wildcard for us in the fourth quarter is going to be the -- what is going to be the impact on fewer pools that we think will get built in Florida in the fourth quarter and how much of that can be made up or by the repair work.

Now the weather in October so far has been pretty good. So that's favorable as well.

[Operator]

And our final question comes from Shaun Calnan from Bank of America.

[Shaun Calnan, analyst]

I just had a couple on the gross margin bridge on Slide 6. So it looks like you guys had 100 basis point improvement from supply chain benefits. Can you just talk about whether you expect that to continue to improve? Or is this kind of a normalized level?

And then on the customer mix, is that something that you expect to reverse over time? Are we at like a more normalized customer mix after having a bunch of smaller customers during COVID?

[Melanie M. Hart, executive]

Yes. So as far as the 100 basis points, we specifically included on that bridge, it is more conceptual versus quantitative. So I wouldn't equate that to 100 basis points from an improvement standpoint. But to answer your question, as it relates to the supply chain benefits, we do continue to expect to see the benefit related to the private label, our pricing initiatives, our CSL initiatives that we have had in place over the last several years that have kind of taken us through this volatile period that, that will continue going forward. And we have further actions that we intend to take as it relates to that.

Specifically to your question on the customer, we have seen in this market where there are fewer pools to be built that our larger customers are winning more of those jobs. And so that is putting some pressure on our margins from a pricing standpoint because we do have our customer [indiscernible] programs with those larger customers.

When more pools start getting built and we get back up to that more normalized 80,000 pool level that will allow for smaller tool builders to come back into the market. And so that will put some more balance into our gross margins.

[Shaun Calnan, analyst]

Got it. And then the other one I had was just -- so it looks like you guys were in line or beat consensus on sales this quarter, but the gross margin came in lower than at least us on the sell side we're projecting. What do you think kind of drove that? Did you see any increased pricing competition? Or is it just a difference between what we were expecting and you were expecting on the gross margin?

[Melanie M. Hart, executive]

Yes. When we -- when you look back at our commentary as it relates to second quarter, we did, at that point in time, projects that the margin for both the third and fourth quarter would be similar to last year. And so we haven't made any changes to that expectation.

[Operator]

Gentlemen with that, we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to Peter Arvan, our President and CEO, for closing remarks.

[Peter Arvan, executive]

Thank you all for joining us today. We look forward to reporting our full year and fourth quarter results and initiating our guidance for 2025 on February 20, 2025. Until then, I hope you all take some time to enjoy the holiday season and have a happy and healthy new year. Thanks for your support.

[Operator]

And with that, ladies and gentlemen, we'll conclude today's conference call. We do thank you for attending. You may now disconnect your lines.