Good morning, and welcome to the Pool Corporation First Quarter 2013 Results Conference Call. [Operator Instructions] Please note, this event is being recorded. And I would now like to turn the conference over to Mark Joslin, Vice President and Chief Financial Officer. Please go ahead.

Thank you, Emily. Good morning, and welcome, everyone. Before I get started, and before we get started this morning, I would like to remind our listeners that our discussions, comments and responses to questions today may include forward-looking statements, including management's outlook for 2013 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 materially from projected results are discussed in our most recent Form 10-K, as filed with the SEC. And at this point, as usual, I'll turn the call over to our President and CEO, Manny Perez De La Mesa.

Thank you, Mark. And good morning to everyone on the call. The more normal weather this year contrasted sharply with the very mild winter of 2012. This weather resulted in delayed pool openings by roughly 1 month, directly affecting sales in most seasonal markets. As highlighted in the press release, base business sales in the year-round markets of California, Florida, Texas and Arizona were up a collective 9.8% in the quarter. This sales result is more reflective of our performance than the collective sales decrease experienced in the other swimming pool markets. It's also positive to see the continued recovery of our Green business with 13.5% base business sales growth. Adverse weather, fewer selling days and an especially challenging market environment all contributed to a 15% sales decrease in Europe. Our sales projections for 2013 remain constant with the annual guidance provided in February of 5% to 7% sales growth overall. In our focused customer segment, retail, sales declined 7.4% compared to 2010's 10% growth, while our strategic priority product segment, building materials, increased by 12.8% on top of 2012's 25% growth. Both the retail customer segment and the building materials product segment provide us the opportunity to increase sales and gross profits at an accelerated rate. Moving to gross margins. A combination of adverse geographic market, product and customer mix, coupled with the usual competitive market pressures, resulted in the first quarter margin decline. By way of comparison, the greater weighing of construction business in Horizon resulted in a 13.5% sales increase, converting to an 8.4% gross profit increase. More influenced by product mix, the 9.8% sales increase in the above-referenced year-round Blue markets converted to an 8.1% gross profit increase. Meanwhile, the 9.8% sales decline in the rest of the Blue markets converted to a 10.1% gross profits…

[Operator Instructions] And our first question will come from Ken Zener of KeyBanc Capital.

When you look at the Horizon business growing 14 -- roughly 14% in 1Q, can you frame out just cyclically how much sales have declined from the peak, A; and what that would translate into EPS, I assume, at kind of that 15% corporate incremental rate? And then if you could give us a little flavor because I know it's not just new construction that drives it, but obviously, housing starts are up a lot. Is it -- are you seeing a real pickup in terms of baby boomers writing checks to put a pool in their backyard? Or can you describe that growth a little bit?

Sure. First, let me talk to -- talk about Horizon. From the peak of that sector or that business to the trough, it was roughly a 60% to 65% decline in industry volumes. That has begun to recover. And last year, there were real headways made in that regard and, this year, it's continuing in that vein. But as we, I think, reflect in our investor presentation, there's a strong correlation overall in terms of our sales in that business and overall single-family home construction. So to that end, as that has covered a bit from its trough, the Horizon business has also recovered in kind. It is still significantly below what we believe to be normalized levels of single-family home construction, so that still has a long tail to get back to normal, especially understanding that irrigation systems are put at -- put in at the tail end, just before delivery of a home. So again, that still has a ways to go from a full recovery standpoint. The contribution margins there are close to our flow-through of 20%. So to that end, as that recovers, that will very directly go to the bottom line. Last year, for example, we had about a nickel's worth of benefit in our earnings per share growth from 2011 to 2012 from the improved performance in the Green side of our business. On the second question, Ken, that you asked, which was more related to pools, was whether there was a change in consumer behavior and people springing forth and shelling out $30,000, $40,000 for a new in-ground pool. That has not been happening to any significant degree in terms of change in behavior. There has been a modest improvement from '09, 2009 to 2010, 2010 to '11, '11 to '12. And we expect a little bit more like that in '13. But if you look at new pool construction levels in '13, they are still going to be down roughly 70% from peak levels and down about 60% from what we believe to be normal levels. So there is still a long, long ways to go in that regard as well. So coming back here, if you make an analogy to a baseball game in terms of recovery, I think the new construction segment of the -- of our Blue business and our Green business are perhaps in the bottom of the second inning in terms of that recovery.

One more. On the building product and strategic initiative that you're doing, very good sales on a very difficult comp. Can you highlight how much of that, your business, that is, today and if you do view that as a gross contributor to the gross margins? Or is that really more just of a top line factor to help you outgrow the market?

In terms of building materials, last year, it represented overall roughly 7% of our total sales. Our margins, gross margins, there are very similar overall to our overall company gross margins. And the way -- what we see there is 2 things. One is, it's an element or area of the market where we have significant opportunity to grow our market share. And secondly, we also anticipate that, as the building sector recovers, we will be participating in that as well. So there's a double-leverage component there that will take place over the next 5 to 7 years. The success that we've had not just in the first quarter of this year but over the course of the past several years has been largely driven by market share gains. And we continue to realize market share gains. And I'll also make a note that a lot of that growth is not so much driven by new construction but the remodeling activity that's taking place. And that remodeling activity, much like equipment replacement, is based on the installed base of pools and the aging of that installed base of pools.

Our next question is from David Mandell of William Blair.

Can you please -- can you talk a little more about the price competition you're seeing? And has there been any changes?

With respect to price competition, as most of you know, we compete primarily against local and regional distributors. We also compete indirectly against mass and some manufacturers that sell direct some of their products. And that really -- given the nature of our business is very local, so some years, it -- the competitive frenzy is more intense in 1 geography or 1 or 2 markets in a particular state and then, the next year, it's somewhere else. And there's constant -- in a competitive, free-enterprise type of structure, there's always competitive activity that takes place. I think here, from a pricing standpoint, while certainly there is intense competition, as there is every year, what the main factors driving the year-on-year margin decline are more geographic mix as well as customer mix. For example, at Horizon, my references that I make to Horizon, with more construction business. Obviously, that's -- not obviously, that's more at lower margins; as well as product mix with technology products, which as I've mentioned in previous calls, we may be selling a same-size box at a higher dollar price but receiving less margin percent compensation in the transaction. So those are the overriding biggest factors. I think the competitive market dynamics are like they are in most years, which is again local, very local, but with nuances by market, by product.

Okay. And then regarding that sales number you gave for the retail channel, is that reflective of the tough comparisons? Or is that reflective of just how difficult it is for that channel right now? How difficult to you, regarding market share [ph]?

Sure. The decline in sales in the retail segment? The decline in sales is primarily driven by the tough comparison, whereas last year we had an exceptionally mild winter and this year we did not. The principal product category sold into that segment is chemicals. And that's the thing. In terms of chemicals, you basically -- the outlets there are the maintenance customers that pick those up themselves on a daily basis, the independent retailers that we sell to and as well as the mass and some of the regional and national chains that will buy chemicals direct and handle it internally. So overall, the overriding primary factor is simply the tough comparison because of the differences in weather from year to year.

We also had 1 less selling day.

And 1 less selling day.

Our next question is from Luke Junk of Robert W. Baird. Luke L. Junk - Robert W. Baird & Co. Incorporated, Research Division: So just first question, could you maybe talk about the overall acquisition landscape here, including your appetite for Green acquisitions going forward? And related to that is if you have any details on the March acquisition of a swimming pool supply center?

Sure. In terms of acquisitions, we are always open and that is especially the case in markets where we have no presence. So as a matter of course, for the past several years, the Green side of the business has been -- proportionally have had greater focus because there's about half the markets in the Green business domestically we're not in. The second consideration would be markets where we have a very small share and we would look to augment that by buying another local distributor in that market. Those are the 2 primary drivers overall, very open. Obviously, from a balance sheet standpoint, we have plenty of capacity. Our banks are constantly asking us to borrow more money. Debt-to-EBITDA we're at 1.3, which is extremely conservative. Our cash flow generation, we bought $150 million worth of shares in the past 2 years. And frankly, if the right acquisitions are available and out there, we certainly have the wherewithal to do them but they have to make sense. In markets where we already have a very good share, generally speaking, and an established organization and team, the -- generally speaking, we get a better return on capital by just leveraging and building upon what we have. But when you look at the investments we've made as a company, over the course of time in providing -- in tools to provide value, resources that provide value for both our customers and our suppliers, we execute the right way, as we generally do. We gain share organically and that's been the greatest source of profits and profit growth for us, historically. Luke L. Junk - Robert W. Baird & Co. Incorporated, Research Division: Okay, that's helpful. And then second question for me, just -- and maybe it's better to look at this through the lens of your year-end markets that did well this quarter. But just -- do you have any color on maintenance and minor repair trends versus some of the more discretionary, major renovation and new pool construction?

Sure. Maintenance and repair is driven by the installed base. The installed base has grown by about 1% per year for the last several years. So in terms of unit growth, that would drive the industry unit growth, that 1% plus perhaps 1% to 2% inflation. So you've got a -- that sector, from an industry standpoint, is growing at a 2% to 3% rate. We typically grow somewhat faster than that given our market share gains, as I talked about earlier, and that should continue over time. I anticipate that, if the -- with the industry at a 2% to 3% growth rate, as it has been for the last several years, in terms of both units and adding a little bit of inflation, if you factor that in, that 2% or 3% for us becomes probably 4% or 6%. And that's, as you probably know -- or I know you know, is a majority of our sales coming from that segment. So when you look at our business, it's reasonable that we'll grow that sector by about a 4% to 6% rate. Luke L. Junk - Robert W. Baird & Co. Incorporated, Research Division: And then that relative to some of the more discretionary spending, Manny, just maybe the...

The more discretionary spend will grow at a faster rate than that. And based on very low numbers, whether it be the installed base of pools, the aging of the installed base of pools coupled with a gradual revert to normal from a consumer behavior standpoint as well as the gradual recovery of new construction, when you look at those 2 components, those 2 components should grow at a more like a 10% rate for us. So when you weigh that, call it 10%, on top of the 4% to 6% for the maintenance and repair-type products, that's how we get to the 5% to 7% rate overall for the year. Luke L. Junk - Robert W. Baird & Co. Incorporated, Research Division: Okay, helpful. And just 2 quick modeling hits, if I could. One, on the Blue sales, on a base business, would that be up 2%, roughly in line with the overall?

It actually rounds to 1%. Luke L. Junk - Robert W. Baird & Co. Incorporated, Research Division: 1%? Okay, perfect. And then second, just view on pricing in 2013. Are you still seeing that as a 1% to 2% tailwind?

Yes. Pricing for '13, I would say, 1% to 2% and probably closer to 1% than 2%.

Our next question is from David MacGregor of Longbow Research.

Manny, can you just talk about your private label business? And what's happening with respect to top line growth and any possible margin improvement?

Sure. Our private label and exclusive products represented approximately 25% of our GP dollars domestically in 2012. And that's an area that we continue to focus on. What it serves to do is it helps not only provide us with greater margins but, more importantly, it provides our customers with greater margins. And that's the key, key consideration for us because, by virtue of the fact that we can control how those products are marketed in terms of which customers, what channels, things of that nature, what it serves to do is it insulates our customers from what I'll refer to as irrational competitors. And we can be very deliberate in that process. And again, that helps our customer's margins and, as a consequence to a degree, also helps our margins. And that's obviously important for us. We'll continue to grow that part of our business, we'll continue to invest resources to build that segment of our product mix and offering. So it's something that is very important for us strategically.

How should we think about the growth rate in that business going forward?

I think it's reasonable to assume that, as a percentage of our total mix, it'll increase by 1% in a typical year and, in a one-off year, it could grow by 2%. And the sensitivity there is, from a -- as a distributor, we're hypersensitive to our service levels to our customers. And we have to have good evidence and high level of comfort that not only are our private label or exclusive products providing our customers real value in terms of the opportunity to generate new sales and/or higher margins but we also have to make sure that, from a quality standpoint, supply chain dynamic standpoint, everything works just right. So we typically take 3 to 4 years before we go from trials to having a national rollout.

Is the thought process to just continue adding private label presence to additional categories within your assortment? Or what's the -- what's kind of the strategy there over the next 2 to 3 years?

The -- as it has been, it would be to add. And then potentially, not necessarily in the next 2 or 3 years but over time, as those products prove themselves to be better for our customers and for us, we may also at that juncture, at some point in time, decrease the offering of generally available products.

Our next question is from David Mann of Johnson Rice. David M. Mann - Johnson Rice & Company, L.L.C., Research Division: Manny, when you look back over seasons that are similar to the way this one is starting with the weather, at what point do you start losing business in some of these non-year-round markets because of the weather? And perhaps, what's your read on pent-up demand in some of those markets?

Sure. In the seasonal markets, last year, we got the benefit of another month's worth of maintenance activity. The fact that those pools were open that additional month or so, not only did it move forward some activity but it also added a month's worth of maintenance. So that's lost. And this year, it's a more normal expectation from a seasonal standpoint. So at this juncture, everything looks like it's a normal season, although the weather was certainly cooler in the first quarter in the seasonal markets. Typically, again, pools don't open that early in those seasonal markets, so therefore, they are beginning to open now and we are seeing the increase in terms of daily sales rate, as we have and started seeing in the latter part of March and certainly through April to date. David M. Mann - Johnson Rice & Company, L.L.C., Research Division: Has there been a material change in the trend in April?

From a daily sales rate standpoint versus March? Sure, that -- but not materially different than it would be in a normal season. So if you go back to 2010 or 2011, it's similar to those trends. David M. Mann - Johnson Rice & Company, L.L.C., Research Division: Okay. And then in these -- in some of these markets where things may be starting later, does that add a potential for more competitive pressure from some of those smaller competitors you have out there?

Sure. The fact that customers aren't as busy gives them the opportunity to shop around more. And once the season starts and things get busy, then what's most important is who has it and can provide it, the complete needs of that customer, best. And that's where we really shine. When a customer calls and says, "I need 28 items at 2:00 in the afternoon delivered to 123 Main Street", and we have the 28 items and we deliver it, that goes a long ways. If we only have 26 of the 28 items and they have to make a second call to 123 Main Street a day or 2 later to finish the job, that's very inefficient for our customers. And in fact, it -- a 5%, 10% difference in the price of the materials is blown away by the labor inefficiency that results. So again, when season starts, what's most important is the ability to serve and that's where we shine.

Our next question is from Anthony Lebiedzinski of Sidoti & Company. Anthony C. Lebiedzinski - Sidoti & Company, LLC: First, the comment, Manny, that you had about the 9.8% base business sales improvement in the year-round markets. What's the comparison versus the first quarter a year ago for that specific item?

That's a great question. I don't have that in front of me but I would venture to say that it's probably in the high single digits. The markets that had the biggest benefit in the first quarter of last year, with growth rates in the -- well into the teens, in fact, in some cases over 20%, were in the seasonal markets. Anthony C. Lebiedzinski - Sidoti & Company, LLC: Okay, that's helpful. And as far as the gross margin, obviously, first quarter we already know, kind of can you give us a sense as what your expectation is for the gross margin for the balance of the year and also for the next 2 to 3 years?

Sure. In terms of this year, what I see playing out is that the year-on-year margins, the delta will decline in the second quarter and probably in the back half of the year be very similar if not a little better than last year. So what basically you'll have is a -- when it's all said and done, our margins -- gross margins for the year will be very similar to last year, which is why, when I talk about our guidance for 2013, I'm looking at 5% to 7% growth in both sales and gross profits. In terms of '14, '15, '16, I would anticipate that margins will be very similar to '13 overall. There are some pluses and minuses playing out here. Certainly, our continued evolution with private label and exclusive products will help margins, as well as our improved sales, sourcing, purchasing and service execution. On the other hand, the headwinds that we have there is mix, particularly in the construction side. Some of the higher-value products carry with them a lower gross margin percent. That's one of the things that, when you step back and you look at it and you look at profitability by customer and profitability by product segment, you have to be cognizant of the fact that, when you're moving a box that, let's say, is sold for $1,000, that transaction is going to naturally come with a lower percentage margin versus the transaction when you're moving a box that goes for $50, will have a higher margin percentage. But obviously from a transaction cost standpoint, they are more similar than not. So therefore, you would expect that lower-transaction-dollar items will have higher margins and higher-transaction-dollar items will have lower margins. And that's -- again, as there's ongoing recovery of new construction, whether it be on the Green or Blue side of the business, as well as more remodeling and equipment replacement activity entering the mix, that's the headwind that we have overall. From a competitive market standpoint, very, very competitive and I -- my perception is that a good many of our customers aren't making very much, if any, money in today's environment, so don't have any sense that they'll be going any lower than they are from a margin standpoint because that would just accelerate their demise. Anthony C. Lebiedzinski - Sidoti & Company, LLC: Okay, that's helpful. And as far as new locations, you opened 5 in the first quarter. First, are these mostly in existing markets? And second, what's your outlook for new locations for the balance of the year?

In terms of the openings, yes, they're all in existing markets. These are what we refer to as satellite centers, markets that we were serving remotely from an existing location with regular delivery and now we've added physical presence to enhance our service level to the customers in that immediate area. In terms of -- I think there's a couple left for this pool season or for this season overall and then we'll be opening several more at the tail end of the season, which will have a little loss, but that's -- we do that every year. We'll have several at the back end of the year that will open either in the fourth quarter or first quarter. That'll be for that 2014 season. Anthony C. Lebiedzinski - Sidoti & Company, LLC: And just curious, as you open these satellite locations, is there any risk for a cannibalization effect for the other sale centers?

Yes. We factor that in. When we look at these openings, we look at it from an incremental standpoint, in terms of what incremental sales are we going to realize that we otherwise would not be able to realize, incremental GP and play that against what the incremental costs are. And we look for the same 30% pre-tax return by year 4 as our hurdle rate.

Our next question is from Keith Hughes of SunTrust.

My question has been answered.

[Operator Instructions] And our first -- our next question will come from Joan Storms of Wedbush Securities.

I had a question, just wanted maybe a little bit more detail on the question related to the maintenance versus more discretionary spend. Is it -- I got the growth rates but are the trends that you're seeing from those customers that have the existing pools that are 3 years old, 5 years old, 10 years old, are those people spending the necessary amounts that they need to maintain those pools? Or is there still some postponement going on? I mean, what are the trends looking like there?

Well, just for clarification: The maintenance part of the business has remained constant. So those pools have been maintained even in the worst of times. And the best evidence of that is the fact that, through the downturn, from '05, '06 down to '09, our chemical sales, our part sales, our accessory sales continued to grow through that downturn. So the pools were always maintained. Are there one-off cases that somebody abandoned a house or whatever? Yes. But in overall, pools were maintained. Part two is really, I think what you're asking for is, the remodeling and replacement activity, is that coming back? And there's a 2-part answer to that. One part is you've got the consideration of the fact that most of that remodeling and replacement activity begins with pools that are 7-plus-years old. So to the extent that the build rate through 2005, 2006 was healthy, the installed base greater than 7 years old has continued to increase at a rate of about 4% per year for the past 4 or 5 years. The second factor playing into it is that, yes, consumers, pool owners specific, are slowly, and I caution the word "slowly", reverting to more normal behavior, with that normal behavior leading to them not deferring replacement and remodeling. Again, I distinguish that from maintenance. But not deferring replacement and remodeling to the same degree that they were 2, 3 years ago. So that is also a second factor. And overall, when you weigh those 2 factors, first the fact that the installed base of pools more than 7 years old has been increasing at about a 4% to 5% rate the last several years and also the fact that you have a gradual returning of consumer behavior to the normal especially since 2011, when you have those 2 factors weighing into it, we're looking at replacement and remodeling activity increasing by -- from our standpoint, by about 10% per year. Now the industry probably is more like at 7% for that -- in that vein, but for us, it'll be about 10% per year. Does that answer your question?

Yes, it does. But -- and what are the types of things that people in the replacing like, the pool liner and the tile and the concrete, and those are projects that range, in dollar size, from x to x?

Right. In fact, it sounds like you know a pool pretty well. Typically most of those items range from -- depending on whether you do them one at a time or do a whole big job in one -- at one time, generally speaking, they could run as low as $1,000 to $2,000 to as much as $10,000, $12,000 depending on how much you do at one time and what it is exactly that they're doing.

And our next question comes from Brent Rakers of Wunderlich Securities.

This is Anjali, in for Brent this morning. My first question is on the new construction side. I know it hasn't been a material impact on your sales but do you have any -- could you provide some insight from your builder categories on where we are and where you think it's going?

Sure, let me give you context. By our estimates, in 1999, the industry built approximately 170,000 in-ground pools in the United States. That increased, as it had, over the course of the past -- previous 40 years to approximately a peak of 215,000 units in 2005. Between 2005 and 2009, for the first time ever in the industry, unit volumes declined in a significant way to a trough of 45,000 units in 2009. We estimate that, last year, 2012, industry volumes for in-ground pools increased to something close to 60,000, probably 58,000 to 60,000, and that, this year, there'll be approximately 63,000 to 65,000.

That's excellent clarity. My next question is on the 5% to 7% guidance. Could you re-address some of the underlying components in there? And given the strength in the underlying business, the nonseasonal business in the quarter, is there any reason to have more confidence, as you move through the year, on the top line?

Well, that's a great question. And the essence of the subtlety there is that we've already got the first quarter behind us, so that 5% to 7% includes our first quarter results. So therefore, when I go to the components, just to refresh everyone, maintenance and repair, from our standpoint, we will be up 4% to 6%, based on the industry being up 2% to 3%. And then on the remodel/replace as well as new construction, our expectations is that our sales growth will be more approximating 10% in those segments, with the industry being up about 7%. That's -- those are our expectations at this juncture. And that factors in the fact that we had 2% base business sales growth in the first quarter.

And lastly, could you remind us what the gross margin differential between the northern and southern markets is? It's something like 40, 50 basis points?

No, no, no. The -- just the impact of mix, the fact that the 4 biggest states, for example, represented 60% of our first quarter sales in the Blue business in the first quarter versus last year's 55%. That 60% to 55% difference, that -- just that difference was 20 bps.

This concludes our question-and-answer session. I'd like to turn the conference back over to Mr. Perez De La Mesa for any closing remarks.

Thank you, Emily. And thank you, all, for listening to our First Quarter Results Conference Call. Our next call will be on Thursday, July 18, when we'll discuss our second quarter results. Have a great day.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.