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

Thank you, Gary. Good morning, everyone, and welcome to our 2013 year-end earnings call. I would like to remind our listeners that our discussion, comments and responses to questions today may include forward-looking statements, including management's outlook for 2014 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 is discussed in our 10-K. Now I'll turn the call over to our President and CEO, Manny Perez De La Mesa. Manny?

Thank you, Mark, and good morning, to everyone on the call. 2013 marked another year of solid performance despite the challenging external environment. Given the impact of the late start in seasonal markets, we estimate that overall, industry sales increased by a very small amount as solid increases in discretionary products were largely offset by decreases in typically nondiscretionary products. The bottom line is that we again increased market share organically, given our progressively more effective execution and ongoing investments in the value-added tools and resources. The best illustration of our performance was our results in the 4 largest year-round markets: California, Florida, Texas and Arizona, where we increased base business sales by 10.7% and base business gross profits by 9.6%. In contrast, sales in seasonal markets, including Europe, were up only 1.5%, and gross profits were essentially flat. While every market is unique, the distinction in results between year round and seasonal markets is primarily attributable to weather, not performance. Given the context of 2013 results following the gradual recovery in consumer discretionary spends since 2010, we believe that mid to upper-single digits sales and gross profit growth is a reasonable expectation for 2014. This expectation is premised on our continuous improvement and execution, leveraging our ongoing investments in people, tools and resources that provide a unique and comprehensive value proposition to professional trade customers. Our expenses remain in control, increasing a modest 2% in 2013 with our expectation being that they will increase closer to a mid-single-digit percentage in 2014 based on our opening of 7 to 10 new locations, the full-year impact of recently opened and expanded locations, our investments in new tools and resources and an increase in performance-based variable compensation. Given the above expectations for sales, gross profit and expenses, diluted earnings per share should increase by the mid to upper teens percent and potentially 20% with the impact of share repurchases. To this last point, our strong cash flow generation and conservative capital structure should enable us to continue repurchasing shares as we have the past several years with a diluted EPS impact weighted by when during the year the repurchases take place. The expectations for 2014 are consistent with our 3 to 5-year diluted earnings per share growth expectations, with the caveat that our expectations are premised on normal weather conditions over all for the year, which has not been the case the past 3 years. Altogether, we are fortunate to be in the position that we're in. This is primarily the result of our long-term investments in our people and in turn, our people's commitment to our company and to their customers. I feel privileged to hear about the extraordinary things and commitment in services and values that our people provide to our customers as well as to our suppliers. And to that end, I thank them, and I will now turn the call back over to Mark for his financial commentary.

Thank you, Manny. First of all, I'd like to clarify a comment we made on our press release related to our gross profit results for the fourth quarter, just in case of any confusion there. As noted, our gross margin declined 90 basis points in the quarter or 30 basis points more than the 60-point decline we experienced for the year. The reason for the greater decline has to do with accounting adjustments to true up our actual vendor rebates for the year, which are recorded based on estimates for the first 3 quarters and then adjusted to actual at year end. These Q4 adjustments are normally favorable as they were in both 2013 and 2012, but they happen to be more favorable in 2012 than they were in 2013, resulting in the majority of the comparative margin decline in the fourth quarter. Excluding these rebate adjustments, our margin decline for the quarter would have been closer to 30 basis points, reflecting the ongoing impact of mix as discussed previously. Our 2013 base business SG&A cost grew 1.9% over 2012 for the year. This growth was right in line with our target of growing base business expenses at no more than half the rate of gross profit growth, which was 3.9% for the year. One of the shock absorbers we have built into our cost structure is our performance-based compensation, which flexes with our results. For 2013, this component of our cost declined $3.6 million, given that our results were below our expectations. Of course, given our expectations for improved performance in 2014, this will be a bit of a headwind, as Manny had mentioned, but we still expect to be able to hit our target of base business SG&A growth of half the rate of gross profit growth for…

[Operator Instructions] [Audio Gap] Stephens, Inc.

First question I've got is, if we look at the revenue growth that you guys had in the quarter, pretty strong, continues to improve a little bit, obviously, I think the market is a little stronger. You guys, obviously, are doing a very good job taking share. Are there any maybe numbers you can give us around how much share you think you're taking? How much of your revenue growth do you think is market share? And as I look at the various product categories you guys sell, did any standout as being stronger than others here in the back half of the year?

Sure. When we, first of all, expectations -- our numbers, our estimates are that the market, overall, grew by probably something closer to 1% to 2%. And that includes the seasonal markets actually going down, given the very late start to the season year-on-year and in those markets with items like chemicals, parts and accessory items down year-on-year. In fact, from an industry standpoint, when you weigh the whole package together, chemicals sales, which is obviously nondiscretionary, we believe we were down modestly year-on-year, and that's the biggest single largest product category. Parts were at best flat year-on-year, and accessory items were no better than flat year-on-year. So that's what weighs down the overall market. And again, that's largely driven by the seasonal markets, not just for us but the entire industry and the fact that the season got off to a very late start in 2013. In terms of the -- for us, what is reflective of, call it differences in organic share growth, the one standout category, which is not new news, is building materials. Overall, we continue to make investments in that product segment, not only from a product line offering standpoint but also in terms of the resources that we assign to it and some of the programs that we do, do to help create demand in that area. And building materials overall, both sales and GP dollars were up over 20% in 2013, and that's a track record that we had. We have been helped there, to some degree, by increased consumer discretionary spend on renovation and products and refurbishment. But I think that at least half, if not more, it's somewhat more than half of that growth year-on-year is market share growth. And again, that's driven by the investments we make, people, resources, programs, tools and of course, the execution of our people at every level in the organization.

And Manny, I know you guys are continuing to put a lot of emphasis on building products, would you expect that category to continue to outpace the total company growth? So if you're looking at mid to high-single digits total company, would that one be up into the double digits in 2014?

The answer's an overwhelming yes.

Okay. And then last thing for me, with the residential construction market appearing to still be in recovery here, does that influence, Manny, your appetite for M&A in the irrigation and landscape market? And I know that's a market that you view as a good opportunity for Pool, and I'm curious if that maybe with the market continuing to get better, do you have an appetite for more or maybe even bigger deals in that irrigation and landscape piece of your business?

We have been looking progressively at building out that network. And frankly, given our long-term view in how we view investments, we were just as aggressive, talking to people in '07, '08 and '09 as the market was crashing, as we continue to be '10, '11, '12, '13 and to date. The balancing there is having a solid understanding of what that business brings to the table and understanding that, for us, we constantly evaluate the market and what the market is comprised of, how that market is served and what the opportunities are from a return on capital standpoint. And we weigh the opening of new locations as we do acquisitions as a way to enter a market. So constantly looking at it, no change there, but it has to make sense. If it doesn't make sense, we don't do it. And that making sense means that from an acquisition standpoint, is that, that provides us something to build on, and because we look at the acquisition as an entry point, not as an endpoint in terms of our market position.

The next question comes from Garik Shmois with Longbow Research.

First question is, if you could provide a little bit more color on your outlook for discretionary versus nondiscretionary sales in 2014 given the context of your guidance.

Sure. Again, this is in part the market and in part our continuing to grow share given our investments in those areas. But we believe that the discretionary product sector, which for us would include anything related to renovation, replacement, as well as new construction, that those areas collectively will grow for us in the double digits. And whereas the maintenance and repair component of our business, which is over half of the total business, will grow closer to the low to mid-single digits.

And then, I was wondering if you could talk a little bit about inventories in the channel, if you're noticing any disruptions given the winter weather and if there's any readthrough this early in the year on how the spring selling season is shaping up.

There really isn't a lot of inventory in the channel to speak of. Our customers, by and large, have little to no inventory. Typically in the great majority of the cases, their inventory is what we deliver everyday or what they pick up everyday. So our customers have had limited inventories, if any. In terms of distribution, generally speaking, at certain product categories, manufacturers have programs to level their manufacturing load and therefore, they shipped some volume that would naturally happen in the spring and early summer. They ship that to the winter and to be more efficient, and to that end, that's pretty normal. So I would say that, at this juncture, in mid-February, there's nothing unique at all in terms of inventories versus previous years.

Okay. And then just one last question, just a clarification question. Within your EPS guidance, you provided the share count and the buyback walk through the balance of the year. Are the buybacks that you identified and the share count that you identified embedded in the $2.35 and $2.45 guidance?

Yes, they are.

The buyback that we executed last year and through the first quarter of this year is certainly included in those share counts that I gave you.

The next question comes from David Mandell with William Blair.

First off, could you guys provide kind of sales growth in the fourth quarter by the Blue and the Green businesses?

Sure. One second. Go ahead with your next question.

The next one is, kind of, can you provide an outlook on pricing and how you're thinking about pricing into next year and then some of the other pluses and minuses as you think about gross margin for 2014?

Sure. Okay. With respect to the first question in the fourth quarter, the Green business was up 7.3% and the Blue business was up 11.2%. With respect to pricing, it depends on the product category. In the case of chemicals, there is more supply than natural demand. And to that end, chemical pricing, accessory pricing, those product categories are going to be flattish. There will be some inflation. Equipment manufacturers announced price increases in the fall that are effective this year and therefore, there will be some price inflation on the equipment side. Overall, when I look at the entire mix of products, we're looking again at something like a 1% to 2% weighted impact from inflation.

And then, as far as the gross margin, are there any other key positives or negatives looking into next year?

Sure. We will still have a bit of a headwind from a product mix standpoint, not so much on -- not on building materials at all since the building material gross margins are very similar to company average. But on the equipment side, which is our lowest gross margin percent product category, equipment, as there is more replacement activity particularly more activity as equipment is -- as we upsell equipment and try to drive more to higher-efficiency units, whether they be variable-speed pumps, high-efficiency heaters, LED lighting, those products provide us with more GP dollars in that we got -- we have -- they're higher price points, but they are also at a lower margin percent. So net-net, that reflects poorly on percent, margin percent, but very favorably in GP dollars, which is why we're such big advocates of that migration despite the margin percent optics. So therefore, that's where the headwind is. On the margin percent, again, not margin dollars, which is far more important than margin percent. The other factor that plays into it is that in 2013, the very late start to the season in the seasonal markets, resulted in the nondiscretionary product sales being down year-on-year and down versus what our expectations were. In a more normal weather year, those nondiscretionary products should have some bit of recovery, and those products tend to be lower-dollar items, which carry with them a higher-margin percent. So in 2014, you'll have those 2 factors kind of mitigating one another, again, the recovery of maintenance and repair items, which carry a higher-margin percent because they're lower dollars, as well as the ongoing migration, particularly toward higher efficiency, higher GP-dollar equipment items, which carry a lower margin percent. Net-net, we're expecting gross margins to be roughly the same in '14 as they were in '13. But our focus, just to make sure everybody understands, our focus is driving GP dollars. So I'd much rather, for example, from a company standpoint, replace, for example, a heater, which is a lower-margin percent than selling the part to repair a heater, which has a much higher margin percent but much lower GP dollars.

The next question comes from David Manthey with Robert W. Baird. David J. Manthey - Robert W. Baird & Co. Incorporated, Research Division: First off, Manny, thus far, over the past several years, the recovery has played out pretty much as you outlined back in '09, and I'm wondering if you're looking out over the next several years here? I think you had some projections out to like 2020. Any course correction, or anything that you think could derail the climb back, a bargain or another Great Recession?

Well, first of all, I'm not that smart. And just to qualify, when we made those long-term projections, we were very careful to note that we expected that to be on average, and that there could be year-to-year fluctuations. Now to answer your question, specifically, when we look out over the next 5 to 7 years, we see the same trend lines and the same recovery taking place with a bigger impact or weighting from replacement, remodeling activity in the early part of the recovery, which is, call it from 2011 through 2015-16 and then new construction being more of a factor in the waiting of the recovery in the latter part of this decade. And again, borrowing like a 1 year, year-to-year blip, the overall trend line, I think, is consistent with what we talked about back in 2009. David J. Manthey - Robert W. Baird & Co. Incorporated, Research Division: And then, you gave us the Blue and the Green. I assume that's domestic only. Mark, do you have the international? I apologize if that's in the release, but I didn't catch that.

We do not have the international. And the numbers, by the way, are comprehensive on the Blue business. So the 11.2% includes Europe and Canada and Mexico and Colombia. David J. Manthey - Robert W. Baird & Co. Incorporated, Research Division: And then, finally, I'm just wondering with the trend towards saltwater systems over the past several years, are you seeing any discernible trends in chemicals over time or have you not seen anything?

That's a great question, David. The impact of salt has progressively been a factor over the past 12, 13 years. And today, we estimate that about 25% to 30% of in-ground pools domestically use salt as the primary sanitizer. They still need chemicals for complete balancing and pool sanitation and pool maintenance, but the primary sanitizer comes in the form of salt and how chlorine is extracted from the salt. That has certainly resulted in the chemical side of the business and natural chemical demands to be essentially flat over the course of the past 12, 13 years for chlorine-based products, whether it be bleach, 3-inch tabs or whatever. So that's a fact. And that's in fact, 1 reason why pricing on chemicals hasn't gone up with inflation. And certainly, that's compressed margins for our suppliers over time.

[Operator Instructions] The next question comes from David Mann with Johnson Rice. David M. Mann - Johnson Rice & Company, L.L.C., Research Division: Another question on gross margin, Manny. I guess, this gross margin this year, if we look at the long term, this is the lowest gross margin I think since '07, and it's been down the last 3 years. I'm just curious, when you look out over the next several years, especially given you're not looking for a rebound in '14, I guess, how should we think about the cadence of gross margin as it drives the P&L?

If you look out over the next 3 to 5 years, our expectations are that gross margin percent should stay fairly consistent with where we are now. That's not to say that we don't have -- we won't have years that maybe up 30 bps or down 20 bps. But overall, we're not looking for any significant change in gross margin over the next 3 to 5 years, gross margin percent in 3 to 5 years. And again, what you have there is you have a number of initiatives, ongoing initiatives, whether it be improving our sales execution, improving our purchasing disciplines, improving our pricing management, improving or increasing our use of exclusive and private-label products, our sourcing investments, all that helps naturally raise margins. On the offset, there is the ongoing migration, which we continue to drive demand for higher-efficiency products, which come with a lower margin percent, generally speaking, since they're higher price points but more GP dollars. So the focus from our standpoint is, and if you think simplistically about distribution, and by the way, since I know you're heavily weighted towards retail, I look at retail the same way. Our compensation is the gross profits that are generated. And that's really our compensation for the services we provide. So therefore, that's where the focus of attention is and what does it cost us to provide those services and what value are we realizing for providing the services that we provide. And again, that's captured best in gross profit as distinguished from sales. David M. Mann - Johnson Rice & Company, L.L.C., Research Division: Great. In terms of the Green business, curious, can you quantify the level of improvement you saw in operating income in '13? And do you continue or do you expect that -- the outperformance you saw there in '13 to continue in '14 and maybe provide some metrics if you could on that?

Sure. Our Green business continue to recover. Their trajectory was about 1-year lag from an external market standpoint compared to the Blue business. And they improved their operating profits in 2013 by over $4 million year-on-year. Our expectation is for a like improvement again in 2014. When you look at the metrics there, again, they're about 1 year behind the Blue in the recovery side, but from a process and management standpoint, they're basically there. I would expect that if not in '14, certainly in '15, all the metrics will line up very close to the Blue side, if not right on top of the Blue side, by '15. David M. Mann - Johnson Rice & Company, L.L.C., Research Division: Okay. And then, lastly, the fourth quarter base business growth was higher than your 5 to 7 or even I think higher than your guidance for the quarter. If that's correct, can you just talk about what you thought went on there and does that have any predictability about the first quarter, given the reliance on these year-round markets?

Not really. And I wouldn't read too much into the fourth quarter, because it's seasonally a very small quarter. So when you have smaller numbers, obviously, percentages are not as useful as a metric. So therefore, I wouldn't read too much into it. It was fine, and obviously it's nice growth, but I wouldn't read too much into it for 2014.

[Operator Instructions] As there are no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Manny Perez De La Mesa for any closing remarks.

Thank you, Gary, and thank you all for joining us for our 2013 results conference call. Our next call, mark it on your calendars, April 17, same time, 11 Eastern, 10 Central, 8 Pacific, where we'll be discussing our first quarter results for 2014. Thank you again, and have a great day.