Good day, and welcome to Pool Corporation’s Second Quarter 2014 Earnings Conference Call. (Operator Instructions) After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Mark Joslin, VP and Chief Financial Officer. Please go ahead, sir.

Thank you, and good morning, everyone, and welcome to our 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.

Thank you, Mark, and good morning to everyone on the call. As reported, we had solid sales and gross profit growth in the quarter despite the lack of a benefit from weather. By way of example, in the year-round markets, California, Florida, Texas, Arizona, base business sales increased by 8.1% in the quarter and 8.3% year-to-date. Excluding Canada, sales increased by 7.1% in the quarter and 8.1% year-to-date in the seasonal markets. After 2013’s late start to the pool season, we were looking for a comparative benefit this year, but as evidenced in our sales results, that benefit did not materialize. Canada base business sales were down 12.7% in the quarter and 12% year-to-date given colder weather with much delayed pool openings. Nonetheless, we believe that 6.6% base business sales growth in the quarter and 7.5% base business sales growth year-to-date is solid. Please recall that there was a shift of roughly $8 million in sales from the second quarter to the first quarter this year primarily in seasonal markets with the earlier shipment of customer early buys. So, in essence, the base business sales growth rate has remained constant at 7.5% in the first half. Building materials again led the way with 22% sales growth in the quarter and 21% sales growth year-to-date, reflecting both the gradual recovery of pool remodeling activity, as well as market share gains. Building materials gross margins are very similar to overall company average gross margins. Equipment sales increased by 9% in the quarter and 11% year-to-date with the sales growth continuing to reflect the gradual recovery of replacement activity. Retail product sales on the other hand increased by only 4% in the quarter and 5% year-to-date. This lower growth reflects both the recent years’ modest growth of the pool install base, which drives…

Thank you, Manny. I’ll start with a few comments on our SG&A costs. As I mentioned on the last couple of calls, our goal for 2014 and over the long term is to grow our base business operating expenses at about half the rate of our gross profit growth and that one of our challenges this year was the normalization of management incentive costs which we expected would add $4 million to $5 million in expense in the second and third quarters over 2013. Now that we’re half way through the year and excluding the impact of incentive costs, which we now think will increase a bit more modestly, meeting our expense growth goals this year would be a challenge. This is due to the softer-than-expected market conditions in some seasonal markets to greater personnel and technology infrastructure investments made to support current and future growth and to higher freight costs this year as driver shortages have pushed freight rates up. While I expect back-half improvements in our expense growth more in Q4 than in Q3, it is unlikely that we’ll be able to achieve this objective this year. Over the long term, I believe leveraging our infrastructure to grow SG&A costs at around half the rate of GP growth is a good goal for us, one which we have in fact achieved over the last five years. Looking back at our base business results for 2009 through 2013, our base business gross profit compound annual growth rate for this time period was 7.9%, while our SG&A compound annual growth rate, excluding incentive costs given their variability, was 4.1%, adding credence to this being an attainable goal for us going forward. Moving on to our balance sheet and cash flow at quarter end, you can see that our total net…

We will now begin the question-and-answer session. (Operator Instructions) Our first question is from Ken Zener from KeyBanc. Please go ahead, sir. Ken Zener – KeyBanc: I wonder the Northern weather that you talked about in seasonal markets, I think in the past, I know last year was wet. I think we had talked about perhaps a $50 million drag from last year, how much of that drag was – if that was easy comp from last year, what was the drag from the Northern markets dollar wise?

Well, there’s two parts here. The seasonal markets in the Northern U.S., we expected them to warm up at a normal schedule. They warmed up at a schedule very similar to last year which is later than normal. So the year-on-year impact was basically net zero in the Northern U.S. overall although we expected it to be a benefit given again how 2013 was a late season. The real issue from a weather standpoint was Canada and Canada this year was abnormally late and our sales reflect that with our being down 12%. And in various discussions with manufacturers there in the Canadian market, we are performing at least as well not better than the marketplace, so that’s reflective of what’s going on there from a weather standpoint. And the impact there, dollar impact is about $5 million to $6 million. Ken Zener – KeyBanc: Sales?

Sales, yes. Ken Zener – KeyBanc: And then, Mark, I mean you had talked about the base cost, the $4 million to $5 million more difficult to offset, gross profit versus the fixed cost. But could you perhaps just translate those type of costs, I mean generally from an EBIT leverage perspective, I think about you guys doing about 15% on the corporate line, that’s still your target, correct, excluding all these base costs comments that you’ve made?

Yes. Ken Zener – KeyBanc: And now freight, you called freight out as somewhat of a drag. How in the past has freight been offset from a cost basis, is that something that works through into next year’s pricing scheme and not in the current year when you get higher freight costs or could you please comment how that worked in the past? Thank you very much.

Sure. We have our own fleet of trucks that handle a preponderance of the deliveries, but we also, where it’s more efficient, we outsource that and use third-party carriers whether it be LTL or small parcel. And it’s those third-party costs that have specifically gone up. Typically, we try to pass that on to our customers where the market permits us to do that, those cost increases, but that tends to be more reactionary. So what’s happened this year with the tightening of rates in the last six to 12 months, we are kind of in the timing sequence behind the eight ball. We will certainly endeavor to pass that on next year and hopefully the market cooperates.

Our next question is from Matt Duncan from Stevens Incorporated. Please go head, sir.

Just on sort of what you guys are seeing in the marketplace. Is the decline in existing home sales, do you think that will have any impact on the pace of refurbishment that you guys are seeing Manny?

We have not seen an adverse hit on the remodel replacement sector. In fact, we continue to see improvement. Now, the perspective here just for the sake of understanding the point, is that replacement and refurbishment activity or remodeling activity really took a hit in ’08 and ’09 and it was flattish in ’10 and began to recover in ’11, but we’re still a ways away from what we view as normal behavior. So while you can argue that the recovery may have moderated a bit or moderated a bit in ’14 versus the rate of recovery in ’13, we’re still in a recovery mode and therefore that is helping two points of reference, equipment being one where we have a 11% year-to-date sales growth and second and more specifically in building materials where we have 21% sales growth. So, basically what we’re talking about here is these are areas that are directly affected by the recovery. Certainly in the case of building materials, we continue to gain share and we do that at a very strong rate. Our share gains are a lot more modest in the equipment side and therefore when you see 11% year-to-date growth there, you are seeing an industry that is growing probably in the very high-single digits in terms of that activity which again reflects a recovery component for that sector.

In terms of the slight difference in growth rate you saw in the Northern U.S. in the sort of non-seasonal markets, the Texas, Arizona, California, Florida markets, is it – I assume that that’s really just a minor maybe delay in some of the chemical sales and just the maintenance stuff from a slightly later opening but not quite as bad maybe as last year, it sounds like maybe it’s pretty similar to what you saw last year in some of those Northern U.S. markets?

Well, what happens here, Matt, is the year-round markets are fairly consistent in terms of from a weather impact standpoint, it’s not very significant. In the seasonal markets, when pools because – remember, by the way that goes back to the fact that in year-round markets the pools are basically open year round, whereas in seasonal markets they are more inclined to be closed in the fall/winter and reopen in the spring. What happens here is that we were looking for an earlier opening in those seasonal markets than last year because last year was later than normal and in fact, this year was, they opened at about the same time as last year. So, I think what’s happened -- and at some point, right, there is going to be a normal weather year. And when that happens, we’ll get a little bit of a lift in the seasonal markets and those will grow at a rate a little greater than the year-round markets.

Okay. And then last thing from me just on the Green business, what are you guys seeing there, what was the growth like there in the quarter and what’s the outlook for that business?

Sure. The growth in the Green business in terms of gross profits was very much in line with the Blue business both for the quarter and year-to-date. And that business is tied to closer to new home construction, so they are not getting the same level of tailwinds maybe we’re getting in ’12 and ’13, but nonetheless we continue to improve our execution and I believe at the rate of growth that we’re realizing, continuing to grow share.

Our next question is from David Mann from Johnson Rice. Please go ahead, sir.

A couple of questions. First, Manny, can you talk about the current tone of the Europe business?

The Europe business is a positive story this year. The economy is still at best, probably a very, very small positive on a GDP level, but given what we’ve done in terms of our people and their execution, we have continued to grow share. And as a result of that, Europe had double-digit sales and GP dollar growth in local currency both for the quarter and year-to-date and therefore reflecting positive results in the bottom line. We still have a ways to go in Europe, and their performance from every metric to speak of does not compare with the domestic results from whether it be return on capital, some of the efficiency measurements like GP dollar per headcount, payroll as a percentage of sales, things of that nature. So we have a ways to go. Some of that is obviously going to be hard to overcome given the inherent inefficiencies of having the need for higher administrative costs for each individual country which we’re not able to operate as efficiently as we are in the U.S. where we have a significant scale. But it’s a positive story certainly versus last year which was the bottom of that market and I think with our continued share growth and improved execution, we’ll continue to get better there.

And then in terms of use of cash, your share repurchase activity this year is already at sort of the level of the last two or three years, how should we think about your appetite for continued activity in line with that? Where should we think your year-end debt level should be given you are at a little higher absolute level right now?

Sure. Our objective is that our trailing 12 debt-to-EBITDA would be 1.5 to 2 times and at the end of June we were 1.48. So we were, in fact, a shade under our target. So therefore expectations are that we’ll continue to be active in the marketplace. The other part of that equation, David, as well as you know very well, is that we have a wind-up and a wind-down of working capital during the season. So, the lion’s share of our cash essentially from our operating results comes in between the June through November time frame. So therefore we’re going to be deleveraging naturally in the next – in the back half of the year. So therefore to the extent that that is offset with share repurchase, we expect that our debt level will be very similar to what they are now.

Our next question is from Ryan Merkel from William Blair. Please go ahead, sir.

So my first question on guidance, should I think about the low end versus the high end as really weather-based sales growth, 6% versus 8%?

Yes.

So and then the follow-up, any revenue swing factors you are monitoring or are you just hoping for consistent?

Well, we do a little more than hope. But from an execution standpoint, what we’re driving to is certain activity and behavior and results. And obviously to that end, we compare that with other monitors that we use to see how the industry is doing. So just as a matter of course if we have 8% sales growth and the industry is growing at 8%, then that’s not particularly good in our minds, our internal standards. Whereas if we’re growing 6% and the industry is growing 3%, that would be very good. So there are extraneous factors, weather certainly being one that directly affects maintenance and repair activity and that is what it is. July and August are not as weather sensitive, weather begins to come into play a little bit in the back half of the year, September, October as pools begin to close down in seasonal markets. But the impact of weather in the back half of the year is naturally less than the front half because if when pools are open that are – there is a trigger of expenditure at the pool owner level that affects our business and our industry.

And then, in the past when the second quarter is soft in the seasonal markets, does it tell us anything about the second half? And what I mean is, can business kind of pop back some things that were deferred kind of pop back in the third quarter or is there just some business that’s lost?

It would be business lost. So therefore, just a point there, Ryan, if somebody opens their pool on May 15 instead of April 15, that’s a month less of expenditures of call it mid-April to mid-May and that’s lost. Typically, by the end of June the pools are opened so therefore it’s done.

Right. I figured. Okay. And then last question from me, in Canada sales were down 13% roughly in the quarter you said, is that in U.S. dollars?

That is in U.S. dollars, yes.

That’s in U.S. dollars. And then, you mentioned Canada, we had the weather obviously, but I wonder is the softer consumer backdrop there also potentially partly to blame?

Yes. But we believe that it’s – yes, but it’s primarily weather.

Our next question is from Anthony Lebiedzinski from Sidoti. Please go ahead, sir. Anthony Lebiedzinski – Sidoti: Just wondering as far as the seasonal markets such as Canada, Northern U.S., can you just tell us typically what percentage of your second quarter sales these markets are?

Hold on one second, let me get my glasses. Anthony Lebiedzinski – Sidoti: Just wanted to get a better perspective on the importance of these markets.

Sure. Anthony Lebiedzinski – Sidoti: Just for the second quarter.

In the second quarter, these represent close to -- 56%, 57% of the total number whereas in the year, they would be more like 47%. Anthony Lebiedzinski – Sidoti: Got it. Okay, yes, thanks for that. And also, I was wondering if -- was there any notable impact of inflation in the second quarter and also what you expect for the balance of the year?

Inflation in the first half was very, very modest. On maintenance, chemicals, accessories, virtually nil. There could be a little bit in the back half, at least we’re looking for a little bit in the back half given some of the -- what’s going on in the chemical market. In terms of equipment, modest increases that were announced late last year by the manufacturers that became effective earlier this year. So, overall I think when you weigh everything out, we’re looking at probably closer to 1% in the first half of the year and that may be a little higher but still in the 1% to 2% range in the back half. Anthony Lebiedzinski – Sidoti: Okay. Thank you for that. And also you mentioned earlier that you had some driver shortages in the quarter, how do you see that shaking out during the balance of the year?

I think that’s a tough dynamic, certainly not unique to us. It affects everybody that uses third-party carriers. I know third-party carriers are scrambling for drivers. Increasing regulations, some put forth July 1st of last year has really tightened that marketplace in a significant way. I heard estimates – read about estimates of there being in the U.S. our being 2 million to 3 million drivers short of natural demand or basically need. So if you have a friend that wants to be a driver, there’s plenty of jobs available. And what’s happened consequently is because of that driver shortage, it’s tightened up freight capacity and across the board when that happens, rates go up.

Next question is from Garik Shmois from Longbow Research. Please go ahead.

Hey, good morning, this is Mark on for Garik today. Just curious about the sales cadence month to month during the quarter and how it’s kind of impacted by the pull forward of demand you said you saw on the first quarter?

Sure. Really outside of the fact that we had from a calendar standpoint one more sales day in June and one less sales day in May, the sales cadence was very consistent on a year-on-year daily sales rate basis, April, May and June.

Okay. That’s helpful. I guess can we get an update on any sales trends in July.

Sure. Very similar to what we saw running at about, call it, close to 7% on a daily sales rate basis through yesterday.

Our next question is from David Manthey from Robert W. Baird. Please go ahead, sir.

First off, could you give us specific growth rates for the Blue and the Green business? And I don’t know, I suppose that’s U.S., could you give us international separately?

Well, we have it all together. And we don’t have it – in terms of GP dollars, as I mentioned, which is really the big driver, basically the Green was 8% in the quarter. So and the overall number I gave you earlier and that really wouldn’t change very much because the Green is about 10% of the total company, so [indiscernible] number very much right on top of it. And I mentioned Europe was double-digit growth overall but Europe overall is 5% of the total so it doesn’t affect the total very much as well.

And then, Manny, your long-term targets when you are kind of blue-skying it during the downturn looking out to 2018 and 2020, you were talking about growth in new pools as well as the major repair and refurbish being sort of double-digit growth and it seems like now we’re tracking to that pretty well recently anyway. Is there anything that changes your outlook as you look out sort of longer term, is there anything in the industry that changes that viewpoint?

No. What we’ve seen, David, is -- this is one call that we made that was right, which was that we anticipated that ’09 was the bottom and that there will be a recovery with the recovery being first driven by remodeling and replacement activity and then later by new construction and that kind of worked out that way. Remodeling and replacement activity is probably going to be, by the end of this year, about 20% or so below normalized levels. So, there is some room left to go there from a recovery standpoint. Frankly, new pool construction is still hovering around 60,000 pools, which, as you know very well is about 70% below what it used to be and almost 70% below what we consider to be normalized levels at about [170,000] [ph], 180,000 pools a year, I’m talking about in-ground pools. So, we’re waiting for the single-family home residential market to really establish a solid foundation and when that happens and financing begins to revert back to normal, we believe that new pool construction will begin to recover in earnest. We may be one or two years away from that, but in the mean time we still have the pace of recovery from remodeling and replacement. So the bottom line in a long-winded answer is there is no change in our expectations. We’re still looking at 6% to 10% GP dollar growth over the next five to seven years.

Okay. Thank you. And then just last question on GP, you had mentioned that building material gross profit was similar to the overall, I’m just wondering can you just give us an idea of kind of the range, I know we’ve talked before about customers and products, but can you talk about from a product standpoint what is the differential as you look from sort of the high end or the low end, how tight is that gross profit range, just so we know, as mix shifts here, what that can do?

Sure. If you look at overall, our equipment is the overall the lowest from a gross margin standpoint. Also, from a ease of handling, it is, relatively speaking, easier to handle, so the cost to serve there is lower. So and within the context of equipment, for example, heaters are the lowest margin items because they are the highest value in light boxes, for example, a hand filter. So, we’re talking about equipment being overall running around 20% all-in from a gross margin standpoint. When we look at some of the lower dollar items, accessories, parts, things of that nature where the cost to serve as a percentage of sales is a lot higher, those will be in the mid-to-high 30s and building materials in much the same way runs the gamut. Now, the overall average is around 30%. But when you look underneath it, there are some product categories that will be in the teens or some components that will be in the teens, percentage wise margin and there will be other that will be 40 or north of 40. Again, the lower dollar items tend to have a higher margin percentage because there is a higher cost to serve. They are relatively easier to handle. Bigger dollar items tend to have a lower margin percent because proportionately the cost to serve there is lower.

(Operator Instructions) Our next question is from Brent Rakers from Wunderlich. Please go ahead. Anjali Voria – Wunderlich: Good morning. This is Anjali Voria for Brent today. Just had a quick question on gross margins. I understand that, in this quarter, they benefited from I think you highlighted lower equipment sales and I assume that that $8 million customer early buy should have helped as well. Were there any other factors that sort of helped give you that boost this quarter or are those the two primary areas?

Two things; we still had a little bit of a headwind, not much, but a little bit of a headwind from equipment, the equipment growth rate of 9% was a little higher than our overall company growth rate and as I just mentioned earlier, equipment as a category overall has our lowest gross margin percent. The other part of that equation is we continue to improve every facet and work on improving every facet of our execution. When you look at what we do from a sourcing standpoint worldwide, what we do from a purchasing, execution standpoint as well as in sales execution as we provide better service to our customers and our customers recognize and appreciate that, there is less push back on pricing and where we price vis-a-vis the competition. So, I think all those factors come together. The level of improvement year-on-year at 25 bps is not – it’s certainly positive and we believe it’s something that we can sustain, but in terms of those levels of margins, but a lot of factors that play into it, for example, we did not get the geographic benefit that we were looking for and yet we had a positive result. So, I think when you look out and I’m focused on the long term more so than the quarter-to-quarter or year-to-year, when I look at long term, I think it’s very reasonable to expect that our GP dollars and sales will grow at almost exactly the same rate for the next five to seven years. As we have some negative factors, equipment continuing to grow at a faster rate adversely affecting the mix on the one hand but on the other hand our continuous working on improving every facet of our execution offsetting that. Anjali Voria – Wunderlich: Okay, that's great. And if I'm thinking maybe not quite as long term, maybe more of the -- if I'm looking at maybe the second half of the year, is there factors in the second quarter rate that should help give a better than flattish trends type outlook for the second half or do you think that maybe restoration and some of better equipment sales brings you back to that flattish rate? Any color on how you are looking at that second half?

I would look at the second half from a gross margin standpoint at like rates as last year.

This will conclude our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Thank you, Denise, and thank you all for listening to our second quarter results conference call. Our next call is scheduled for October, 16, mark it on your calendars, when we’ll discuss our third quarter results. Thank you again and have a great day.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect your lines.