Pool Corporation (POOL) Q4 2015 Earnings Report, Transcript and Summary

Good morning and welcome to the Pool Corporation Fourth Quarter and Year-End 2015 Results Conference Call. All participants will be in listen-only mode. 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, Senior Vice President and Chief Financial Officer. Please go ahead. Mark W. Joslin - Chief Financial Officer & Senior Vice President: Thank you. Good morning, everyone, and welcome to our year-end 2015 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 2016 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, which will be updated in the next couple of weeks. At this point, I'll turn the call over to our President and CEO, Manny Perez de la Mesa. Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: Thank you, Mark, and good morning to everyone on the call. 2015 marked another strong year of performance, accentuated by a mild fall and a late winter, which helped drive sales to a very strong fourth quarter finish. On a constant currency basis, in 2015, we realized 7% sales and gross profit growth, 15% operating profit growth, and 20% diluted earnings per share growth. As stewards of the capital entrusted to us, our trailing 12 months return on invested capital was 19.6%, our cash flow from operations was 114% of net income, and we returned $140 million of capital to shareholders in the form of dividends and share repurchases. All-in-all, a strong year in a challenging external market environment. In October of 2015 we celebrated 20 years as a public company. As many of you know, the complexity and distractions inherent in being public have increased over the past 20 years, yet we remain focused on creating shareholder value by emphasizing what we refer to internally as the value creation fundamentals: organic profit growth, return on invested capital, and cash flow generation. Apparently, investors understand and appreciate what we do and have rewarded us with a 25% compounded annual growth rate in our total shareholder return over the course of 20 years. As a point of reference, a dollar invested in Pool at our IPO in 1995 would be worth over $100 today, including the reinvestment of dividends. These results are only possible because of the commitment of our people throughout the company to execute on our mission of providing exceptional value to our customers and suppliers, as we strive to realize our vision of being the best distributor of outdoor lifestyle products. Our people genuinely care about our customers, our suppliers, and especially each other. This caring sentiment channels their talent and time to promoting the growth of the industry, the growth of our customer's businesses, and to continually strive to operate more effectively. In reviewing 2015 by market performance, in the Blue business in Florida and Arizona, each increased base business sales by 10% as the recovery of remodeling and replacement activity continues, and we continue to increase share in focused product and customer categories. California increased sales by 7% for many of the same reasons, although on a relative basis, external factors weren't quite as positive as they were in Florida and Arizona. Texas increased same-store sales by 5% despite the adverse impact of very high rainfall during 2015, especially in the second quarter. The rest of the markets increased sales on a constant currency basis by 6.5%, reflecting the same drivers of market recovery and share gains. On the Green side of our business, our sales were flat year-on-year primarily due to our discontinuing several product lines, although our bottom line increased with operating profit increasing 14%, and significantly improved both our operating margins and return on invested capital, demonstrating the validity of our decisions. On the product side of sales, building materials continues to lead the way in 2015 with 13% growth, while commercial had 10% growth. With the recovery of pool equipment replacement activity over the past five years, growth was 9% in that category. The growth of these product categories reflects both the ongoing recovery in the remodel and replacement sectors of our business, as well as our consistent market share gains. The retail product side of our business increased by 4% in 2015, as the installed base of pools grew by 1% with virtually no inflation, and our performance once again reflecting market share gains. The discretionary – the non-discretionary maintenance and repair portions of our business represent the majority of our sales and are extremely resilient as was evident during the 2007-2009 market downturn, but are also dependent on the growth of the installed base and inflation to grow at a faster rate than what we realized in 2015. During the course of 2015, we continued to selectively expand our networks through both new sale center openings as well as acquisitions. Our process in each case is very similar as we look at ways to enter new markets or expand share and accelerate in existing markets. In markets where we have grown organically to a strong share position, our best return on invested capital is typically realized with continued organic share growth. We also complemented our networks with ongoing investments in expanding sale centers, additions to our delivery fleet, and both new and enhanced technology to further distinguish our value proposition in the marketplace. As anticipated, our gross margins were essentially flat for the year and we maintained our normal discipline in expense management. The resulting leverage enabled us to increase our base business operating margin by 87 bps, from 8.4% to 9.3%, a record for us despite new pool construction still being down roughly 70% from peak levels. Our base business EBITDA margin, likewise, increased to 10.4% in 2015. As we look toward 2016, we are mindful of the fact that weather in the September to December period of 2015 was extremely favorable, and that is unlikely to occur in 2016. In addition, we continue to read about general economic retrenchments, and while we are not seeing it in our business, we anticipate that we will not be completely absolved of its impact. With all of this in mind, we established our 2016 guidance as a reasonable expectation in terms of diluted earnings per share premised on organic market share growth, ongoing leverage of infrastructure, with continuous process improvements to realize operating margin expansion, cash flow from operations equal to or greater than net income, and return on invested capital to surpass 20%. A footnote to our return on invested capital, it is calculated on a trailing 12 months basis, after tax, and includes goodwill and other intangible assets in the denominator. We are extremely fortunate to be involved in a business where every day we help people realize their dreams of a better home life while simultaneously assisting over 100,000 customers realize success. Your continued confidence in our team is never taken for granted, and we are fully aware of the opportunities entrusted to us. We look forward to making 2016 another successful year as we continue to create exceptional value. Now, I'll turn the call over to Mark for his financial commentary. Mark W. Joslin - Chief Financial Officer & Senior Vice President: Thank you, Manny. First, a few comments on our expense management for 2015. As we noted in our press release, and as Manny highlighted, we had a great year in terms of expense management in 2015 which resulted in us expanding our operating margin by a substantial 70 basis points to a record 9.1%. Our previous high operating margin of 8.8% was set in 2006. Just to remind you here, that our goal on expenses is to leverage our infrastructure over time by growing operating expenses at a rate that is lower than the rate of our gross profit growth, with a target of 50% to 60% of the rate of our gross profit growth. Doing this will result in operating margin expansion. This is something we've been able to do relatively consistently over time, although with a better than usual performance in 2015. By comparison, for the five-year period from 2010 to 2015, our gross profit growth was 43.4% while our operating expense growth was 24.2%; or about half of gross profit growth. Over that time, our operating margin grew from 6.3% to 9.1%. Looking at the major components of our cost, I'd note first that our year-over-year head count growth was 2% and just 1% if you exclude additions from acquisitions. As labor and labor-related costs account for nearly 60% of our total operating costs, controlling head count is key to meeting our objectives. One of the ways we're able to do this is by investing in technology which brings efficiencies as well as improved customer service, and is an area where we continue to boost spending. We also observed $2.5 million in higher incentive costs in 2015, given our better performance relative to 2014. One area that hurt us overall in 2015 but helped us on the expense line was exchange, and the approximately 20% strengthening of the U.S. dollar relative to the basket of currencies we operate in outside the U.S. This resulted in about $8.5 million, or 2%, lower costs on a constant currency basis. With further strength in the U.S. dollar, it appears that currency will continue to be a headwind for us in 2016, though at present, the impact is less significant. One other, though less impactful, benefit on our expense line in 2015 came from the decline in fuel prices which helped offset the generally increasing cost of product transport, as we've discussed in the past. I'll take a moment now to comment on taxes before moving on to the balance sheet. We ended 2015 with an effective tax rate of 38.5% for the year, which was 40 basis points better than the 38.9% we realized for 2014, and which resulted in approximately $0.02 of our EPS growth for the year. This lower rate was primarily due to the improved performance of our International business and our expectation is that we will continue to benefit from this in 2016, resulting in a similar tax rate to 2015. We also ended 2015 with a strong balance sheet, where we benefited from very good working capital results. The favorable weather, which helped fourth quarter sales, also reduced inventories so our year-over-year inventory growth was just under 2% and comprised primarily of high quality, high velocity items. One measure of our inventory performance for the year is inventory turns, which improved 3% from 2014 to 3.5 times for the year. Our net receivables also continued to be very well-managed as days sales outstanding, or DSO, was consistent with 2014 at 29 days at year-end, which is really a best-in-class performance. These results, along with our growth in earnings, enabled us to set a new high water mark of 19.6% return on invested capital for the year, which compares to 18% ROIC for 2014. This too, we believe, is a best-in-class result, with our class or peers that we benchmark against being comprised of other publicly traded wholesale distributors. Cash flow generation is, of course, an area of emphasis for us and was another area of record results in 2015 as we ended the year with cash flow from operations of $146.1 million, which was a 20% increase from 2014. This was driven by our growth in net income as well as our strong working capital management. This cash was used in part to pay dividends which, at $43 million, were up 15% over 2014 and to buy back shares. Open market repurchases in 2015 totaled $92 million, which bought 1.3 million shares at an average price of $68.57. This includes 100,000 shares purchased in Q4 at an average price of $78.41 a share. Since year-end, we've purchased an additional 749,000 shares at an average price of $76.44 a share, for a use of cash so far in the first quarter of $57 million. As has been the case over the last few years, we expect to repurchase $100 million to $150 million in shares in 2016 while keeping our financial leverage in the range of 1.5 times to 2 times. This is a good time to give you our fully diluted share count forecast for 2016, which includes all shares repurchased to-date. I'll give you both quarter and year-to-date expectations. First quarter, year to date, quarter the same obviously, 43,395,000 shares is our forecast. Second quarter, for the quarter, we forecast 43,355,000 shares with the year-to-date forecast of 43,415,000. Third quarter, our quarter forecast is for 43,445,000 shares; our year-to-date forecast is 43,462,000 shares. And for the fourth quarter, we forecast 43,592,000 shares with a full year forecast of 43,515,000 shares. One final point before starting the Q&A relates to the distribution of our quarterly results in 2016. Early indicators are that we will once again have a strong early buy season. As a reminder, our customers, primarily in the pool and spa retail business, place orders with us early in the season on favorable terms, which allows them to fully stock shelves in anticipation of seasonal demand. The impact to us is that, similar to last year, meaningful sales volumes will shift out of the second quarter and into the first quarter, which is something those modeling our results should account for. At this point, I'll turn the call back over to our operator to begin our question-and-answer session.

We will now begin the question-and-answer session. The first question comes from Matt Duncan of Stephens. Please go ahead.

Good morning, guys, and congrats on a great quarter and great year. Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: Thank you. Mark W. Joslin - Chief Financial Officer & Senior Vice President: Thank you, Matt.

Manny, the first question I have and I understand it's probably difficult to quantify, but you guys mentioned weather both in the press release and a few times on the call. Is there any way to look at the weather impact, what it may have been in the fourth quarter? Can you quantify how much you think it might have helped revenue? Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: You're correct in that it's hard to quantify, but I think for context, if you're looking to EPS, it's probably about $0.05 in terms of the impact. Again, it's hard to quantify and there are various factors that play into it, but we believe it's about $0.05.

Okay. Was there any discernible difference in the growth that you saw in year-round versus seasonal markets, is that may be another way to look at it? Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: No. I mean, what happened here is, first of all, in the more seasonal markets, the numbers are just a lot smaller, so therefore, when you look at those numbers, the fact that they would have been a little stronger than they were during the first three quarters of the year I think is just reflective of the fact that there were some activity versus very little to no activity. In terms of the year-round markets, they were also strong in the fourth quarter. So net-net, I mean, it was all across the board. And part of it is also the fact that the psychology was generally positive as well in terms of there was demand and people were trying to just fill that demand.

Okay. Another way to look at this maybe, if you look at the growth in the first and fourth quarters, it was north of 10%; the middle two quarters and the summer strong part of the season was a little lower. Is that maybe an indication of the strength that you're seeing in the refurbishment business, assuming that people would rather get that done in those seasonal markets and in the off season? I understand obviously the pre-buy helped a little bit, it sounds like it's going to again in the first quarter of 2016. But – and I know you laid out sort of the different growth rates between remodel and retail, but is that maybe another part of what's driving those shoulder seasons growing a little faster than the typical strong part of the year for you guys? Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: Yes. Definitely, remodel and replacement activity is strong, and to the extent that, weather permitting, that work gets done. So, that applies across the board. And that's reflected in the strong fourth quarter sales-wise, which was across the board, Sunbelt and Snowbelt.

Okay. And then last thing and I'll hop back in the queue just in terms of the revenue growth assumption within your earnings guidance. What type of revenue growth rate are you expecting at the midpoint of the earnings guidance, and how much of that is market growth versus market share? Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: We're looking at about – well, mid-single digits would be the top line growth, and we're looking at the market this year to grow maybe a shade over half of that, maybe about – weighted basis, about 3%.

Okay. All right. That helps. I appreciate it, Manny. Thank you. Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: Thank you.

The next question comes from Ken Zener of KeyBanc. Please go ahead.

Good morning, gentlemen. Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: Good morning, sir. Mark W. Joslin - Chief Financial Officer & Senior Vice President: Good morning, Ken.

Manny, you cited your awareness of macro concerns and you said you would not be unaffected by that. It sounded like it was more theoretical. But could you give us a little context for – if these headwinds develop further, could you give us context how your company might be sensitive in terms of earnings, vis-à-vis the sensitivity your company had in 2007, 2008 which you guys made some decisions that may have kind of probably exacerbated the leverage, but could you just give us a little context for if these headwinds are happening, what you would expect to see so investors could have some concept of how this cycle might treat you differently? Thank you. Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: Yeah. Sure. So, let's take the business in pieces. The basic maintenance and repair which is majority of our business, very resilient, very low growth, but very resilient and will continue to grow independent of macro environment. New construction is still extremely depressed; still down about 70% versus what it was in the peak of 2005, 2006 time period. So, I don't see that being impacted at all. So therefore, what we get to is remodeling and replacement activity. And remodeling and replacement activity domestically in the Blue side of our business is about 29% of our business and that has recovered very nicely in a very consistent basis beginning in 2011. So to that end, what happens here, and this is the pause that to the extent that anybody perceives any concerns, they could delay some of that remodeling activity or more discretionary replacement activity. And that's the area that again could slow down its level of growth. So, when you look at our overall weighted numbers, when you factor in that maintenance and repair is growing at low single digits for us, virtually nil for the industry, then what you're left with is that's the factor that's going to drive it. And again, we've seen no evidence of that to-date and you can see that in the strong fourth quarter results. So, we're just – it's out there and, again, we haven't felt anything just yet but we're cautious in that regard. And the impact to our earnings, it's factored into our guidance.

Absolutely. And I do appreciate that, Manny. Would it be – since the hardscapes, it sounds like kind of what we're talking about there, in part, where you've done some acquisitions. Would the operating leverage for any change in sales there be really different than your kind of 15%, 20% incremental EBIT that you kind of guide us to generally? Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: No, it would be very similar. And really what you're talking about is order of magnitude, so therefore what it translates to is if that grows 1% to 2% less, right, that sector, it impacts our overall sales growth by let's say 1%, well that's what you're talking about.

Thank you very much. Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: Sure.

The next question comes from David Manthey of Robert W. Baird. Please go ahead. David J. Manthey - Robert W. Baird & Co., Inc. (Broker): Hi. Good morning. Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: Good morning. David J. Manthey - Robert W. Baird & Co., Inc. (Broker): First off, Manny, in your monologue you mentioned sort of this flatness because of the installed pool base and lack of inflation in the minor maintenance and repair business. Should we assume that fourth quarter and full year were both pretty much flat in that segment? Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: Yes. They – no discernible difference there. David J. Manthey - Robert W. Baird & Co., Inc. (Broker): Okay. And then on SG&A, if you look even on a constant currency basis, if you were up 3%, and I guess some of that would be acquisition relative to a 14% EBITDA increase, you mentioned some of the incentives and technology expenses being up, offset by tight expense control. But given that your labor being the largest component of your SG&A cost stack, there must be something more than just cell phone contracts and making sure you shut the lights off at night, so... Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: By the way, we do that. We do review cell phone contracts and we do shut off the lights at night. And our warehouses, a good majority of them have automatic timers set for the lighting in the warehouse. So, we are conscious of all that and we have all sorts of agreements on trash removal and things of that nature, so we try to look for every nickel we can find. Really, the impact on exchange, on – in terms of expenses was about 2%. So, it's just being judicious; we have had – when Mark talked about the fact that excluding acquisitions our head count was only up 1%, what that does is – and you factor into that we've continued to incur productivity gains, and that's through process improvements. And while we make investments in IT and to drive – to help support some of those process improvements, at the end of the day, we're looking for a return on that capital, and the paradigm is the same there as we do for investing in a new location or a new market. So when it's all said and done, all these things more than pay for themselves, if not, we wouldn't do them. So, that answered the question or help answer the question? David J. Manthey - Robert W. Baird & Co., Inc. (Broker): Yeah. I was just trying to get some comfort around your ability to continue to find those areas to reduce costs given that the performance is such that it does indicate that your incentive pay should continue to rise as your profitability goes up, but it sounds like you have a number of things going on there. Maybe related to that also, Manny, in terms of technology which you mentioned as a productivity enhancement tool, could you just refresh us on maybe with the one or two things that you think are having the biggest impact on the technology front right now? Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: If it were one or two, I'd be remiss, but let me just – because in distribution, there's seldom one silver bullet. You got to have many, many bullets and you got to keep on firing continuously to drive performance improvement and raise the service level at the same time. If I were to highlight a few, certainly our B2B portal that enables customers to do a lot of stuff, and in fact we have linked that in with a number of customers in their businesses to enable automatic replenishment. Those kind of tools are very efficient for our customers, enhance our service level, and provide some efficiencies for us. When I look at, for example, how we pick orders in our facilities, and the fact that we have largely converted domestically to what we refer to internally as paperless pick, which is basically using automation and saving on paper cost, but more importantly, really enabling us to be much more efficient in the pick process is another tool. When we look at our DCs, for example, a few years ago, we went to voice pick. And, on average, when we did the study in our first location, and this is about four, five years ago, we were saving seven seconds per pick. So, I mean, I'm just giving you some color and context of different things that we continue to do and work on to drive a higher service level, as well as reduce mistakes, as well as do it all more efficiently. David J. Manthey - Robert W. Baird & Co., Inc. (Broker): That's very helpful. Thanks a lot, Manny. Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: Thank you.

The next question comes from David Mandell of William Blair. Please go ahead. David M. Mandell - William Blair & Co. LLC: Good morning. Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: Good morning. David M. Mandell - William Blair & Co. LLC: The $0.05 you cited from the better weather in 4Q, do you think that's incremental sales and earnings, profitability? Or do you think that's $0.05 that came out of – pulled forward from first quarter of 2016? Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: Incremental. David M. Mandell - William Blair & Co. LLC: All right. And then as far as looking at 2016, on the gross margin line. What's your outlook there and what are some of the puts and takes? Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: There, David, we have two areas that are kind of going in different directions. I'll speak about the negatives first. What we have there is, from a product – and this is mainly product-mix driven, from a product mix standpoint, when you're looking at remodeling and replacement activity, those are typically bigger ticket items and by virtue of them being bigger ticket, generally speaking, the margin percents are smaller than on smaller ticket items where the cost to serve is logically much higher than the percentage of the product being sold. So, that's factor number one, kind of going against us. Factor number two going against us is that manufacturers have progressively been investing in innovation and, as a result of that innovation, providing products or developing and coming to market with new products that are either much more efficient and/or provide greater aesthetic value. In both cases, the products are sold for a higher price. And what drives there is some of the same logic, but because of them being a higher price, generally speaking, we get more GP dollars but typically a smaller percent. So those are the two drivers against us. On the other side of the equation going against that, we continue to improve our service level by what we just covered earlier, that there's efficiency gains but there's also service level gains. If I talk to you about our in-stock position, the stock outs or fill rates that we have and the fact that they continue to improve every single year and even enable to do that with greater turns, I mean, that's just part of the equation. So, factor number one is improve service levels to the customer, and then secondly, we have to sell that; so, improves sales execution. And then third, improve sourcing. So to mitigate the impact or the adverse impact of product mix in both the forms that I described earlier, improve service levels, improve sales execution, improve sourcing execution should approximately negate that. So, our expectations are that gross margins prospectively should be about flat in terms of percent, but there are efficiencies being gained by virtue of the fact that our cost to serve proportionately is less when we're selling higher value products or – whether it'd be in aggregate dollars or by virtue of the fact that it's a variable speed pump or it's a single speed pump or LED lighting versus fluorescent lighting or whatever. David M. Mandell - William Blair & Co. LLC: And then my last question, within the quarter, do you guys have the growth rates for the Blue and Green businesses just in the fourth quarter? Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: We didn't communicate that, but in the fourth quarter, the Green business increased at a rate faster (sic) [slower] than our Blue business. David M. Mandell - William Blair & Co. LLC: All right. Thanks for taking my questions. Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: Thank you.

The next question comes from David Mann of Johnson Rice. Please go ahead. David M. Mann - Johnson Rice & Co. LLC: Yes. Thank you. Good morning. Congratulations on the year and the 20 years. Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: Thank you. David M. Mann - Johnson Rice & Co. LLC: It's been fun to watch. I guess, first question, sort of along the same lines of some of these about the SG&A line is the flow-through for the year was – to EBIT was in the I think 23% range for the company and maybe 28% on the base business. I think in the past, you had – you kind of talked in the mid to higher teens as a flow-through rate. How should we think about that going forward in 2016 and beyond? Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: That's a great question, David, and I think here what impacts that is a little bit of math because of the exchange. As you know, and many on the call know, exchange cost us approximately 2% in terms of top line and certainly benefited us on the expense side, but what happens here is if you do a – on a constant currency analysis and you assume that we would have, I'll call it, round numbers, $40 million more in sales, then the improvement in terms of operating or contribution margin is inside our normal 15% to 20% range. David M. Mann - Johnson Rice & Co. LLC: Okay. Great. That's helpful. On the... Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: If I may, David, I just want to clarify something. I misspoke a second ago in answering the Green versus the Blue. I was looking at the wrong line on my chart. The Green business grew a little slower than the Blue business, but both had very strong growth in the fourth quarter. David M. Mann - Johnson Rice & Co. LLC: Very good. On the comments you've made about technology. Can you give us a sense on where you are in terms of some of the initiatives? It sounds like you have numerous initiatives. I mean, where are you in terms of harnessing some of that to drive some of this ceiling on head count, if you will. Was last year sort of the inflection or do we still have a decent amount of that efficiency to come? Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: For the past 15 years, we typically have between 50 to 75 projects underway. And as those projects get accomplished, new ones are added to the list, and the list is as robust now as it was 15 years ago, although obviously, we've accomplished a lot over that period of time. David M. Mann - Johnson Rice & Co. LLC: I guess the question I'm asking and it seems like it was asked earlier in different, is why was this year perhaps more beneficial in terms of harnessing some of that productivity, given that you've been doing it. And I've heard you talk about doing it over the last 15 years. So, what was different this year and will 2016 differential as well, or would it not necessarily see as much head count benefit? Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: Well, no. If you look at it, really again, I think you got to play the impact of currency into the mix. So, if you add the $40 million in sales and you add also the associated expenses, right, you still get to the – not quite the same but a similar operating profit improvement. And the leverage, while it may had been a little higher, it wasn't exceptionally higher than previous years. David M. Mann - Johnson Rice & Co. LLC: Got you. One other question. Texas gets a lot of discussion in terms of what's going on there in terms of a slowing economy and the effect of the energy price decline. Can you give a sense on how you're looking at Texas and this guidance you've given for 2016 and how much caution or expectation you have in there for that? Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: You know what, there's two parts to the answer. First, when you look at Texas, Texas has a very diversified economy, and as a result, it's proven to be very resilient when you look at our results in 2015. Houston, which is of the four largest markets the one you would think would be affected the most, Houston had a very, very solid year; very strong growth in every important line other than expenses that had a more modest growth. So Houston did very well. So, that's part one, and if you look at markets like Dallas and Austin, extremely robust; very little dependence on energy. In fact, you can easily make the argument that particularly North Texas suffered with heavy rainfalls during the course of 2015. Where we are – so, that's part one. And by the way, just to support that, our growth in Texas in the fourth quarter, both Blue and Green, was a little bit above the company average, okay. So, that gives you context there. What we anticipate is that the markets that are going to be most affected with the energy situation are more East and West Texas, as well as neighboring states like Oklahoma and the western portions of Louisiana. We believe those are the ones that really will feel the impact more so than Dallas Metroplex, Houston Metroplex, Austin, or San Antonio. Mark W. Joslin - Chief Financial Officer & Senior Vice President: Hey, David, if I could add one comment to your question about expenses and how we – 2015 was a little unusual. If you look at our growth by quarter, most of our growth for the year came in the first quarter and the fourth quarter, which are generally seasonally lower volumes for us. And so, to the extent that people aren't quite as busy as they are during the second and third quarter, they're able to do more and pick up that volume without adding head count and labor. And so, if that growth was in the second and third quarter, it'd be a different story. So that I think helped in terms of the leverage that we realized in 2015, unusual and probably not something we're going to certainly look to do every year. Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: Right. And that's an excellent point. And that just confirms the reason – part of the rationale for why we're making sure that our retail customers have stock ahead of the season and get that activity done as early as possible when we have, can't say idle time, but more available time than we do as we get into the season. David M. Mann - Johnson Rice & Co. LLC: Thank you. Good luck in 2016. Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: Thank you, sir. Mark W. Joslin - Chief Financial Officer & Senior Vice President: Thank you.

The next question comes from Anthony Lebiedzinski of Sidoti & Company. Please go ahead. Anthony C. Lebiedzinski - Sidoti & Co. LLC: Yes. Good morning. Thank you for taking the questions. So, just to follow up on Texas, can you give us a sense as to what percentage of your sales was attributable to Texas last year? Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: Have to do the math here, so just bear with me a second, Anthony. Do you have another question? Anthony C. Lebiedzinski - Sidoti & Co. LLC: Not a problem. Yes, so – and if you could just give us a sense – you mentioned also, Manny, about the Oklahoma and some parts of Louisiana as well, so just wanted to see – how should we think about this kind of going forward as far as the impact of lower oil prices and some of the job losses in the energy sector? Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: Texas represents about, represented approximately 14% of our sales last year. And just for context, California is our biggest state overall, and Florida and Texas are very similar. Anthony C. Lebiedzinski - Sidoti & Co. LLC: Got it. Okay. And as far as – you had mentioned that the other portions like Oklahoma and Western Louisiana, are those significant markets for you in the big scheme of things, or how should we think about that? Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: They're not – nowhere near as significant as the first three, obviously. And even when you look at it, those are – we do business and we have locations in Lafayette, Shreveport, Longview. Now, we opened recently in Lubbock. So, there are markets that we serve and we also serve a number of them remotely from other centers. But in the big picture, when you look at the overall company, you're talking about again fractions of 1% in terms of the anticipated impact on overall business. Anthony C. Lebiedzinski - Sidoti & Co. LLC: Got it. Okay. Thanks for that. And also, looking at the Green business, I think you had mentioned that it was essentially I think flat for the year because of the fact that you discontinued some product lines. So, just to put things in perspective, if you were to exclude the discontinued product lines, what would your base business sales growth be? Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: Our base business sales growth would have been about the same as our domestic Blue business. Anthony C. Lebiedzinski - Sidoti & Co. LLC: Okay. Got it. Okay. And lastly, I did notice that your CapEx in 2015 was a bit higher than normal. I think usually you guys target 0.75% to 1% of your sales for CapEx. It was higher than that, so what was that mostly for and how should we think about that going forward? Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: Two things, or a two part answer. First part answer is the major drivers there were delivery vehicles and secondly, IT. And in terms of going forward, I would look for that to be 1% to 1.5%. Years ago, we would lease most of our vehicles and a few years ago, we shifted over to buying those vehicles instead of leasing. Anthony C. Lebiedzinski - Sidoti & Co. LLC: Got it. Okay. Thank you very much. Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: Yes.

The next question comes from Garik Shmois of Longbow. Please go ahead.

Hey. Good morning, guys. This is Mark Zikeli on for Garik Shmois. Congratulations on a good year, guys. Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: Thank you.

Yeah. Just starting off, really good cash flow generation. Just wondering if you can talk a little bit about your uses of cash heading into 2016 as far as new store openings and acquisitions? Just give us a general sense of progression in the first part of the year, and how much of anything is embedded in the guidance? Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: Sure. First, use of cash is internal needs, which is both in the form of CapEx as well as working capital, CapEx being delivery fleet, IT, and leasehold improvements on facilities. In terms of working capital that's driven to support growth, both on the AR side as well as on the inventory side for existing business as well as working capital support the opening of new locations. And we have a handful of new locations targeted for this year, as we do most years. Generally speaking, new locations don't add anything to the bottom line in their first year to speak of. But it's a – basically provides us a platform for growth as we grow share in those markets over the course of time. That's number one. Number two is or are acquisitions, same methodology in terms of return on invested capital drivers that we have and everything else, or filters as we have in everything else. And to that end, that number is not going to be super material in the big picture over the course of time. Most of the acquisitions that we do are relatively small for our size, and they basically are focused on markets where we have little to no presence as a way to enter the market. And we do that and always play that off against opening our own new locations. And over the last 15 years or so, we've done a lot of both. In fact, if anything, more opening our own than acquisitions. That's number two. Number three is dividends. Dividends; we target a payout rate of 35% of net income, 35% of net income, and that's reviewed every year by the board, and the board will do that at the May Board Meeting and determine the go-forward dividend for the next four quarters. And that's number three in terms of priority. Then after that, it depends where we are from a capital structure standpoint, or we are on debt vis-á-vis our targeted capital structure. Our targeted capital structure is 1.5 times to 2 times debt to EBITDA. So, provided that we are below 2 times debt to EBITDA, we are buying shares. And as Mark mentioned earlier, we are targeting to buy at least $100 million to $150 million worth. In a typical year, that number will, over the course of time, grow with our profitability, but $100 million to $150 million is a reasonable number to expect. It could be higher. Last year, it was a shade lower; we finished at $92 million. But again, the target in the current level is approximately $100 million to $150 million. If there is an acquisition or something else that pops up that gets us over 2 times debt to EBITDA, we would probably still buy shares but at a more modest rate.

All right. Thank you for that, guys. Good luck. Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: Thank you. Mark W. Joslin - Chief Financial Officer & Senior Vice President: Thank you.

The next question comes from Brent Rakers of Thompson Research Group. Please go ahead.

Yes. Good morning. Just wanted to start on the guidance for this year. I think in a typical year, Manny or Mark, you exclude future share repurchases from that EPS guidance level, and I guess given the pretty significant buybacks year-to-date, I was wondering if that was included in that number or not? Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: Yeah. It sure was, Brent.

Okay. Great. And then, obviously, you've talked a lot about the weather dynamic in Q4, and a lot of talk has been about extending the season in some of these markets and with that comment, I was wondering how the chemicals category might have been impacted by that? Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: Chemicals are for basic pool maintenance and the chemical sector of the industry – I'll give you the industry information first, was modestly up because of the late season, but very modestly up; I'm talking about 1% to 2%. Our own chemical sales were up a little more than that and chemicals, as you can well imagine, is an important – a very important product category within our retail, the retail portion of our business.

And then, Manny, I guess any time you extend a season this way and you certainly get this much optimism among your customers, I was wondering if that was translating at all to maybe sparking some interest in new pool construction, given the longer season this year? Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: You know what, that's – I am optimistic that some of that will begin to kick in. We are still – let me then start with a positive. We began to see last year financing begin to open up where you had appraisals and banks willing to lend close to 80% loan to value on, I'll call it, current appraisal values as opposed to very conservative appraisal values when you're doing a remodeling. So, that's beginning to open up. Frankly, I believe that higher interest rates are going to help us there. As banks are able to realize a return they will be inclined to take a little bit more risk than being as selective as they have been for the past seven years where basically they have only been lending to pristine credits, whether it'd be in the commercial or consumer side.

Great. And then I guess maybe, well, two other quick questions. One, if you could maybe comment on what your outlook is for product-price inflation this year. And then secondly, you've talked a lot over the last several years about this recovery and kind of deferred remodeling-replacement spending. I think you started talking about that in 2010, 2011. Maybe wondered how far along do you think you are to reaching those original recovery goals, and maybe how much more legs is with that piece of the recovery story? Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: Sure. In terms of inflation, negligible. I think the market volatility, the energy costs being what they are, I think there is going to be negligible price increases. There is going to be a higher, I'll call it, a better mix of products from manufacturers from an innovation standpoint. But in terms of more of the commodity-type products, there'll be no inflation there to speak of. In terms of the recovery, let me just first address remodeling and replacement. And that – as I mentioned earlier, that recovery we believe began in earnest in 2011 and has continued to-date. Our expectations were that by – on a dollar-weighted basis, that sector was down almost 40% at the trough from normalized behavior. We believe that, by last year, that behavior was about 15% or so, mid-teens percent, below normalized behavior. And we believe that that recovery will continue such that probably by 2018, at the latest 2019, behavior will be back to normal. And in that, there has been some recovery component as well from some of that deferred activity. So, that's number one. In terms of new pool construction, new pool construction is still down about 70%. For that to really kick back in and really gather significant momentum, we need financing to be available for the middle of the road homeowner, from a credit standpoint. And that middle tier homeowner, single-family homeowner, is really the key target as they look to improve the quality of their home life.

Great. Thank you, Manny. Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: Thank you.

And we have a follow-up from Matt Duncan of Stephens. Please go ahead.

Yeah. Hey, guys. Just a real quick housekeeping item. It looks like you made a couple of smallish acquisitions in the quarter. Mark, what is the combined annual revenue for those two businesses? Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: About $20 million.

About $20 million. Okay. Thank you, Manny. Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: Thank you. But by the way, you can presume relatively modest, very modest, earnings contribution the first year.

Okay. Thanks.

This concludes our question-and-answer session. I would like to turn the conference back over to Manny J. Perez de la Mesa, President and CEO, for any closing remarks. Manuel J. Perez de la Mesa - President, Chief Executive Officer & Director: Thank you, Andrew, and thank you, all, for listening. Our next conference call is scheduled for April 21, mark your calendars, when we will discuss our first quarter 2016 results. Have a great day. Thank you.