Leslie's, Inc. (LESL) Earnings Call Transcript & Summary

Good morning, everyone. For those of you I haven't met, I'm Farah Soi with ICR. And on behalf of the Leslie's team, I would like to welcome everyone joining us today here in Arizona and over the webcast for Leslie's Investor Meeting. We're thrilled to finally meet many of you in person and the entire leadership team is excited to discuss Leslie's business and growth strategy with you. Earlier this morning, we released our fourth quarter and full year fiscal 2022 results as well as our guidance for fiscal 2023. Mike Egeck, our CEO; and Steve Weddell, our CFO, will begin today's discussion with a review of those results and the underlying drivers to the FY '23 outlook. Following that discussion, the team will provide more detail on Leslie's, the industry in which it operates as well as its integrated ecosystem. We'll then have a short break and reconvene at 10 a.m. local time to review our growth strategies before opening it up to Q&A. Following Q&A, for those of us who are with us, we will break for lunch and then we will convene at the entrance to the conference center to meet the buses that will be departing at noon shop during us to Leslie's office and store tour. The same buses will then leave for the airport at 2:00 p.m. with a drive time of about 0.5 hour. Before I turn the presentation over to Mike and the team, please review our safe harbor statement on Page 2 of the presentation and in our Form 10-K. Throughout this presentation, we may make certain forward-looking statements that pertain to our future. These statements reflect our current forecast based on our knowledge of our business today, and we're under no obligation to update these statements. In addition, actual results may differ materially from these expectations due to risks and uncertainties as outlined in our public filings. And with that, Mike?

Thank you, Farah. Good morning, everyone. Thank you all for joining us, particularly those of you who have made the trip to join us live in Southdale for what is our first ever Investor Day. I'd like to note that we posted today's earnings and investor deck to Leslie's IR site, and that a replay of today's webcast will be available on the site within 24 hours. I'm going to start this morning by highlighting our key Q4 results and accomplishments and then move to the same for our full year performance. Steve will then walk you through our fourth quarter and full year financial results in detail and introduce our fiscal 2023 outlook. After that, we'll move to an investor presentation portion of today's agenda, followed by Q&A. I'm pleased to report that our Q4 performance resulted in another record quarter and continued the strong results we have delivered throughout the year. Sales for the quarter increased 16% to a record $476 million with broad-based strength across our consumer groups. Residential Pool grew 10% for the quarter, PRO pool grew 18% and Residential Hot Tub grew 80%. Comp sales increased 10% for the quarter and the 2-year stack comp was 27%. Gross profit for the quarter was a record $217 million, and adjusted EBITDA for the quarter was a record $100 million. Two points I'd like to make regarding the Q4 performance. First, due to the outstanding efforts of our supply-chain team, our New Jersey distribution center performed very well during the quarter, became more efficient as the quarter progressed and is operating to the standards of our other facilities. Second, as we had anticipated, promotions for the quarter normalized to roughly the same levels we saw in Q4 2019. And the supply and cost of certain specialty chemicals remained a challenge. However, our merchant teams were able to offset the impact of both these factors by implementing select retail price increases across key items in our product assortment and aggressively counter-sourcing product with new vendors. With these actions, product gross margin increased 16 basis points and the total gross margin decrease was limited to 30 basis points. Moving to our results for the full year. Fiscal 2022 represented our 59th consecutive year of growth and produced all-time record sales, gross profit and adjusted EBITDA. Sales for the year grew 16% to a record $1.6 billion. Comp sales were plus 11% and the 2-year stack was 32%. Product cost inflation for the year was approximately 9%. Gross profit for the year grew to a record $674 million. Gross margin for the year decreased 120 basis points. The decrease in gross margin was driven primarily by business mix due to the outperformance of our lower-margin PRO and Hot Tub consumer groups, and to a lesser extent, by the challenges we experienced in Q3 with regard to specialty chemical costing, our New Jersey DC and the industry promotional cadence. Our Q4 and full year performance reflects the tremendous efforts and contributions of our associates and vendor partners to meet continued strong consumer demand in the face of the discrete operating challenges arising from what remains an unpredictable and constrained supply chain across many of our product categories. It's also a testament to the organization's ability to continue to execute our growth initiatives at a high level in an increasingly unpredictable macro environment. Throughout 2022, Leslie's in the pool industry benefited from the continuation of strong consumer demand. This demand was driven by the macro trends that accelerated with the onset of the pandemic and were elevated by work-from-home, and hybrid work schedules. Those macro trends, which we will discuss in more detail later in the presentation, in combination with 3 years of strong pool builds, equipment cost inflation driven by innovation and sanitizer cost inflation have created a pool industry that is significantly larger than it was pre-pandemic. Industry research estimates that over the last 3 years, 340,000 new pools have been built and that the industry as a whole has grown approximately 30%. Over that same time period, the competitive advantages derived from our integrated system of physical and digital assets, working together with our strategic growth initiatives has resulted in sales growth of 68%, a 3-year stack comp of 50% and meaningful share gains. Slide 8 of the deck bridges our fiscal year 2022 sales in 2 ways. First, by Consumer Group. Our residential pool grew 10% for the year and contributed 8% of total company growth. Our PRO Pool group grew 20% and contributed 3% of total growth. And our Residential Hot Tub group grew 80% and contributed 6% of our total growth of 16%. Second, by strategic growth initiative. Our consumer file grew 3% on an adjusted basis for the year and contributed 1% of total growth. On an unadjusted basis, our consumer file has grown 10% over the last 2 years and 25% over the last 3 years. As we've leaned into our digital marketing strategies, drove consistently high ROIs and capitalized a new customer acquisition driven by our advantaged Trichlor in-stock positions. With regards to deeper relationships with our customers, average revenue per customer grew 22% for the year. Our loyalty file ended the year with 17% more members than the prior year and loyalty members accounted for 74% of Leslie's transactions. Consumers continue to be drawn to the key benefits of pool perks: a 5% earn rate and free shipping. Our PRO initiative continues to deliver strong results. We ended the year with 80 PRO locations and 2,750 PRO partner contracts. I've previously referred to our PRO partners as PRO affiliates. This change in naming convention is purposeful and reflects the input of our PRO customers. They prefer the term partner. For the year, Sales to PRO Partners increased 45%. And our total PRO business grew 20% for the year. And now accounts for 15% of our total sales but remains a small percentage of the approximately $4.4 billion PRO market. Moving to M&A. For the year, we completed 6 acquisitions that added 27 locations. Earlier this month, we closed on our first acquisition of fiscal 2023 Splash Pools, which adds 5 locations across Florida and Louisiana. We continue to see a wealth of acquisition opportunities in the pool and spa industry and continue to be able to acquire good businesses at attractive multiples. With regard to our whitespace initiative. For the year, we built 14 new locations and grew our digital sales in underserved markets by 39%. With the 14 new builds and the acquisition of 27 locations, we ended our fiscal 2022 with 38 net new locations and a total of 990 locations. Finally, with regard to AccuBlue Home, I'm very pleased to be able to say that at the end of our presentation, we're going to show you the production version 2.0 device and announce our commercial launch of the program for pool season 2023. Now I'll turn it over to Steve to discuss our fiscal year 2022 results in more detail and introduce our 2023 outlook.

Thank you, Mike, and good morning, everyone. As you can see from our earnings release, we reported record results for both, the fourth quarter and full year fiscal 2022. In the fourth quarter, we performed in line with our outlook, and our team recovered nicely from the execution challenges we experienced in the third quarter. Today, I'll review our fourth quarter of fiscal 2022 performance, our performance for the full year of fiscal 2022, our outlook for fiscal 2023 and our capital allocation priorities. And I'll start on Slide 9. For the fourth quarter, we reported record sales of $476 million, an increase of 16.3% or $67 million when compared to the fourth quarter of fiscal 2021. Our comparable sales increased 10.2% or $42 million. This increase is on top of our calendar adjusted comparable sales growth of 16.3% in the fourth quarter of fiscal 2021 and represents comparable sales growth on a 2-year stack basis of 26.5%. Our noncomparable sales increased by $25 million, driven by 6 completed acquisitions and 14 new store openings in the last year. We continue to see broad-based strength across our 3 consumer groups in the quarter as we generated comparable sales growth of 9% for Residential Pool, 17% for PRO Pool and 13% for Residential Hot tub. On a 2-year stack basis, we generated comparable sales growth on a calendar adjusted basis of 21% for Residential Pool, 62% for PRO Pool and 32% for Residential Hot Tub. Weather for the full quarter was slightly positive. Gross profit increased 15.5% or $29 million when compared to the fourth quarter of fiscal 2021 and gross margin rate decreased by 30 basis points to 45.7% from 46% in the prior year. During the quarter, business mix negatively impacted gross margins by 110 basis points and incremental distribution expense by 25 basis points. Partially offset by higher product margins of 15 basis points, and occupancy and other leverage of 90 basis points. Improved product margins resulted from pricing actions taken during the fourth quarter. Now I'll turn to SG&A. SG&A increased 10.9% or $13 million when compared to the fourth quarter of fiscal 2021 and decreased as a percentage of sales by 140 basis points. While we continue to invest to support our growth, we were disciplined with expense management, considering the heightened inflationary environment during the quarter. We estimate inflation during the quarter impacted SG&A approximately $8 million, primarily related to payroll and digital marketing spend. The current quarter also has an additional $5 million of noncomparable SG&A, associated with acquired business. We generated record adjusted EBITDA of $100 million, an increase of 21.3% or $18 million when compared to the fourth quarter of fiscal 2021. Adjusted net income increased to $64 million in the fourth quarter of fiscal 2022, an increase of 27.5% or $14 million when compared to the fourth quarter of fiscal 2021. And adjusted earnings per share were $0.35 in the fourth quarter of fiscal 2022, an increase of 34.6% compared to $0.26 in the prior year. Now let's turn to the full year fiscal 2022 results on Slide 10. Following are a few highlights. For fiscal 2022, we reported sales of $1.6 billion, an increase of 16.3% or $219 million when compared to the prior year. Our comparable sales increased 10.6% or $143 million. This increase is on top of our calendar adjusted comparable sales growth of 21.2% in fiscal 2021 and represents comparable sales growth on a 2-year stack basis of 31.8%. Noncomparable sales increased by $76 million. Gross profit increased 13.2% or $79 million when compared to the prior year. And gross margin rate decreased by 120 basis points to 43.1% from 44.3% in the prior year. During fiscal 2022, gross margins were negatively impacted by business mix and lower product margins related to promotions and higher product costs. This decrease in gross margin was partially offset by distribution as well as occupancy and other leverage for the full year. Adjusted EBITDA improved by $21 million to $292 million from $271 million in the prior year. For fiscal 2022, our effective tax rate was 23.6%, reflecting a statutory rate of 25% and discrete benefits related to equity-based compensation awards, and research and development credits. Adjusted net income was $176 million in fiscal 2022 compared to adjusted net income of $161 million in the prior year. And adjusted diluted earnings per share was $0.95 in fiscal 2022 and $0.85 in the prior year. Moving to the balance sheet. We finished fiscal 2022 with cash and cash equivalents of $112 million compared to $344 million at the end of fiscal 2021. The reduction in cash and cash equivalents was primarily due to share repurchases, investments in inventory and higher M&A activity during the year. On inventory, we ended fiscal 2022 with $362 million, flat when compared to the third quarter and up $163 million or 82% compared to $199 million at the end of fiscal 2021. The increase in inventory is primarily related to equipment, chemicals and M&A activity. Both, the equipment and chemical product categories, are nondiscretionary in nature and are not subject to technology or fashion risk. We view our current elevated inventory position as appropriate given the uncertainty of supply going into fiscal 2023. Our #1 priority will be to put the company in a position to meet consumer demand. We also need to see industry supply chains become more predictable. And when we feel we can adequately meet consumer demand and we see an improvement in supply chains, then we will pursue opportunities to reduce inventory. On debt, at the end of fiscal 2022, we had $798 million outstanding on our secured term loan facility compared to $806 million at the end of the prior year. The applicable rate on our term loan during the fourth quarter was LIBOR plus 250 basis points. Our effective interest rate was 4.3% and the facility matures in March of 2028. Funded debt less cash totaled $686 million at the end of fiscal 2022. Now let me turn to our outlook for fiscal 2023 on Slide 12. In fiscal 2023, we're expecting a more uncertain macroeconomic environment, up to and including a recession that will pressure industry sales, margins and earnings growth. Approximately 80% of our sales are nondiscretionary products and services, which will mitigate but not eliminate the impact on our business. In light of the macroeconomic outlook for fiscal 2023, we're providing the following annual outlook. We expect sales of $1.560 billion to $1.640 billion, representing flat to an increase of 5% compared to fiscal 2022. And let's turn to Slide 13 to walk through our sales build. At the low end of our outlook, we modeled comparable sales growth of approximately negative 5%, which is comprised of the following: a 5% decline in nondiscretionary non-Trichlor sales, a 15% decline in Trichlor pricing, a 20% decline in discretionary sales and 5% inflation on all fiscal 2022 sales. The low end also includes noncomparable sales growth of approximately $75 million. At the high end of our outlook, we modeled flat comparable sales growth, which is comprised of the following: flat nondiscretionary non-Trichlor sales, a 10% decline in Trichlor pricing, a 15% decline in discretionary sales and 5% inflation on all fiscal 2022 sales. The high end also includes noncomparable sales growth of $75 million. And to be clear on Trichlor pricing, our intent is to maintain pricing at current levels as we expect increased Trichlor costs across the industry in fiscal 2023. We have not seen recent price decreases. However, we're in a position to remain competitive and we have the ability to match prices to maintain or grow our market share. So let's turn back to Slide 12 and cover the rest of our outlook. We expect gross profit of $667 million to $708 million, which implies a decrease of 35 basis points to flat gross margins when compared to fiscal 2022. While we continue to see opportunities to improve margins in each of our businesses as a result of our structural advantages, we expect continued headwinds on margins from business mix and investments in supply chain in fiscal 2023. We expect adjusted EBITDA of $280 million to $310 million, representing a decrease of 4% to an increase of 6% compared to fiscal 2022. We will continue to aggressively manage operating costs in the current environment while continuing to invest in high return opportunities to drive growth in each of our businesses. We've provided additional drivers on gross margin and adjusted EBITDA on Slide 16 for your reference. We expect net income of $131 million to $146 million; adjusted net income of $145 million to $160 million. We expect diluted adjusted earnings per share of $0.78 to $0.86, representing a decrease of 9% to 18% compared to fiscal 2022. Our outlook assumes an average LIBOR rate on our floating rate debt of 4.8% during fiscal 2023. And our outlook assumes interest expense will be approximately $3 million higher than fiscal 2022. Our outlook also includes a higher effective tax rate of 25%. And combined interest and taxes negatively impact year-over-year net income by approximately $25 million and EPS by $0.13 per share. We estimate diluted share count of 185 million shares to 187 million shares, and our outlook does not factor in any potential share repurchases during fiscal 2023. And finally, on our outlook, I want to remind everyone of the natural seasonality within our business. Our primary selling season occurs during our fiscal third and fourth quarters, which span April through September. We invest in our business throughout the year, including operating expenses, working capital and capital expenditures related to our growth initiatives. While these investments drive performance during our primary selling season, they reduce our earnings and cash flow during the first half of our fiscal year. In fiscal 2023, we expect negative comparable sales growth and significant gross margin declines in the first half of the year, given the strength of the comparable periods in fiscal 2022 and fixed cost deleverage from negative comparable sales. We also expect to generate all of our adjusted EBITDA and earnings in the second half of the year. More specifically on the first quarter, we expect the following to impact results. In the current quarter, we're experiencing significantly less favorable weather when compared to last year. In Q1 2022, we had a more advantaged Trichlor position when compared to others in the industry. And in Q1 2022, we realized higher average retail price increases ahead of larger industry cost increases. But as we step back and look ahead, our growth strategy has continue to drive an attractive long-term growth algorithm over time. Our algorithm is supported by industry growth, our differentiated market position and our unique capabilities. First, sales growth in the mid-single-digit to high single-digit range based on industry growth and our strategies to expand market share. Low double-digit EBITDA growth based on stable to positive 25 basis point gross margin increase and SG&A leverage. Earnings growth in the mid- to high teens range, driven by flat depreciation and amortization, modest reductions in interest expense and a consistent tax rate. And it's important to note that this range does not include the potential redeployment of excess cash, back into the business, more aggressive debt paydown or returning cash to shareholders. On capital allocation, we continue to have a balanced and disciplined approach. And our priorities remain as follows: our first priority is capital structure. We finished the year in a solid position. We had net debt divided by adjusted EBITDA of 2.3 turns, we had $112 million of cash on hand and a $200 million revolving credit facility, and our first debt maturity is our revolver in 2025. Our second priority is to invest in growth through both, capital expenditures and M&A. In fiscal 2022, we deployed $108 million towards acquisitions, and we invested $32 million in capital expenditures. Over the last year, we accelerated the pace of M&A and our pipeline of M&A opportunities continues to grow. Our final priority is to return excess cash to shareholders. And in fiscal 2022, we repurchased shares, totaling $152 million. For fiscal 2023, our outlook includes M&A investments of $15 million, capital expenditures of $50 million and no share repurchases. In fiscal 2023, our capital expenditures include $15 million associated with the expansion of tableting capacity at stellar manufacturing that we expect to be available for the 2024 pool season. Before I turn it back to Mike, I want to address 1 item that will be covered in greater detail in our Form 10-K that we expect to file later today. In short, we've identified a material weakness in the internal control related to IT general controls. These controls relate to user access over certain IT systems that support our financial reporting processes. We have not identified any misstatements in the financial statements as a result of these deficiencies. We have taken a number of actions to begin remediation, and we'll consider the material weakness remediated when the applicable controls operate for a sufficient period of time, and we conclude through testing that the controls are operating effectively. We expect remediation to be completed during fiscal 2023. And with that, I'll hand it back over to Mike. Thank you.

Thanks, Steve. Fiscal year 2022 was a solid year for Leslie's and I'm very proud of the team's contributions and the results they drove. However, 2022 was also a year that reiterated the challenges in predicting how macro conditions can impact the business. We expect the 2023 macro to be more unpredictable and challenging than 2022, up to and including a recession. Knowing we can't count on being able to accurately predict what macro conditions the business may face. We have prepared ourselves for a range of outcomes, principally driven by the levers that Steve discussed. Discretionary and nondiscretionary product demand, Trichlor retail pricing and inflation. Based on those scenarios, our 2023 outlook range is lower than our long-term growth algorithm. We think this is the prudent approach. However, we think it's important to note that we do not see a scenario where we give back significant portions of the gains over the last 3 years. We remain confident in the durability of our business model and in our ability to grow our market share in challenging macro environments. This confidence is based on the fundamental advantages of the 80% of our business that is nondiscretionary and recurring in nature. The competitive advantages of our integrated system of physical and digital assets and the further execution of our diversified strategic growth initiatives. On Slide 15, we have bridge to the midpoint of our 2023 sales guidance in 2 ways: by consumer group and strategic growth initiative. On the left-hand side of Slide 15, you can see that we are modeling sales from our residential pool consumers to be flat. The PRO Consumer Group to contribute 1% of total growth and the Residential Hot Tub consumer group to contribute an additional 1% to our total growth of 2%. In this scenario, the growth in PRO and Residential Hot Tubs is driven entirely by noncomp stores and acquisitions. On the right-hand side of Slide 15, we bridge sales to the same midpoint scenario with no file growth, an average revenue per customer that reflects a negative 2.5% comp, consisting of plus 1% AOV and minus 3.5% transactions and no comp growth in our PRO business. These negative scenarios for our first 3 initiatives are more than offset by our whitespace and M&A initiatives. It's important to note that with today's announcement of our most recent acquisition, the M&A contribution reflected on our midpoint guidance is substantially complete. That concludes the earnings release portion of today's presentation. We're now going to shift into the investor presentation. As a reminder, we'll have an hour for Q&A on both, the earnings and investor presentation, at the end of our prepared remarks. Slide 18. If I was reviewing our previous presentations, I realize that we have spent a lot of time explaining how proper pool care is necessary, complex and challenging. We make it sound like an unpleasant shore that has to be done. What we have not spoken to as much is how actional pools are, how much people love their pools and how much people love the Leslie's brand. We do a lot of consumer insight research and pool owners are happy to share how they use their pools; for exercise, recreation, relaxation, entertaining, as a playground for grandkids and other fund filled activities. When pool maintenance is nondiscretionary, you can default to people maintaining their pools simply because they have to. The truth is, they also maintain their pools because they love it; love all the ways they use it and love all the memories they create. But they're also quite clear that maintenance can be hard, and that's where Leslie's comes in. Leslie's is the #1 brand in pool supplies with the highest aided brand awareness, the highest unaided brand awareness and the highest affinity. When consumers describe Leslie's, they consistently use the words: trust and expertise. What great attributes to be known for, what a responsibility for us to uphold and what a great way to illustrate the value of the Leslie's brand? Leslie's is pool owners trusted, expert partner in maintaining a clean, safe and beautiful pool, and all the moments and memories that come from it. Slide 19, a quick overview of the Leslie's business. We are the dominant direct-to-consumer market share leader in the pool and hot tub industry. Our physical network of 990 locations is bigger than our 20 largest competitors combined. Our digital sales are 5x larger than our next largest digital competitor. And if our digital business was a stand-alone entity, it would be the #2 pool supply retailer in the industry, behind only our own store network. We are the only direct-to-consumer pool supply company with true omnichannel capabilities. We launched the industry's first and largest loyalty program. And as we just discussed, our fiscal 2022, which ended on October 1, 2022, was a record year with sales growth of 16% to $1.6 billion and EBITDA growth of 8% to $292 million. Fiscal 2022 also represented our 59th consecutive year of sales growth. 59 consecutive years of growth, growth in every year since the company was founded in 1963 by Phil Leslie in North Hollywood, California. That's a staggering accomplishment and a testament to both, consistent execution and an incredibly durable business model. This streak is something the entire company takes great pride in. And it's also a lot of pressure. No team wants to be the one that breaks the streak. But it is a pressure and a challenge that all of us in the company welcome. Moving to Slide 21. It's not just that we have grown every year of our history, we've also gained market share. In the last decade, we gained 540 basis points of share. We're also confident that we gained share in the 2022 pool season. Based on third-party aggregated credit card data and our own internal data, our growth rate of 16% in fiscal 2022 was 1,800 basis points higher than our specialty pool competitors. And as you can see summarized on Slide 22, our growth over the last 2 decades plus has spanned multiple occurrences of a broad range of macro environments, including reduced rates of new pool builds, GDP contraction, housing industry slowdowns, declines in consumer spending, high inflation and rising interest rates. In particular, as you can see on this slide, the business performed very well during the 2006 to 2009 recession. And over the last 22 years, has grown at a CAGR approximately 4x that of the installed base. Slide 23 shows the same data in a different view, with the addition of which macro events occurred at which times. As you can see, many of these macro events actually overlapped, which means that the Leslie's business model has proven to be very durable during a variety of compounded, complex and challenging economic times. Today, we believe we are better equipped to grow profitably in challenging macroeconomic conditions than at any other time in our history. Slide 24 shows our recent results and 2023 outlook for sales and EBITDA. As you can see, over the last 3 years, we have grown sales at a 19% CAGR and adjusted EBITDA at a 22% CAGR, well above our long-term growth algorithm. As we discussed earlier, we do expect this top line and bottom-line growth to moderate in 2023. And our outlook range contemplates a recession at the low end. But there are key attributes of our model that give us confidence in our performance even in a recessionary backdrop. Those attributes are: the performance of the branded business and other challenging macro periods over time, the stickiness of the key secular trends that provide a tailwind to the business, the fundamental advantages of the nondiscretionary needs-based demand of the aftermarket pool industry, the competitive advantages derived from our network of physical and digital assets, and the momentum we have in our strategic growth initiatives. Moving to Slide 25. When I joined Leslie's in early 2020, I was impressed by what was at the time, 57 consecutive years of growth and the industry-leading market share that growth had created. However, what I found even more interesting and attractive was that despite that lengthy track record of success, there were still significant growth opportunities. One of the first projects we undertook in 2020 was a thorough review and assessment of those growth opportunities to determine which were the largest and most significant, the most consistent and predictable, the ones we are best able to execute against and which, when executed well, would provide us the greatest competitive advantage. That comprehensive review by senior leadership led us to the definition of adoption of the strategic growth initiatives you see on Slide 25. And as you can see, consistent focus on the execution strategy for each initiative has resulted in 3 years of strong results. And this despite having to simultaneously navigate the pandemic and recurring supply-chain challenges. It's a gratifying start, but we still have lots of opportunities and room for growth across each of these initiatives. Slide 26 is our senior leadership team. The breadth and depth of this team, and their sorted experience and skill sets is what has allowed us to advance our strategic growth initiatives and drive our profitable growth. The team is an excellent mix of modern retail, financial and operating expertise. And all of them have a strong track record of success, both in their prior positions and at Leslie's. All of the team is here today and will be available for a Q&A session. And clearly, it's not just this team driving the results. It's the totality of our more than 4,000 associates who took their effort and contributions to the next level with the pandemic and have sustained that performance since. Moving now to Slide 27. The events of the last 3 years: the pandemic, [indiscernible] on West and now a macroeconomic slowdown, has brought into clear focus for our organization, the need to elevate our ESG program across the entirety of our business. As you can see, we have made significant progress across each of the environmental, social and governance components of our ESG road map. And importantly, we have aligned and integrated our ESG efforts into our culture and our strategy. Over the last 2 years, we have accomplished the following; named our Chief Legal Officer, Brad Gazaway, as executive leader of our ESG initiatives, and hired a Director of ESG; formed a Sustainability working group comprised of internal resources and external advisers to work on ESG priorities and projects a direction of the Board and management; published our inaugural ESG report in September of 2021, covering our fiscal 2020, and our second ESG report in September of this year, covering our fiscal 2021. This year's report included our first greenhouse gas emissions analysis. We elected James Ray, Jr. to our Board of Directors and appointed Mr. Ray as lead independent Director. Mr. Ray has extensive experience in supply chain and operating leadership. We also elected Claire Spofford, CEO of J. Jill, to our Board of Directors in May of 2022. With the addition of Ms. Spofford, our now 10-member Board consists of 6 independent, 4 women and 3 ethnically diverse members. And all of our committees are now fully comprised of independent directors. We have good momentum in our ESG efforts, and we are committed to continuing our work to be an organization that makes a positive difference for our consumers, associates, shareholders and the communities in which we operate. Now I'll turn it back to Steve; speak to 3 pillars, we believe, make Leslie's a uniquely advantaged business.

Thanks, Mike. Let's turn to Slide 29. So there are 3 key pillars that make Leslie's unique and that we believe make it a very compelling investment opportunity. Number one, we operate in one of the most advantaged consumer products industries. It's large at over $15 billion. It is nondiscretionary recurring annuity-like demand because once a pool is built, it has to be maintained. And it has predictable growth. The installed base has grown every year for 52 years. Number two, we have built a consumer-centric integrated network of assets and capabilities that are unmatched in scale and reach and allow us to provide total pool and spa care solutions to all consumers, whatever their need and wherever, whenever and however they want to engage with us. None of our competitors have that capability. Despite being the largest direct-to-consumer brand in the industry, we have significant whitespace opportunities across the consumer types we serve and all the channels we operate. And we have the capabilities, talent and tangible growth initiatives to address these opportunities. Now let's walk through the advantages of the pool and spa industry. On Slide 31, you can see the market we operate in is made up of 3 types of consumers, Residential Pool, Residential Hot Tub and Pool Professionals or the PRO market. Each of these markets is sizable. And in total, they add up to 14 million bodies of water and $15 billion of annual total aftermarket spend. And 2 points I want to reinforce. The first is that Leslie's is the only company that addresses the needs of all 3 types of pool and spa consumers. And the second is we have significant whitespace opportunities with all these consumers, including residential pool, which is our largest consumer base. Next, we'll spend a few minutes to walk through the annuity-like domain maintenance. We'll turn to Slide 33. And probably like most of you, I've had a lifetime of exposure to pools and spas. But it wasn't until I got to know Leslie's that I began to appreciate the complexities of pool care. Let's start with a simple fact. Pool care is more complex than most consumers expect. And yet, it's essential to get right. If you use a pool, you don't want any doubt in your mind that, that water is safe. There are 6 critical components to proper pool maintenance. There's water balance and sanitation, water circulation and filtration, and cleaning and water testing. It's an ongoing an iterative process that requires regular water tests in order to keep more than 10 different chemical ratios and equilibrium. And unless you have Leslie's water test prescriptions with specific actionable steps, achieving that water balance is trial and error. And if any of these chemical levels get out of balance, you quickly have a problem on your hands. So let's turn to Slide 34, where you can see that once the pool is built, maintenance is not optional. Deferring maintenance, draining pools or filling them in, are all more expensive than maintaining them on a regular basis. The lack of proper maintenance leads to poor water quality, which can create health problems and damaged equipment. If you drain a pool, the physical structure of the pool will be damaged or even rise above the ground. And if you fill it in, it's an expensive construction project, requiring punching holes in the vessel, demolishing the top layer of the pool and on top of the out-of-pocket cost, it's going to reduce the value of your home. None of these are good alternatives to basic pool maintenance. And as a result, pools are long-lived assets. On the next Slide, 35, you can see the impact on regular maintenance over the life span of a pool, which conservatively is at more than 30 years. On average, consumers spend $900 per year on their pool for maintenance. So the spend during the life span of a single new pool represents over $27,000 of aftermarket spend. This spend is highly defensible. Each pool effectively creates an annuity-like stream of nondiscretionary demand. And when you factor in the estimated 340,000 new in-ground pools installed in 2019 to 2022, this has created more than $9 billion in additional maintenance demand over the life of those pools. It's important to note that we are not dependent on new pool construction. As Mike discussed earlier, we have demonstrated the ability to grow in all economic environments as we primarily focus on the installed base of 14 million pools and spas. That being said, the installed base has grown more than 500% over the last 50 years since they started collecting the data, and it's grown each and every year. So over the next few slides, we'll talk through a number of factors driving growth industry and for Leslie's. We'll start with Slide 37. Many of the macro trends driving consumer demand in the pool industry remain intact and should continue to drive growth over the next several years. The desire for healthy outdoor lifestyle, ongoing investment in the home and backyard, the great migration to the Sun Belt, a heightened sense of safety and standardization, hybrid and full-time work-from-home schedules, and pool equipment innovation, all support the forecast for underlying growth in our industry to continue. Against this favorable industry backdrop, we are confident that we can grow Leslie's faster than the industry and across our consumer types. Slide 38 shows the power of integration to the Sun Belt. Projected population growth through 2040 shows 1 in 4 interstate movers are relocating to a state with the West forecasted to grow at 21% and the South forecasted to grow 23%. Nearly 60% of in-ground pools are located in the Sun Belt and the number of pools per capita in the Sun Belt is more than 3x higher than in winter markets. These migration trends provide a favorable backdrop for new pool builds and pool usage. So let's turn to Slide 39. Consumers are embracing innovation in the pool equipment product category. And we see substantial opportunity to increase penetration in the aftermarket. Key factors driving adoption includes a step function change in energy efficiency, increased convenience for consumers and maintaining their pool. And many of the products just work better. A lot of the credit goes to our vendor partners who have done a great job developing new products that appeal to consumers. It's also important to understand that the sale of these innovative products are heavily assisted sales, and many require installation services. As Mike said earlier, when consumers describe Leslie's, they consistently use the words: trust and expertise. Leslie's associates are uniquely positioned to introduce these products to pool owners based on our consumer relationships. And Leslie's is uniquely positioned to install products for consumers in their backyards. There are approximately 350 in-field service technicians across the country. So associate knowledge and installation services are essential as there's a higher upfront cost for these products. But they offer great value to consumers. Based on the level of penetration for these product categories across the aftermarket and new builds, we see an incremental sales opportunity of $15 billion over time. And this only accounts for the initial conversion to these new innovative products and does not factor in the increased sales related to future repair or replacement of the equipment. Turning to Slide 40. Leslie's is uniquely positioned to benefit from consumer trends. Through our integrated network that Moyo LaBode will speak about in more detail, we have the capability to serve the needs of all bodies of water, and we can be agnostic around the classification of consumers as DIY or DIFM. In 2021, about 2/3 of consumers take care of their own pool and about 1/3 of consumers hire a professional to take care of their pool. However, in a challenging macroeconomic environment, like we expect in 2023, the percentage of DIY consumers may increase, and we're positioned to capture any potential shift in our residential pool business. We're also seeing a shift in shopping patterns where consumers are increasingly shopping at pool supply retail locations in dedicated e-commerce sites. According to PKdata, there has been a favorable shift of approximately 120 basis points post pandemic. And finally, on this slide, you can see that consumers increase their usage of pools post pandemic by about 1 day per month. While the increase in pool usage has been supportive of our growth, it has not been the core driver of our growth. And on Slide 41, you can see the evolution of our total addressable market, which further demonstrates the predictable growth of our industry. Starting at the bottom, the Residential Pool category, which is Leslie's largest business, has grown the fastest at a compounded rate of over 6%. Professional Pool has grown at 4% and Residential Hot Tub has grown at 3%. All 3 categories have grown at a rate faster than the overall economy, and Leslie's has significantly outpaced industry growth as we continue to gain market share. Our current total addressable market is over $15 billion, and it's grown 67% over the last decade. So in this section, we've reviewed key characteristics of the pool aftermarket industry. It's large, creates annuity-like demand and generates predictable growth. We continue to be optimistic about the growth outlook for our industry. And as the industry leader, we're even more excited about the growth prospects for Leslie's. Now I'd like to turn it over to Moyo LaBode to review Leslie's integrated ecosystem. Moyo?

Good morning. I'm Moyo LaBode, Chief Merchandising Officer. I joined Leslie's about 18 months ago. Prior to Leslie's, I spent time at Barnes & Noble, Home Depot and Target in a variety of merchandising, sourcing and operations roles. I'm really excited to be part of Leslie's growth story. One of Leslie's most significant differentiators is our network of physical and digital properties, which is unmatched in scale and reach, consumer-centric and allows us to provide pool owners with a total solution for a clean, safe and beautiful pool. On Slide 43, let's walk through each part of our integrated ecosystem, starting with the physical network. Over the last 59 years, we have built the most extensive and geographically diverse pool and spa network in the United States. It's comprised of 3 formats: Residential, Pro and Hot Tub. Leslie's physical network consists of 990 locations, including 863 residential stores in 39 states, 80 professional stores and 47 hot tub stores. Our physical footprint ensures we are close to the customer. In fact, over 90% of pools in the Continental U.S. are within 15 minutes of a Leslie's store. Our digital network is a platform of complementary branded proprietary e-commerce sites and marketplace storefronts. This allows us to serve the needs of all types of digital customers. And each site has a curated merchandising and pricing strategy to appeal to a specific customer. Leslie's mobile app supports Leslie's sites in stores and has been downloaded over 600,000 times. We know over 60% of shopping starts online as the phone has become the front door to most shopping experiences. Leslie's.com has a complete pool lifestyle offering of products and services from trusted brands, including a large assortment of our own brands and products. Leslie's Pro site launched in 2021 as a qualified access site for pool professionals. It carries an extensive assortment specifically targeted to meet the needs of the Pro. The intheswim site offers a broad assortment at great prices, focus on do-it-yourself and above ground pool owner. We operate marketplace storefronts across Amazon, eBay and Walmart. These storefronts offer basic assortment of pool supplies at an opening price point. Taken together, our sites capture nearly 2/3 of all online pool and spa traffic. And our network volume is over 5x that of the #2 online provider. Turning to Slide 44. Leslie's large physical, digital and mobile footprints are brought together in an ecosystem called Leslie's Connect. The ecosystem supports millions of direct consumer relationships. Our omnichannel capabilities that will allow our customers to shop whenever, wherever and however they choose, including buy online, pick up in store, ship from store, ship to store, buy online, return to store. Leslie's Connect creates a friction-free and fast shopping experience for our customers. Importantly, Leslie's is the only pool and spa retailer with these capabilities. Moving to Slide 45. Our business model is a combination of product and service offerings. Leslie's product offerings reflect an extensive assortment of over 30,000 SKUs. More than 80% of the sales are from recurring nondiscretionary products like chlorine that support daily and weekly pool maintenance. 55% of our product offerings are exclusive to Leslie's. For chemicals, that number is over 85%. Exclusivity drives consumer loyalty at a higher margin rate. There are 2 parts to our service offering. First, all of our locations offer expert advice and consumer education, free water test and treatment plans, and free repairs and extended warranties for products purchased from Leslie's. Second, we have the industry's largest in-field service team, consisting of 350 certified technicians that provide on-site installation, troubleshooting and repair. Our in-location in-field services, testing, analysis, advice, education, installation repair are a critical component of the value equation only Leslie's offers to consumers. These services are a significant differentiator to mass, home improvement, club and online competitors. Our competitors sell products, which are only part of this solution. We offer a total solution that results in a safe and great looking pool. On Slide 46, proprietary chemicals are the backbone of our product assortment. They support pool openings, weekly maintenance and pool closings. The assortment also needs to and does serve a wide range in age of equipment. In fact, the average age of a U.S. pool is 23 years. And as a pool ages, the likelihood of more frequent maintenance and repair increases. Aging equipment also represents a significant upgrade opportunity. Our assortment is constantly evolving to support present and emerging sustainable products that are energy-efficient and reduce chemical and water consumption. Perfect Weekly is an example of bestselling sustainable item that is exclusive to Leslie's. Perfect Weekly is a maintenance product that keeps the pools clean, reduces chlorine use and lowers water evaporation, all through a simple nontoxic formula. On Slide 47, pool owners know that keeping pool water healthy, safe and looking great can be challenging. Pool water is always changing based on numerous factors such as weather; heat and rain; number of swimmers, of pets and people; and maintenance routines. Testing pool water on a weekly or more frequent basis ensures a healthy, well-maintained pool. Leslie's is the undisputed leader in water testing with over 50 million tests and 59 years of testing experience. Our expertise led us to launch the proprietary AccuBlue water test in 2020. AccuBlue replaces difficult-to-use, inaccurate manual test strips with a digitized experience that delivers a pool score and step-by-step prescription for a clean, safe and beautiful pool. It is truly a game changer. Moving to Slide 48. Our integrated ecosystem is a network of assets, capabilities and expertise, unique to Leslie's. At the interval is our relationship with millions of consumers, both residential and professional. In addition, we offer differentiated products and services. And we bring it together with Leslie's Connect, serving customers through a physical, digital and mobile platforms. Regardless of their need, whenever, wherever and however they choose to engage us, Leslie's stands alone in providing customers a total solution. Now I'll turn it over to Steve to discuss our supply chain.

Thanks, Moyo. Over the next few slides, I'll talk about specific actions we're taking to improve our supply chain across 3 key areas. First, expand capacity; second, stock more inventory across our network; and finally, diversify our supply base. As we discussed in our last earnings call, during the third quarter, we experienced execution challenges at our New Jersey distribution center. These challenges resulted from a delayed start to the pool season in the Northeast, unforeseen levels of vendor shipments and DC receiving activity in season as supply chain disruptions moderated. We didn't have the staffing and plan in place to support this combination of factors. During the third quarter, we also experienced supply shortages from certain vendors in season that required higher cost substitutes to serve consumer demand. We believe the actions we took during the fourth quarter and the actions we will take during fiscal 2023 will improve service levels and mitigate supply chain risks. One of our competitive advantages is our vertical integration and distribution. Our vertical integration enables us to optimize product flow and better understand industry cost structure. On Slide 50, you can see a layout of where our distribution centers and 3PLs are located. Today, we operate 6 residential pool distribution centers, serve consumers through an additional 4 3PLs, and we operate 3 manufacturing sites. Our national footprint allows us to efficiently fulfill store and digital demand as our distribution locations are strategically located within the critical mass of stores and pool consumers in their respective regions. In fiscal 2023, our first opportunity is to expand capacity across our network, and I'll highlight a few actions we're taking. First, create flexibility to implement a 2-shift 7-day-a-week model during pool season. This will give us the ability to increase capacity in our existing distribution centers by over 40% when compared to the operating model in fiscal 2022. In fiscal 2022, we were able to quickly scale up warehouse associates, but we did not have the shift managers or supervisors in place to effectively utilize the additional resources. We're investing approximately $750,000 to hire managers and supervisors across our network to be in a position to scale operations during pool season. Second, add new 3PLs to support seasonal demand. In the past, we've successfully utilized 3PLs to support high-volume SKUs in seasonal markets like the Northeast. We have the ability to optimize order flow through the use of these facilities, relieve pressure on our existing distribution centers and 3PLs have an attractive variable cost structure that we can utilize on a seasonal basis. And third, we've hired a new omnichannel fulfillment leader who has experience optimizing omnichannel capabilities to meet consumer demand in the current environment. On Slide 51, we highlighted a number of strategic investments on our road map that will allow us to better serve consumers, increase capacity and optimize our supply chain. We start on the left-hand side with the foundational investment of a new order management system that we implemented in 2020 to 2021. The rollout included Manhattan Active Omni and Salesforce Commerce Cloud which enabled the omnichannel capabilities, Moyo just discussed. The second bar is a key supply chain enabler. We're currently implementing new merchandise financial planning and inventory management systems that we expect to roll out in 2023. These new tools will allow us to optimize planning and allocation of products across our network to meet consumer demand and enable us to more effectively manage profitability across our portfolio of products and services. Next, on our road map, our additional foundational investments that include new point-of-sale and enterprise resource planning systems. Both will be common platforms across our businesses that will allow us to better serve consumers, support organic growth and accelerate the pace of integration of newly acquired businesses. Finally, our next supply-chain investment will be to upgrade our warehouse management system. And we're targeting implementation for fiscal 2025. Our team has a track record of successfully implementing new systems. And our entire organization is highly focused on continuous improvement. Now let's shift gears and turn to Slide 52 to review opportunities to improve our inventory position. Our top priority, as I discussed earlier, is to have product in stock to meet consumer demand. Vendor supply chains have been unpredictable across a number of key product categories over the last few years. And while we're pleased with our team's tireless efforts and the collaboration from our vendor partners, this unpredictability has impacted product availability, customer service levels, and we've missed sales. We're encouraged that supply chains appear to be improving, but we will continue to lean in on inventory investments until we see sustained performance, leading up to and through pool season. We have the ability to use our balance sheet as a competitive advantage. And we will continue to carry higher inventory levels in both, our stores and our distribution centers. We will also focus on the earlier receipt of goods so that we can use our distribution capabilities to position inventory across our network in advance of season. And as a reminder, we primarily sold nondiscretionary products. And most of the incremental inventory falls into the chemical and equipment categories that are not subject to technology or fashion risk. When we believe we have sufficient inventory to meet consumer demand through season and after we see supply chains across the industry become more predictable, then we will strategically manage inventory levels down to recoup some of the investments we have made in working capital over the last few years. On Slide 53, we cover our third opportunity to optimize our supply chain through diversifying our supply base. On the prior slide, I talked about the unpredictable nature of our supply chain. Over the last couple of years, but more acutely in fiscal 2022, we experienced product shortages from a larger number of existing vendors in season. For certain products we offer to consumers, we work with a network of local, regional and national vendors. And a number of these vendors simply did not have the capacity to support our current growth. We have long-term relationships with a broad base of vendors across the country and across product categories. These relationships allowed us to get back in stock during the second half of fiscal 2022, but we experienced stockouts. And we've procured replacement product at higher cost for both, the product and the distribution of those products, to stores and consumers. Going into the 2022-23 pool season, we will further mitigate supply chain risk by contracting supply with additional vendor partners. And we will be receiving inventory earlier to minimize stockouts in season. We believe the actions we've laid out in the last few slides will materially improve our supply chain and position us to better serve consumers. And now we're going to take a short break, and we'll reconnect at 9:30 Mountain time, 11:30 Eastern Time to discuss our growth initiatives. Thank you. [Break]

Hi, everyone. I'm Mike Africa, Chief Digital Officer at Leslie's. I've been in retail for 22 years, helping companies rapidly scale their e-commerce businesses and accelerate their digital transformation. I joined Leslie's about 15 months ago. I've never seen a company quite like it. The fact that the company has grown for 59 straight years in -- As Mike said earlier, we have implemented 6 growth initiatives and have good momentum across all 6. What I'm most excited about is the ample opportunity to continue this growth with expectations that each of the first 5 initiatives will contribute 100 to 300 basis points in growth on average over time. During the next few slides, I will be covering the first 2 initiatives, grow customer file and deepen customer relationships. At Leslie's, we put tremendous focus on growing our customer file. It's a fundamental measure of growing market share and a healthy business. It's simple. If you grow your file, your business will grow. This is why growing our customer base is our #1 priority in marketing, and it's paid off with our target file growth over 25% the past 3 years. This is because we have clear advantages that we can leverage. First, a strong LTV to CAC ratio allows us to confidently invest in marketing. This is because pools create an annuity-like demand. Once you have one, you spend money to maintain it year in and year out. Thus, we significantly invest in marketing and continuously improve our ROI through better targeting, optimizing channel mix and delivering relevant content. Our second advantage, there are over 8.7 million residential pools in the U.S. And over the past 59 years, we've amassed a proprietary database of pool ownership. Yes, we know where pools are located and where new ones are being built. This information allows us to micro target both, new and existing customers. We've leveraged this information across all our channels, including CTV, display, paid search, social and direct mail. Then we layer on our first-party data to further refine our targeting and deliver more relevant content. Leslie's start advantage is our investment in our MarTech Stack. Over the past several years, these investments include media mix modeling, multitouch attribution, marketing orchestration and customer identification. These tools and capabilities allow us to manage our marketing differently. Rather than setting a dollar budget that we manage to, we set an ROI target that we spend to. If we continue to see our targeted return, we continue to invest. The investments allow us to optimize our mix to ensure a proper balance between top of funnel to bottom of funnel campaigns. This builds awareness, drives consideration and increases conversion across all channels. Furthermore, with nearly 1,000 stores, it allows us to measure our digital efforts, not only online but offline as well, ensuring high return on our marketing dollars. Turning to Slide 56. Our second strategic growth initiative is to deepen relationships with our customers. We use average revenue per customer as their primary KPI to measure this initiative. Moving forward, I'll refer to average revenue per customer as ARC. As you can see on this slide, our ARC has increased 24% since 2019 and our share of wallet has increased 302 basis points during that same time period. As Steve showed earlier, pool owners spend $900 per year for maintenance. So even with that 24% growth in ARC over the last 3 years, we still have a significant opportunity to gain additional wallet share. How do we do so? First, we will leverage our marketing data to drive higher frequency, adoption into new categories and drive growth in our Pool Perks loyalty program. Second, we will capitalize on our retail fleet of nearly 1,000 stores, expertise of our store associates and our continuous investment in digital transformation that creates a customer experience that is impossible for smaller competitors and big box retailers to replicate. Through this network, we will be able to drive more omnichannel shopping. Third, we will continue to showcase our industry-leading water testing platform, AccuBlue. As you will hear from Clay, AccuBlue is the most accurate test in the market that prescribes our proper treatment plan to help customers maintain a clean, safe and beautiful pool. Finally, we will take advantage of the [indiscernible] expansion into eco-friendly products to drive higher ARC. As Moyo mentioned earlier, we are expanding our assortment to include sustainable products that are energy-efficient, reduce chemical usage and lower water consumption. The above initiatives will help us retain customers. And as you can see on this slide, our customers become more valuable over time with retained customer spending $354, 20% higher than the average customer. Let's now turn to Slide 57 and talk about our loyalty program, Pool Perks. Pool Perks is a powerful lever that drives has higher retention rates and plays a key role in increasing ARC. Pool Perk's best-in-class benefits: 5% rewards, free shipping, extended warranties and exclusive offers has really resonated with our customer base. When compared to nonmembers, Pool Perk members have a retention rate and lifetime value 3x higher and ARC 2x higher. These metrics illustrate the value of the program and the importance of continuously messaging the benefits of the program. It nurtures our relationship with loyalty customers who represent 74% of our total transactions and 80% of our residential sales in 2022. With our investments in marketing, focus on increasing ARC and strong loyalty program, we have created a solid foundation to grow our customer count and increase our wallet share. Now I will turn it over to Paula, who will be discussing the PRO initiative.

Good morning, everyone. I'm Paula Baker, Chief Revenue Officer at Leslie's. I oversee the sales and operations for our retail stores and service teams, our hot tub companies, our PRO business and our call center operations. Prior to joining Leslie's 3 years ago, I served a number of roles at Best Buy with my last role as President of Retail. I'm excited to talk to you today about 2 of our initiatives; our PRO initiative and also our whitespace opportunity that we see for our stores. First, let's start with our PRO initiative. It's an exciting and growing part of our Leslie's business. Leslie's PRO business is unique in the industry. The total addressable market is approximately $4.4 billion. And because of our size, scale and value propositions, we believe we have a unique opportunity to gain market share with our initiative. We are the only company that can fully meet our customers where, when and how they want to do business with us. And for our PROs, whether online, in-store, over the phone or in the customer's backyard, we can serve our PRO customers in a way that best suits their business needs. Our PRO initiative launched in 2020 with a 3-part strategy; our Leslie's PRO partner program, our Leslie's PRO stores and our Leslie's PRO website. Since our launch, the PRO business has grown 73% and now represents 15% of the company's revenue. Let me provide an overview of each of these 3 strategies as shown on Slide 59. First, our Leslie's PRO partner program. I'd like to define the 2 customer segments that our PRO initiative serves. The first segment, our PRO customer, is a pool trade professional that owns and operates and oversees a pool service route. They are the typical 1 pooler that operates one truck and typically has a route of 50 to 75 pools. The second segment, a PRO Partner is a customer with whom Leslie's has developed a deeper relationship and has engaged in a partnership that is mutually beneficial. These PRO partners typically have 2 or more trucks and service 75 or more pools annually. All of our PROs primarily service the pools of our residential homeowners. They are business owners that want to continue to grow and expand their business and see Leslie's as the trusted partner in making that happen. While Leslie's has served pool PROs and professionals for decades, the PRO partner program that we launched in 2020, offers a differentiated and significantly improved experience, which makes Leslie's valuable to these PRO partners. PRO partners receive preferred pricing, customer referrals for pool maintenance, rebate programs and additional benefits like AccuBlue water testing and in-store equipment inspection and repair. And a PRO partner spends on average more than 25x what a residential customer spends on their pool, which makes these PRO partners very valuable to us. Our second PRO strategy is our Leslie's PRO stores. Before I talk about the PRO branded stores specifically, it's important to note that every Leslie's store serves our PRO customers and PRO partners. However, the 80 PRO branded stores do have features that are specifically catering to the PRO customer. Our PRO locations averaged 4,200 square feet and carry an average of 1,500 SKUs. The depth and breadth of assortment is greater than a typical residential store for the SKUs that are in highest demand for our PRO customers. The PRO stores generate 2x the sales of a residential store and has a higher EBITDA contribution. And when we convert or build a PRO location, our PRO sales and residential sales across the market increase. PRO locations do not cannibalize PRO sales from the surrounding stores in the market. Our PRO stores offer convenient locations, expanded store hours, expanded assortment, omnichannel capabilities and a trusted partnership with our store teams that are trained and knowledgeable to specifically serve the unique needs of our PRO customers. Today, we have 80 PRO locations, and we plan to convert or build another 20 PRO stores in 2023. And with the help of our third-party analysis, we have an opportunity to operate more than 350 PRO locations in the U.S. And third, to complement our physical locations, we also launched our third strategy, which is our Leslie's PRO website. It's a dedicated members-only website that allows our PRO customers the convenience of shopping online, while at home, in their truck or in the customer's backyard. This site offers omnichannel capabilities that allows our PRO customers to shop at their convenience and has product readily available for pickup in store or delivered to their homes, so that our PROs are maximizing their time providing the best service to their customers. On Slide 60, let's talk about how we compete in the PRO space. Simply stated, we compete on convenience and value. As a company, our real estate strategy is very straightforward. We are where the pools are. 90% of all pools in the Continental U.S. are within 15 minutes of one of our nearly 1,000 Leslie's locations. That makes Leslie's the closest, most convenient location. We also understand that our PRO Partners expect value in their products, and the depth and breadth of our PRO assortment is high quality and competitively priced. And to further capitalize on our ability to compete in the PRO market, we have our sights set on continued growth. Our targets for 2023 include 4,000 contracts with our PRO partners and a target of 100 PRO branded stores. And for the longer term, we have our sights set on targets of 10,000 PRO customer contracts and over 350 PRO locations. Our PRO partners are business owners that want to do business and grow and expand and see Leslie's as that trusted partner. We uniquely deliver what is most important to these PROs; convenience and value. That's why I said at the beginning, our PRO business and our PRO partners are an exciting and growing part of our business. Now I'd like to turn to Slide 61 and talk about the whitespace opportunities that we see for our stores. First, some context on our residential stores. Our residential locations average about 3,500 square feet and carry approximately 900 SKUs. Our upfront investment is approximately $350,000. The maintenance capital is modest and cash-on-cash returns of more than 35% in year 4. As of the end of 2022, Leslie's operates 990 physical locations across 39 states. These include 863 residential locations, 80 PRO locations and 47 Hot Tub locations. We believe we have a clear path to doubling our store count through a mix of new store openings and M&A. We take a top-down approach to expand our physical network. We say that we are where the pools are, and that's no coincidence. There's a high correlation between pool density and store performance in any given market. The more pools, the more nondiscretionary demand, the better the stores perform. So we begin by identifying markets with high pool density where Leslie's is either underrepresented or does not have an existing presence, utilizing a mix of proprietary data and third-party data. Once we identify that target market, we canvass the competitive landscape to determine if local pool owners are adequately served by existing specialty pool retailers or if there's whitespace opportunity for new growth. Then we take a buyer build approach to enter that target market. We either acquire a well-run hometown hero or if none are present or actionable, we build new stores. This represents a significant opportunity for Leslie's. We've identified nearly 700 incremental residential whitespace opportunities and nearly 200 PRO opportunities. Capitalizing on these 2 opportunities adds nearly 900 store locations and brings our store count to nearly 1,900. The M&A opportunity is much more significant. We estimate that there are 8,000 independent specialty retailers in the U.S. and 2,500 Hot Tub retailers in the U.S. It's important to note that we can also target underserved markets with targeted digital outreach and branded marketplace sites. This can be particularly efficient in markets that have lower in-ground pool density and may not have the right economics for a physical location. Finally, whitespace is dynamic, not static. We've discussed the secular trends in population migration to the South and Southwest, and we've noted consistent growth in new pool installations. Over time, we expect the installed base of pools to grow and new pool markets to develop, creating additional opportunities for store expansion. Now I'd like to turn it over to Clay to talk about our last 2 initiatives: M&A and disruptive innovation.

Thank you, Paula. My name is Clay Spann. I'm the Vice President of Strategy and M&A, and have been with Leslie's for 2.5 years. Before Leslie's, I was with JPMorgan's Investment Bank, advising consumer and retail companies. I later joined El Catterton, where I invested in consumer businesses and worked closely alongside management teams to develop sustainable long-term growth strategies. Now at Leslie's, I oversee corporate strategy and M&A. I'll start with M&A. Between 2010 and 2020, Leslie's acquired 1 business per year on average. In late 2020, we established M&A as our fifth strategic growth initiative and began to accelerate our pace of acquisitions. We acquired 3 businesses in 2021, 6 in 2022, and as Mike noted earlier, we have already completed our first acquisition of fiscal 2023. The 10 acquisitions completed over the last 2 years account for nearly $140 million in sales and $25 million in annual adjusted EBITDA. And we're just getting started. We've acquired 5 businesses in the last 6 months alone, and our pipeline continues to build. The specialty pool industry is highly fragmented. We estimate there are 8,000 independent specialty pool retailers in the U.S., representing $5 billion in annual volume. This is a significant opportunity with a long runway. And Leslie's is uniquely advantaged to consolidate the industry based on our scale, value-added capabilities for the benefit of our consumers and importantly, our brand. We complement our programmatic M&A practice with a programmatic integration playbook. We bring to bear our resources and competitive advantages to accelerate the growth of these newly acquired businesses while optimizing cost structure. As evidenced, we've taken our fiscal year 2021 acquisitions, and we've grown their top line by 45% and more than doubled their EBITDA contribution during the first full year under Leslie's ownership. Our programmatic M&A practice is driving shareholder value. The $120 million invested over the last 2 years has brought in $25 million in incremental EBITDA. Capitalized at our consolidated trading multiple, that's roughly $200 million in equity value creation. So 3 things I'd like for you to take away. First, Leslie's can deliver significant growth through M&A. Independent players represent approximately $5 billion in annual volume. Second, M&A is a sustainable growth driver. With 8,000 independents, there are always actionable opportunities. And third, Leslie's M&A practice is highly accretive. We transacted attractive multiples and capitalize on significant synergy opportunities to deliver superior risk-adjusted returns. Now let's review our final strategic initiative: disruptive innovation. Leslie's has a strong legacy of disruptive innovation. Since our founding in 1963, we have been the leading innovator in our category, and provided our consumers with the most advanced pool and spa care available. As we have scaled, we have leveraged our competitive advantages to strategically reinvest in our business and intellectual property to develop new value-added capabilities. In 1963, we pioneered complementary in-store water testing. We later added complementary in-store equipment repair services. In 2014, we introduced the industry's first loyalty program. In 2021, and we developed the industry's only omnichannel platform. And most recently, we began piloting AccuBlue Home; the total at-home solution for a clean, safe and beautiful pool. One of the most impactful offerings to come out of our disruptive innovation practice is our in-store proprietary AccuBlue water test experience. We use best-in-class water testing technology and pair it with our proprietary AccuBlue software to deliver the most comprehensive and accurate test results available to pool owners. This is the only end-to-end total solution for water testing and treatment, and it's offered for free in all Leslie's locations. Other pool supply stores may offer free water testing, but their tests are far less precise less comprehensive, they rely on manual calculations and any treatment recommendations are prone to human error. Here's a quick look at the differences between the Leslie's AccuBlue water test experience and the water test services provided by other pool supply retailers. [Presentation]

As you can see, we have the most comprehensive, accurate and actionable water test in the market. And that matters because it grows our share of wallet with consumers and has been proven to be a powerful retention tool. Customers who regularly test their water with us spend 2x more than those who don't. They transact twice as often, and the ease and accuracy of the water test experience keeps consumers coming back to Leslie's. We are 2x as likely to retain a water test customer than a nonwater test customer. Simply put, customers who test their water with Leslie's spend more with Leslie's. So in 2020, we began developing a way to make it even easier for pool owners to test their water with us. A year later, we began piloting AccuBlue Home; a comprehensive water testing and treatment program that brings our proprietary AccuBlue technology into the homes of our consumers. Here's how it works. Pool owners sign up. And in return, they receive an AccuBlue device to test their water from the convenience of their own home. The device is integrated with the Leslie's mobile app, which processes the test results and generates a pool score and the same comprehensive easy-to-follow treatment plan, Leslie's customers receive in-store. Pool owners can then buy the products they need through our mobile app and have them delivered right to their door or pick them up in store. Accublue Home membership is $50 a month. And in return, members receive $50 in monthly credits. So it's practically free. The credits are good for a year and can be used toward any product purchases from Leslie's; in app, online or in store. At $50 per month, program members are committing $600 of their annual pool supply spend to Leslie's. As Mike Africa pointed out earlier, our average revenue per residential customer is just shy of $300 per year, and the average pool owner spends $900 per year on pool supplies. So when a pool owner signs up, they're not committing to spend any more on pool supplies than they normally would. They're just committing to buy more of what they need from Leslie's. We've been piloting AccuBlue for over a year now. Here are some of our preliminary observations. On average, AccuBlue Home members increased their spend with Leslie's by 80% after enrolling in the program. AccuBlue Home customers spend 3x more with Leslie's than non-AccuBlue Home members. And finally, consumers see value in the program. After over a year, we've retained 75% of our original pilot program members. We're highly encouraged by these results, but we're also keenly aware that we have some early adopters in our pilot group who are demonstrating super user behavior. Now let's shift gears to discuss what we have in store for the future. During the last year, we completed the development of our next-generation version 2.0 AccuBlue Home device. We're piloting this new version with select consumers and the early feedback has been positive. They like how it looks. They like that. It's easier to use, and we like that it's less expensive to produce. I'm pleased to share that Leslie's will be opening the AccuBlue Home program to the public for pool season 2023, complete with our next-generation device. [Presentation]

AccuBlue Home is poised to fundamentally change the way consumers test and treat their water. We surveyed hundreds of pool owners across the country, some who shop with Leslie's and some who don't. And nearly 60% expressed a high or very high level of interest in joining this program. The broad appeal of this offering gives us some indication of just how impactful this offering can be for our business over the coming years. For the near term, we're planning on producing 10,000 units in fiscal 2023. We're really excited about the upcoming release of Accublue Home and so are our customers because there's nothing else like it in the market. No one else is able to offer the most comprehensive water testing technology to consumers, let alone through a program that pays for itself. No one else has the benefit of nearly 60 years and 50 million water tests behind their proprietary treatment plan software. And no 1 else has a nationwide omnichannel platform to make the recommended products available to pool owners same day. Simply put, AccuBlue Home is the total at-home solution for a clean, safe and beautiful pool. And it's only available at Leslie's. With that, I'll turn it back to Mike to wrap things up.

Thanks, Clay. Everybody, look at the device, take some pictures. You can't take it with you, though. It's not part of the gift bag. We're going to end the presentation today, repeating the 3 key pillars that make Leslie's unique and then we believe, make it a compelling investment. First, we operate in one of the most advantaged consumer products industries. It's large, $15 billion plus. It has annuity-like demand because once the pool is built, it has to be maintained. It has predictable growth, the installed pool base has grown every year for 52 years. Number two, we have built a consumer-centric integrated ecosystem of physical and digital assets that is unmatched in scale and reach, and that allows us to provide total pool and spa care solutions to all consumers, whatever they need and wherever, whenever and however they want to engage with us. None of our competitors have that capability. Number three, despite being the largest direct-to-consumer brand in the industry, we have significant whitespace opportunities across all of the consumer types we serve and all the channels we operate. We have the capabilities and talent to address these opportunities, multiple early-stage strategic growth initiatives and a pipeline of disruptive innovation like AccuBlue Home that only Leslie's can bring to the pool and spa consumer. In a unique and advantaged industry, Leslie's is uniquely positioned and advantaged to win. And we are winning. We have grown for 59 consecutive years by being a trusted expert partner to our customers by knowing to understand their needs and their pools needs and by providing a total solution for a clean, safe and beautiful pool. This has made us the undisputed industry leader and we are obsessively focused on maintaining and growing that position regardless of the macro environment. That ends our prepared remarks. I'm going to have the team come up on the stage, and then we're going to open up for Q&A. Okay. [indiscernible] is going to come around with a microphone for people with questions.

Great presentation, guys. Jonathan from Jefferies. I had 2 quick questions. One near term. Steve, just on Trichlor, could you clarify the impact for next year? I think you mentioned, it's Leslie's intention to maintain pricing at current levels and you're not seeing recent price declines. So could you put more context around that 12.5% decline on Slide 13?

Yes. I'll take that one, Jonathan. Look, we have very clear visibility to chlorine costs. And I think if you track the commodity prices of the inputs, they have not rolled over. We don't see any cost increases. In fact, we see a cost increase in the industry. We don't intend to lower Trichlor prices. At current prices, we're seeing nice demand. We don't think there's a catalyst for anyone to bring prices down. That being said, we get asked consistently about what happens if Trichlor deflates. We don't expect Trichlor deflation, but we thought at the low end, we would model that scenario. And that's what we have in the numbers. But we don't see a catalyst for that to come down. And we are certainly not planning to bring Trichlor prices down.

And then just a quick follow-up question. In terms of water testing. At IPO, you mentioned, 22% of your customers test their water regularly. Where is that today? And are there any internal goals there? It seems like there's a lot of opportunity with those customers spending so much more.

The answer is we've got 60% growth in our water testing.

Yes, we're approaching 40% penetration in the customer base with AccuBlue water testing. So still a lot of room to go, right? I mean, that's a nice number. But when you think about the advantages of the tests and the prescription it produces, we should be higher, but we are seeing nice growth.

Sarang Vora, Telsey Advisory Group. It seems like for next year and forward, the white -- the store growth opportunity is very solid for you guys. And I know you highlighted about 700 stores that you could open in the long term. So my first question is, can you help us identify some of the key markets where you feel like you are underpenetrated and as a bigger opportunity in the near term than the broader context?

Yes. The nice thing about that opportunity is it's predominantly infill in markets we're already in. And if you look at the states across the country, even though we have a very nice business in California and a very nice business in Florida, we are underpenetrated in those 2 states based on pool density.

And the second one was on M&A. You did 6 acquisitions this year and the CapEx plan that Steve mentioned had $15 million for M&A. So just trying to connect the dots. Does it slow down in '23 compared to '22? Or you could see more as the year progresses and it's just not in the guidance right now?

I'll take that. Yes. So you noticed 6 acquisitions, about $108 million of total spend. We expect the pace of acquisitions to actually increase, the dollar amount should come down, right? So when you think about we have a conservative estimate in for 2023 of $15 million, so 1-5. $15 million of spend obviously requires a counterparty to execute. And so we're actually going to have a plan that has lower expectations from an M&A perspective. But we're focused squarely on pool supply retail in the Sun Belt. Talked about the demographics. We talked about some of the trends from a discretionary versus nondiscretionary. In 2023, very focused on Sun Belt, very focused on pool supply retailer, great pipeline, great multiples. We're a great partner and there's a lot of great opportunities out there that we're going to transact on in '23.

Paul Galat, William Blair. I had a quick question on that same Slide 13. Have you guys ever seen in your history nondiscretionary items down, 5% to flat? I'm kind of curious if just in that category, you could break out price and volume in your assumptions.

Yes. Let me clarify a little bit, too. When we say nondiscretionary sales ex Trichlor down 5%, that's prior to the inflation that we expect, right? So with 5% inflation, that would basically go to flat on the low end. We haven't really seen price deflation in the industry in the past, and we have not seen the nondiscretionary component of sales go down. So we think that is a prudently but quite conservative view on the pool industry. It would be a little bit out of bounds of pool industry history to see anything worse than that for sure.

Ryan Merkel, William Blair. A question on gross margin. I think you have product margins modeled flat. Can you just talk about how you're going to offset Trichlor deflation? And then does your guidance assume any promotions in any of the other product categories?

Yes. So from a gross margin perspective, so low end of the range, minus 35 basis points, high end of the range, flat. So modest degradation at the midpoint. When you think about margin profile for next year, we're going to see business mix moderate, right? It's been 110 basis points in Q4, full year 2022, full year 2021 as well, expect a slower growth, and we'll see some moderation in that business mix. Impact. When you go down P&L, the next line that I talk about is product rate, I actually see an opportunity to continue to drive increased product rate margin across our businesses in each of our consumer types. It will be more moderated than we saw in the last year. This year, down a little bit, but certainly more moderate than 2021. And then you get down to occupancy costs, slower growth, going to have less leverage than we've had in the past couple of years, and distribution costs will be kind of flat to slightly negative from a gross margin perspective. So overall, see it being down kind of 15 basis points kind of the midpoint from a gross margin perspective. And that walks through some of the differences between what we saw in 2022.

And how are you going to offset Trichlor deflation, which is being modeled? Is it just lower cost? Or is it timing of inventory? Just talk about that.

Yes. So accommodation. So we are very strategic about how we manage product rate increases. It's everything from product to mix category level, down to the mix and sizes of buckets. We're seeing consumers in some scenarios, or some situations look for smaller sized buckets. Trips are more frequent. But overall, the demand is still there. So we have opportunities across our product SKU set, product categories to take strategic price increases across the country. And we'll use that, coupled with proprietary brand strategies to improve margins as well. And that should offset any pressure that we might see if we do see Trichlor prices come down.

Steve Forbes, Guggenheim. Maybe just 2 follow-up topics. The first is on DC costs. Steve, the investment in supervisors' dual shifts, maybe just provide a little additional color on what that run rate of spend is on a quarterly basis? I think you mentioned $750,000. Is that a comparison to the $7 million that was guided for the fourth quarter or what was spent in the fourth quarter?

Sure. Great question. So when we look at spend, we talked about $5 million in Q3. Q4 was a little over $5 million from a total spend perspective. When we talk about the $750,000 for managers and supervisors, those are dedicated resources on staff full year to enable us to flex up to 7 day a week, 2 shifts per day. As you think about overall, distribution cost increases in 2023, I mean closer to the $5 million, a couple of million a quarter for the Q1, Q2, about flat in the second half when you think of the second half, that's when we had the higher or elevated costs. So we have talked in the past as well that as we looked at planning for fiscal 2023, there would be some upfront investments in the first half of the year. We would take out the inefficient spend that we incurred in Q3, Q4. We would then reinvest back into the business to ensure that we can meet the demand. Now we talked about a 40% increase in capacity, obviously, you don't have a 40% increase in sales. This gives us the ability to flex up across our entire network to that 2 shifts, 7 day a week. We will be very strategic about when and where we spend, what markets to enable increased capacities, and ensure we don't miss demand like we did in second half of this year.

And then the second follow-up topic is just on M&A as well. I think Clay mentioned $25 million of run rate on $140 million of run rate sales on EBITDA sales, which is an equivalent margin profile. So is that where that business is running today? And can you give us any color on where that run rate was when you actually acquired those 10 acquisitions?

Yes. Thanks for the question. So that $140 million of sales and $25 million of adjusted EBITDA that's run rate at the time of acquisition, right? And so as we called out the 2021 acquisitions, there were 3 in 2021. During the first full year, we grew there by 45% and doubled their EBITDA contribution. So that $25 million now that we're running the Leslie's playbook, right? You can assume that that's going to grow in our ecosystem.

[indiscernible].

No. So that was specific to the 3 businesses we acquired in 2021. And to be clear, the $25 million of adjusted EBITDA is at the time of acquisition. Those businesses are delivering more than $25 million of run rate EBITDA now that we've implemented the synergies, right? So is that clear? Does that make sense?

[indiscernible].

Yes, that's correct. Any of the additional deals that we'll do during 2023, you can think about it as upside to the outlook.

We've just made the decision that we're not going to forecast M&A, right? As we have deals completed, we'll announce them, but we're not looking to forecast it in the future.

Ken Zener, Keybanc. Two questions. Could you address at a local level, your store manager KPIs, given that, that is really where the rudder meets a road in a lot of ways, separate from the omnichannel approach you have? And then could you illuminate some of the factors that drive the higher EBITDA contribution you talked about in the PRO stores? Is it just store efficiency given the sales, or what other factors go into that?

So let me start with the KPIs for our store managers. We have 6 initiatives, which you'll hear about during the store tours later today that we focus on with our value propositions. Water test, of course, is one of them. But from a strict KPI standpoint, we spend a lot of time talking about organic growth measures of traffic, transactions, average order value, units per transaction. We spent a lot of time with our teams on that. And then we have the initiatives that we look at with respect to omnichannel; water test experience, services, et cetera, that we also track by store and coach by store. That includes our PRO initiatives as well. Does answer your question on that?

Yes, I'll add maybe a little bit to that. The general manager is what we call our store managers, because when you think of it now with omni capabilities, they're running what amounts to a store for residential customers, PRO customers, some commercial customers. They're shipping from store, they're taking returns in store. So a year ago, we changed our title to General Manager to reflect that expanded base of responsibilities. They are bonused on their store contribution. So they have their own mini little P&L. And as part of that P&L, the ship-from-store sales that they facilitate are counted as toward their sales. So that's how we got buy-in on executing the omnichannel capabilities. I'll also point out, which we think, has proven to be a very good move is our general managers are equity holders. They get granted equity. They get up in the morning. They go to their store, they know they own part of that store's success, and it's proven to be a real good model for us. Second question was on PRO contribution. It's predominantly because of the volume, right? Once we convert a store or open a store, the PRO stores do about twice the volume. And so it's that much better leverage of what amounts to only 1,000 extra square feet on average.

This is Michael Kessler, Morgan Stanley, on behalf of Simeon Gutman. First, near term and then the long term. Sorry, 1 more on Trichlor pricing. I guess the high end, still down 10% pricing. Is there an upside case even to that if you're able to hold pricing as you're speaking to? And then on the other piece, just broad-based inflation of 5%, can you talk about where that's coming from? Is it broad-based across categories and the visibility on that piece too?

Yes. I mean you can do the math. I think with the numbers we've prepared though, right? If Trichlor stays flat, yes, it's a nice upside to the high end of the guidance. The second part of the question?

The 5% inflation, that assumption.

Yes, that's -- we see that across the board, right? We know it very specifically from our equipment providers. They do announce price increases. The rest of it is predominantly product cost inflation that we're continuing to see and that we plan to pass on through retail price increases.

Great. And the second question on AccuBlue Home, the pending rollout. It sounds like there is definitely some share potential, incremental sales opportunity. Have you sized up or can you talk at all that if there's any margin implication, I guess, I don't know if the product -- the providing of the product, if there's an upfront cost associated with that, if you've looked at that at all?

Yes. Happy to speak to that. And thanks for the question. As we pointed out, when members joined the program, they increased their spend with Leslie's considerably, right, plus 80%, and that's for the average member, right? If you look at the full pilot group comparing their spend pre and post, that was up more than 100%, right? So from a margin implication standpoint, negligible because you're getting all that incremental volume from the upside that we're able to achieve through share of wallet gains. And that's really the core strategic objective of the program.

I'd just to add to it as well. When you think about some of our better consumers, are those consumers who test their water more frequently. We know consistently that bodies of water are under sanitized, creating a more convenient opportunity for consumers to test on a more regular basis and engage with that water test prescription to understand the condition of their water and what it takes to have a perfect pool, we think is incredibly valuable. You think about what it should drive, it should drive engagement with the pool, it should drive the entire product mix. More specifically, it should drive chemical mix even more because that is what comes out of the water test prescription each and every time. So there is opportunity to think about what this could be at a larger scale, what it could do from a margin perspective, given the mix more towards chemicals as a solution that comes out of that water test prescription, but it should have an impact across product categories as well.

David Bellinger with MKM Partners. Two questions. First one, much shorter term in nature on the Q1 to date, you're almost 2/3 through the quarter. I know you talked about some less favorable weather that's popped up. Just how do you assess weather versus something larger at play with the consumer? Are there certain regions or categories that are performing better that give you that confidence?

Yes. I think the way to think about that is we use a couple of different weather services, right, that both, show weather, predict weather and show the impact by region for us on sales. So we think we have pretty good insight into what the impact of weather has been. And it went from a slightly favorable Q1 last year in which we had a 21% comp to this year, I think most of you have seen, it's been tough weather all the way across the country. I'll mention Florida and the hurricane there. That, though, it had a lot of -- it impacted a lot of people. It was a tragic event, pretty immaterial to the business. Our Florida business has been strong all through '22, it was up 20-plus percent. Rest of the Sun Belt was up like mid-teens. So good business in Florida, didn't necessarily see a spike there that we saw in Texas, for example, with the Texas freeze.

And then my second one, just on the expense growth, so up 7% to 9% in 2023. Can you break out how much of that is structural with labor cost inflation versus more of the investment spend or leaning into some of your investments? And is there a point where SG&A dollars can begin to flatten out or at least grow at a lesser rate than sales growth at some point?

Yes, great question. So when you think about -- let me back up to 2022, we've talked about our cost structure is about 1/3 variable, 1/3 fixed and 1/3 semi-variable. There are 2 distinct differences in 2022 that impacted the business. One inflation. Inflation ran about 2.5 to 3x higher than normal. A normal in our business is 1% to 2%, maybe 3%. It was running in the high single digits this year. And then second, M&A, noncomp SG&A, right, had a material impact in 2023. So with the plan to lower M&A in 2023, I would expect less implications from M&A noncomp. From an inflation perspective, we do see some moderation. It's still going to be above normal. Again, not going to get back down to that 2% or 3%, likely in the mid-single digits, so still have an outsized impact. You couple that with slower top line growth, and that's going to have a leveraging impact. So as you think about longer term and our long-term algorithm, getting sales in that mid- to high single digits, seeing some stability from a supply chain perspective and some lowering of inflation, seeing some stability from an interest rate perspective kind of gets us back into that environment where the long-term growth algorithm is more reliable on an annual basis.

Liz Suzuki, Bank of America. Just in the sales bridge by initiative on Slide 15, it looks like you expect customer relationships be a net headwind, which I imagine is based on a reduction in spend per customer. So should we think about that headwind as being a combination of the top line, lower Trichlor pricing and lower discretionary demand in the guidance? But potentially offset by a positive impact of innovation like AccuBlue and the other things you think are increasing the spend per customer? How should we think about the net impact of those?

Yes. Let me take a step back and address kind of Q4 and the full year '22 where we ended up ticket transaction. Interestingly, they were the same, which was a 16% increase in AOV and flat transactions. For the quarter and for the year, transactions were slightly negative in stores and positive in our digital business. In the midpoint scenario of our guidance, the way we get to that minus 2% on customer relationships is a plus 1 AOV and a minus 3.5% transactions. That's how we're thinking about it.

And then second question was just on talking about inventory levels. It looks like you want to maintain higher inventories until the supply chain normalizes. Do you have any visibility into the timing of that normalization?

Yes. Unfortunately, not at this time. So again, the 2 key pieces I talked about, serve consumers have product in stock, don't have stockouts. Number two, see some supply chain normalization, more predictability from a flow of inventory when we see those 2 change, then we'll start reducing the investment. If you look at the last 2 years and look at the cash flow statement, $180 million of incremental investment from a total inventory perspective, it's sizable. We understand that. We find it more important to make sure that we're bolstering our consumer relationships. We're not missing opportunity, and we talked about in Q3. We missed opportunities to grow sales even more than we did. Record year, fantastic on top line. And from an EBITDA perspective, we know we can do better. So it's -- we're very conscious of the working capital investment that we've made. We think there's a path to potentially see some mitigation in recruitment of that investment this year, but we're not going to count on it until we see it happen in -- through pool season.

Yes. I'll just reiterate that. When we talk about the consumer work we do, the fact that trust comes up from our consumers. I mean that's an unbelievable attribute, an asset. And when we're out of stock of a product, particularly of a product that's part of our AccuBlue test results is just not acceptable. And we have not been at the in-stock positions we wanted to be, frankly, for the last 2 years. So this investment in inventory, it's very strategic. It's very purposeful. We know it's high but we're not backing off of that until we've got absolute certainty, they were at levels of inventory to serve the demand we see.

Peter Keith with Piper Sandler. I wanted to dig into the unit growth outlook. So I was a bit surprised that you're looking for a near doubling of the store base. Just go back a couple of years ago, pre-IPO, you weren't really counting on any unit growth. So kind of a, what changed? B, how can you double the store base when you're already within 15 minutes of 90% of pools? And c, why not take unit rate unit growth up more than 1% to 3%? You could certainly be more of a unit growth story and get a better multiple.

Yes. When you look back to the IPO, right? First of all, I was new, right? We're just looking at the breadth of opportunities we had in front of us, right? So really, if you think of 2020, it was, okay, let's get our growth initiatives defined, let's make sure that we understand our strategy to execute against them and then let's make sure we do the homework. And by homework on store openings, I mean, the third-party study we did to identify, based on pool density and density of pool supply stores, what were underserved markets. So until we started, we weren't comfortable accelerating store builds until we saw that data. And we wanted to make sure that we were going in very specifically and very strategically on specific markets. And I'm glad we did because if you just look at it, well, you should go where you don't have stores, to your point. What that study showed us is, and I as mentioned earlier, it's infill opportunities. We can just be denser where we already have stores. And it's particularly California and it's particularly Florida. So I think the kind of purposeful stepwise approach we took, paid off. And as we started our programmatic M&A, I'm going to say, developed that capability, that opened a whole secondary way to address an underserved market. And right now, I'm going to say, the asking rates of landlords is a little dislocated to the economy. And right now, the reason we're pushing on M&A is we can acquire a company and it pays back quicker than opening a store at the moment. So we've got both those tools in our toolkit right now and feel very good about our opportunity to execute both of them.

Yes. The final tool in our toolkit is omnichannel, right? So we now can fulfill from 990 locations across the country. It opens up an opportunity to serve those markets potentially without having new square footage growth. That being said, we do -- there's 8,000 independents out there. There are plenty of opportunities for us to continue to grow share through great partnerships as well as opening new locations across the country.

Okay. And maybe a short-term question for Steve. The Q1 seems like there's a couple of different dynamics with a little bit of weather softness, gross margin compare is tough and then some elevated investments on a low revenue base quarter. Is there a way to frame up like EBITDA or EPS for the quarter just so we don't mismodel it?

Yes. We've not provided specific guidance on a quarterly basis, just the annual guidance. I did talk about first half of the year is going to be negative comps for the first couple of quarters going to see some pressure on margins first couple of quarters as well. As we get into Q3, that's when we have opportunities to make up from a margin perspective, both in stock position from an inventory perspective as well as the missed sales that we talked about in Q3, right? Really not in our model, right? That $35 million of sales that we missed in the Northeast, we certainly think it's an opportunity. We have positive comps in Q3 and Q4 in our overall model. But we think we've got to get through the first half of the year from a sales perspective. When you think about the strength of our performance last year -- really the last 2 years in the first half, pretty robust. So we're going up against the largest comps of the year in the first half. I feel it's prudent to make sure that we're being conservative in our view for the first half.

This is Johnny Baldwin with Wolfe Research on for Spencer Hannes. I was just curious, as you continue to invest more in the Pro business. How do you think that, that will be as a percentage of the sales over time and also just the implications on margins?

Yes. We don't disclose margins in the Pro business. But our strategy there is to be price competitive with our competition. So if you look at the margin profile, some of the larger Pro of suppliers, then it would give you some idea of where we're at. The -- it's a big opportunity for us, right? $4.3 billion rather quickly grown to 15% of our sales. We haven't set any long-term targets as a percent of sales. But I would expect for the next several years for it to outgrow our residential business in terms of absolute growth rates.

Yes. Last comment on that as well. When you think about margins, so gross margins, Pro business is less. They're lower than residential. When you get the contribution, our margins are fantastic, again, doing double the volume through our stores. And so when you think about how does the consumer treat their body of water in their backyard, DIY, DIFM, we're agnostic. The time you get down to profitability, bottom line, Pro or residential consumer it's great business, and we can be agnostic about how consumers get that product. We can be agnostic about the business mix as well. .

Katharine McShane from Goldman Sachs. Just 2 one-off questions from us. One was with regards to the supply chain initiative. I just wondered if you felt like there was enough diversity in selection in the vendor base to meaningfully improve your optionality when it comes to the supply chain?

Moyo, do you want to take that one?

Yes. Great question. So we have strategically added about 10% to our vendor base. And we've added vendors in key areas, particularly in the chemicals and sanitizer business. Steve alluded to some of the issues that we had in the Northeast. The majority of those issues really stem from not only being able to move the product from the distribution center but also being able to procure the product. So we've added about 10% to our vendor base really as a method to derisk the organization. .

Then my second question is back to the Pro. Just if there's any difference in the private label penetration between what you're offering the Pro and the Residential customer?

Not sure we've ever looked at that. But based on the assortment, they should be similar.

Sarang Vora, Telsey Group. My question is also on the Pro side of the business. It seems like Pro is doing fine. Sales are double the volume and the potential is very strong. Margins are strong at the EBITDA level. Why is the growth lower compared in '23 compared to '22? And what would make you accelerate Pro growth in the future years, just thinking out loud on the Pro side?

So we have used the third-party data to help us identify where we should be putting stores. That also helps us identify where we should either buy or build Pro locations as well. So we take a very similar approach in looking at the Pro stores to determine whether we should put a Pro store in a market. We look at the number of pools in the market. We look at the number of Pros in the market. And then we look at competitors and then our own internal store performance. So we plan on continuing the consistent growth as we've identified with the 20 next year. And we haven't really planned beyond that. But we know what the white space opportunity is.

Steve Forbes, Guggenheim. Wanted to follow up on the average revenue per customer topic. Just trying to marry 2 data points together, the expectation for it to be down 2.5%, transactions being the driver of that -- off that base, I think, of [ $295 ]. But there was a slide in the presentation that showed as the customer file matures, it naturally scales up to $354. So you think about that growth, right, in the cohort funnel just coming from maturation. How do we sort of marry those 2 data points together and get to that down 2.5% expectation?

Yes. So the same pieces, right? The way we model that is just that would flow through both new customers and retain customers. We did a pretty simple straight-line approach to that. I mean, obviously, we're going to do everything we can, right, particularly on the retained file to not have that happen. But we think that's the prudent way to model it at the current time.

Are you seeing anything like in the customer cohort in the funnel itself that makes you feel better or worse about the subset of customers you acquired in each of the respective years over the COVID pandemic?

Yes. We acquired a lot of customers with the chlorine shortage media blitz, right? The retention of those customers is a little lower than our normal retention rate, which I think you would expect. They were kind of 1 and done, getting some Trichlor. But the laddering up of those customers once they're in the file, yes, very similar to other newly acquired customers. So in that respect, we feel quite good about it. And the question on ARC, the way we get to that plus 1 AOV at the midpoint, right, minus 3.5% in transaction. It's a function of the assumptions we make around discretionary, nondiscretionary and Trichlor. That's what drives it.

From Bamberg. Maybe 2 questions, 1 on wallet share and 1 on acquisitions. Just on Watch, I guess you have approximately 30%, 33% share of the $900 nondiscretionary spend. I guess I'm interested in knowing a bit more about where the other 70% is going today, whether it's from a competitor's perspective or just categories you're underpenetrated in and where you see low-hanging fruit to get that $300 maybe higher over time?

Yes. I think, first of all, it's a great question. The way we think about it is -- we have some customers that would say, cheat on us, right, with other retailers from time to time. The example we've used is Home Depot's fine retailer. They carry a limited selection of pool products. If you're going to Home Depot as a consumer to get a rake and a flower and a new bucket and you see some tabs, you might buy tabs, right? We think we get some [indiscernible] of wallet share there. But this amount, this we're quite confident of. There comes a point where when you do that. And if you're not testing water and if you're not coming to a store or you're not getting that expert advice, you're going to end to a point where your pool is green and then we get those customers back. So a lot of the work that Mike and his team is doing is really to keep those customers in our fold. And I think one of the most encouraging things is I think as Steve showed a slide, right, that the percentage of pool owners that are shopping at pool specialty retail is increasing. I think increased 120 basis points. We expect that to continue. A pool is -- it's a big investment for a homeowner, right, probably the second biggest asset after their home in their property. And it's our job to educate them how to properly care and maintain and reduce their total costs over time by efficient water testing, by upgrading to new equipment. And that's one of the roles we play in the industry, equipment vendors doing a nice job of innovating. They don't have that direct relationship with millions of customers like we have. Our role is to be like the megaphone of those product innovations and the benefits they bring to the consumer. That's the role we play, and that's we're very focused on that, both with our digital assets and our physical assets, training, blogs that got to amplify that message for our vendor partners.

Yes. Perfect. And then maybe on the acquisition topic, as a generalist investor, I've rarely seen a company being able to acquire competitors at less than 5x EBITDA would probably not much competition on these deals and into such an open-ended opportunity. So I guess why not targeting a much higher contribution -- growth contribution from M&A over time? I think you have 1 to 3 points -- why not targeting 5 or 10 points a year just given the IRRs and ROIC appeared to be very compelling and fantastic?

Yes. We set those 100 to 300 basis point range at the time of the IPO, right? And the strategic growth initiatives were new. And we said some would take off early kind of out of the gate. And I think we really saw that with growing the customer file. We made a very quick switch from direct mail marketing to digital marketing and have continued to refine that and our capabilities there. So that one took off, right? Average revenue per consumer took off early. The M&A initiative, 100 to 300 basis points when we set it up, and we've had to build that capability. Clay's had to build his team. We've got to make sure that an integration playbook worked. Now that we've done that, and as Clay demonstrated, our pace of acquisitions is increasing. A lot of opportunity out there. So it's kind of a long way of saying, we're not going to let the fact that we published 100 to 300 basis points, preclude us from growing that faster if we have the opportunity.

Jonathan from Jefferies. Just a couple of follow-ups. Steve, on gross margin, it looks like business mix will be a headwind next year. Can you rank order some of the moving parts there? I mean it's mix towards digital, growth in Pro and then probably outperformance in Hot Tub. Is there one of those factors that's really driving the business mix more than others?

Yes, if you look at this year, right, so Pro grew 20%, hot tub grew 80%. So we expect some of that M&A wraparound to come in the hot tub area of the business. So you should see outsized growth from an order ranking perspective, hot tub, Pro than residential. And that will still create some headwinds. But again, given the moderated growth that we expect for 2023, would expect the mix headwinds to be less than it's been in the last couple of years.

Great. And then on one of the slides, there's references to new categories to create new purchase occasions. Can you elaborate on maybe any examples? I think you addressed eco-friendly products, but anything to call out in terms of new product categories?

So I'll take that. And if you want to also chime in, Mike. But from a sustainable product standpoint, it's really just kind of expanding on categories like variable speed pumps due to obviously some of the Department of Energy regulations. We're seeing a big shift in automatic pool cleaners into robotic pool cleaners. All of those actually are much more energy efficient and sustainable. I'll pass it over to Mike.

Yes. Additionally, there are things like -- perfect weekly help reduce chemical consumption as well and looking at different items like covers and everything else that lower water consumption, right, especially in drought field areas. So.

Yes, there are a few coming in from the webcast. On AccuBlue Home, there are a couple of questions. First, how quickly do you expect AccuBlue Home to ramp? Are there any benchmarks that you can share?

Yes. Thanks for the question. We've got 10,000 units planned for 2023. We have seen some latent demand as soon as we've opened up these pilot programs there's been pretty rapid adoption, which we're encouraged by. That being said, we are producing 10,000 for 2023. We want to grow in a manageable way. And so we will evaluate performance during 2023 and then make a determination on how we want to scale from there.

What percent of your active customer file fits the profile of potentially being an AccuBlue Home adopter?

Yes. And that's the beauty of this program, right? We have a superior product offering that's at an accessible price point to the average pool owner. And so when we look back to that 60% trial intent that we discussed, that was across hundreds of call it, general population pool owners across the United States that were surveyed. That was 75% non-Leslie's shoppers and 25% Leslie's shoppers. And generally, we're a representative sample of the average pool customer. And so we're encouraged by that. And what I would say is it appeals to 60% of our customer base, if not higher, because of some of the attributes that are associated with our brand from trust and expertise, right? So I think 60% is how we would gauge interest across our group and applicability.

And this one is for Steve. How much it is the company currently expensing through the P&L for this home device during FY '23. Is that a significant drag?

Yes. From an investment perspective, there's an investment in the devices that we're procuring from an operations perspective. I'd characterize it as not overly meaningful. We made investments over the past couple of years has flown through the P&L. But from an investment perspective in 2023 will be primarily related to the CapEx for the 10,000 units that we're procuring.

Okay. And then another one for you, Steve, where did advertising and the yen FY '22? And what is included in your FY '23 guidance for advertising specifically?

Yes. So we finished the year in 2023 at around $30 million total spend from a marketing perspective. I expect this year to be flat to higher. Again, if you listen to how Mike Africa and Mike Egeck talk about how we run our marketing programs, we start with a specific number in mind as part of the budget. We then determine the return on the investment we get from individual tactics and we invest in the ROIs. So there's opportunity for marketing spend to deviate from that initial target, but it's going to deviate based on the returns that we're seeing in the marketplace. If you look at the last couple of years, there's been -- and particularly this last year, there's been quite a bit of inflation in digital marketing. That has impacted some of the decisions that we've made. We still have great return opportunities to continue to invest more from a marketing perspective, but it's a very dynamic process, 1 focused on the consumer and focused on profitability and what it drives for the business.

I'll just add an example of that. As Steve said and as Mike spoke to as well, we invest in marketing based on the return we're generating. And when you think about our outperformance in Q4 versus our guidance, and I think in expectations, we increased marketing 13% in the quarter because we continue to get really good returns from an ROI basis on that investment, and that's what helped drive some of the outperformance.

And then just one final one. This is just, I think, a question around precedence for the comp forecast in FY '23. In the past, you disclosed you positively comped during the '08, '09 recession. What was the order of magnitude of those positive comps?

I don't have that answer. Anybody on the team?

No. We do know it was positive each year. I don't have the specifics on how much positive each year. Over the 3-year period, we grew the overall business -- if you step back and look at your M&A or acquisition history, did a couple of transactions back in the '90s. There are no transactions in the 2000s, really started to think about acquisitions and starting in 2010. So in the 2006 to 2009 time period, that was all organic growth.

Keith Hughes from Truist. Question is on the Pro initiative. You had talked about as you're opening the Leslie's Pro, you don't see cannibalization at your traditional retail stores. You could talk about more of why you think that is. And then longer-term, as you open more of these Pro stores, is your goal to transition that business over to the Pro locations given that I mean, they probably have a better experience for what they want there.

So let me take your first -- thank you for the question, first of all. And then with respect to the cannibalization piece and why we don't see it, there's a number of factors that go into that. First of all, many of these Pro stores are going into larger metropolitan areas. So when we open the first Pro store in a metropolitan area, for example, it draws attention and attraction to those Pro stores, but it also opens up omnichannel capabilities for products and services that we haven't had in that market primarily. So it just adds additional revenue into all stores in that market. And remember, all of our stores support our Pro customers and our residential customers. So when a Pro comes in, even [indiscernible] has 50 to 75 pools. Well, that's 50 to 75 customers that are now coming into that market and we may not have captured fully. So it raises C level for both the residential customer or residential sales and for the Pro sales. And then can you say your second part?

So longer term, is your goal to transition more of the sales out of the Pro sales out of the Pro location given that it -- I mean, it does a lot more for the Pro in terms of selection -- you have more SKUs, better hours. It seems like their spend would go up a lot if they -- if you could get them to focus on the Pro stores?

Sure. Yes. I think -- so the answer to the question is, I'm not 100% sure. What we do is look at each individual market and determine what the needs are there based on the Pro count, the pool count, competitors, our own internal store performance. And we specifically look store by store at Pro sales and residential sales to figure out where opportunities are to grow each individual store in that Pro space.

I think part of the magic of this program, right? So we have all these locations that can serve residential consumers as well as the Pros. We'll see the behavior from a Pro consumer in a couple of different ways. Maybe they go once a week to stock up on products at their main location expanded SKU selection, expanded hours, right? When they're in that market and they're serving that pool and they need something, they don't have to run across town. They can go to the closest store, and we know we're probably that close to store. So again, I'm kind of back to that attitude of we're agnostic. So if the Pro consumer wants to shop at a residentially focused store, they can do that every day of the week. If they want to focus and consolidate all their purchases at the Pro locations, that's fantastic as well, we'll take it. But we're there to serve the consumer however they want to engage with us. And we've got a set up with our store teams, our SKU selections and our physical locations and digital assets to do just that.

I would just add the last thing. As of right now, we've got to filter on Pro locations that includes the number of Pros in the market, the density, similar to how we look at residential pools when we place a residential store. So they work very synergistically which is good. But in terms of the absolute number of Pro stores before we make that extra investment in inventory and in square footage for a new build, we like to see the Pro customer density at a certain level.

Zack Beck from Baird here for Pete Benedict. We had 1 more on the customer file. You had spoken, I believe, in the past, growing the active customer count by 2% to 3% per year. I'm just curious if you think this is attainable next year coming off the strong growth realized during the pandemic and then also on the 3% adjusted file growth for fiscal '22. Just curious if you could provide the unadjusted number there.

Yes. The unadjusted number was minus 2% for the full year. And that was entirely driven by the chlorine media coverage event, I will call it, more than covered by that actually. And that's what gives us confidence in next year being able to hold on to that file. We won't be comping that what was really an extraordinary event. It was multiples bigger impact on our business than the Texas freeze. It's is 1 way to think about it. So without that very difficult comp, we feel quite good about keeping the customer file intact for next year.

Again, from the webcast, clarification on the comp cadence of your FY '23 or what's being contemplated in the guidance? If comps are planned positive in second half '23, then first half '23 comps would need to be down low double digits in order to land at the midpoint of FY '23 plan of negative 2.5%. Is that the right way to think about that comp build?

That is not in our model. So I think as you think about the second half of the year, there's going to be positive comps, but it's going to be low single digits. The offset is negative comps in the first half of the year, but not talking double-digit declines.

Steve, there's one more that how do you get to the $60 million of interest?

Sure. So when you think about the 2 pieces of 2 debt instruments. There's our term loan, about $800 million. Again, talked about 480 basis point assumption from a LIBOR perspective. Add the spread in there of 250 basis points gets you to 7.3%. That gets you almost all the way. That gets you to the mid-50s from an interest expense perspective. We typically will go on our line of credit, our revolver in kind of the first half of the year, come out of it in kind of late Q2, early Q3. That's structured as LIBOR plus a range of 125 to 175 basis points. So that makes up the differential to get to kind of $60 million of total interest expense for the year.

A question on tabs. Tabs have been on sale lately. Is the minus 10% high-end assumption for Trichlor pricing basically flat base price, less 10% for the discounts?

No. The way we think about -- the way the model works, the way we modeled it is that would be off of the average selling price of 2022. We've talked about this in the past, chemicals and particularly Trichlor is the promotional vehicle for the industry. So it's typically promoted from time to time during the year, most heavily at the start of the pool season. But throughout the year, it's a proven traffic driver for pool supply retailers are self-included. But when we look at that potential deflation in Trichlor pricing, it's off of last year's average pricing, which would include intermittent 10% to 20% off promotions.

So the capital allocation one sort of a leverage one. Slide 14 has a target for net leverage of 1.8x to 2.2x. Should we think of this as a new long-term target for the company?

Yes. We've talked about post-IPO being in the kind of 2x range. This is a business that historically has been much higher levered as a public company and more importantly, in the current environment, and we're going to be more conservative from a balance sheet perspective and keep those debt levels down from a total turns perspective. As we continue to grow the business in a different macroeconomic environment, we'd certainly anticipate reviewing the opportunity to reevaluate leverage. But for today and how we're looking at fiscal 2023, we're looking at kind of in and around that 2 turns of net leverage.

Steve Forbes. Maybe just 1 last follow-up on inflation. Specialty chemicals, I think based on the 5% inflation guidance, it's implying a mid-single-digit pricing inflation or impact within Specialty Chemicals. Is that right? And I guess, how do you sort of think about the risk of deflation within the non-Trichlor chemicals?

Yes. I think we don't see any significant risk of deflation in non-Trichlor chemicals for the same reasons we mentioned on Trichlor, right? The cost, and we believe we have pretty good line of sight to this. The costs are up. So it would be -- would classify it as irrational behavior for someone to take retail pricing down in a cost positive environment. I mean you just don't typically see particularly in the pool industry. I think that's it. So first of all, thank you all for joining us today live and in the webcast. For the live participants, nice to finally meet some of you face-to-face. It's been a while since we went public in the middle of the pandemic. And finally, we'd like to wish all of you and yours a safe and joyous holiday season. And however you may celebrate the holidays, we encourage it to -- we encourage you to include a pool and a hot tub and that mix somewhere. Please, pool and hot tub use. We'd like to see it go up. So that ends our presentation for the day. Thank you very much. Happy holidays.