Pool Corporation (POOL) Earnings Call Transcript & Summary

Hi, everyone. This is Cameron Soelberg from the Global Industries Group in Investment Banking at UBS. Just wanted to thank you for joining us this morning remotely for our conference. I know it's early, particularly on a Wednesday but we do appreciate you being here. Just to make sure you're in the right place, this is the webcast presentation for Pool Corp. It's the leading distributor of pool-related supplies in North America and also a significant distributor of irrigation-related products as well. With us today on the line, we have Pete Arvan, who's President and CEO; and Mark Joslin, who's SVP and CFO of the company. Just a brief reminder about Q&A. The web portal that you logged into, you should see a box in the left-hand side of the page where you can submit questions during the presentation. I'll be monitoring those and relaying those to the management team as we move along. They're going to begin with the presentation, and then we'll handle Q&A thereafter. Mark, I will turn it over to you to get things started.

Thank you, Cameron, and good morning, everyone. Welcome those of you that got up early and are live with us this morning. Hopefully, you have our presentation in front of you, with a beautiful pool picture, which we'd like to start off by getting you in the right mood and frame of mind. On Page 2 of our presentation, we have our normal forward-looking statements disclaimers. Please read that. And then if you can flip to Page 3, I'll turn the call over to our CEO, Peter Arvan, and he'll walk you through our presentation. Okay. Pete?

Thank you, Mark. Good morning, everybody. This is Peter Arvan, and I'll be walking you through the presentation today. So if you'll -- all turn to Page 3, that's where we'll begin. And as I turn pages, I'll let you know so you can stay with me in the deck. So let me start with a brief overview of the industry and then some talking points about Pool Corp., and then we'll get into more specifics. The industry is very unique. Over 60% of the revenue -- recurring revenue stream is nondiscretionary. And those of you that have a pool will understand this. And for those of you that don't, let me explain to you what I mean by that. So when you have a swimming pool, there is 3 things that have to happen regardless of whether you're using the pool or not in order to keep it from turning green and turning into a mosquito swamp or some unsightly mess -- dangerous mess in your backyard. So you have to move the water, filter the water and treat the water. And the beautiful thing about our business is that, that portion of the business accounts for 60% of our revenue, and as I said, it's nondiscretionary. So whether the economy is good or whether the economy is bad, the 5.5 million in-ground pools require the water to be moved, filtered and treated. The industry is highly fragmented. There is -- there are not a lot of big players in it. We would, by far, be the largest player. The number -- we would be over 20x larger than the #2 player in the industry. It has a very favorable long-term growth dynamics. If you think about the whole healthy outdoor living, if you think about the number of pools that we have today, the installed base is 5.5 million pools, 5.3 million pools, somewhere in that neighborhood. And there's 80 million single-family homes in the U.S. So still plenty of homes to -- that could have a pool, and we'll be having pools built over the next several years. And if you look at our footprint, although we're a nationwide distributor, we have a very heavy presence in the Sun Belt. And if you look at the demographic patterns and the southern migration that we're seeing, that plays very well into the industry in Pool Corp. Now a little more specifically about Pool Corp. Certainly, a value-added distributor. We -- it was something you may not know about us. There's nothing unique that you can buy from me that you can't buy from anybody else [ especially ] the value proposition that we put around it that makes us unique. So we are a premium service player. We work very hard to provide great service, and hopefully, that we get paid for that service. Very strong execution, discipline in this business. And that goes back for many, many years. It's drive -- that drives high margins because we try to be very good at what we do. We are very good at what we do. And as a result, we command a premium price for that. We're never the low price guy in the market, but we think our service is worth the premium that we get. And certainly, the growth -- the organic growth of the company has a strong, very long history of driving -- helps us create that operating leverage. So if you look at our performance through time, it's -- our returns to shareholders are just exceptional. So let me turn the page. Now we'll move on to Page 4. And I will describe a little bit about the current environment. So again, a little bit more about the company. We have a very strong balance sheet. We entered -- nobody saw the pandemic coming but when it hit, the Pool Corp. balance sheet was in excellent shape, our -- we had very low leverage at the beginning of the pandemic, which positions us very well. So we also had obviously a lot of access to cash if we needed it. So from that perspective, we're in great shape. Again, about the market or in the industry, over 60% of our revenue is nondiscretionary. And that really mitigates risk. So again, it's not a question of how well the economy is doing for this portion of our business. This has to flow every day. Currently, we would say that -- I'm sure you all noticed that we issued an update last week, better-than-expected sales trends for April and May, which is very encouraging and that differs from where we were when we reported earnings, the third week of April where there was a lot less clarity about what was going to be open and what was going to be closed. Then as things have cleared up and our contractors have gone back to work, it has really brightened our outlook. The stay-at-home trends that you have -- I mean you have so many people that are holed up working from home. Maybe some of you are working from home instead of -- it's your offices. That actually bodes very well for us because it meant that the pool season kicked off earlier. And that created some opportunity for us, so we are benefiting from the folks that are home and the kids that were home that maybe wouldn't -- those pools wouldn't have been open until later, they certainly are enjoying an extended swimming season this year. So let me move on to Page 5. A little bit about our network. The company is total North American pool so remember, we're in -- we have our Horizon irrigation business. We have a footprint in Europe and Australia, and then we have what -- the North American pool business. You can see, by far, the North American pool business is the largest portion of the business. It represents 85% of our revenue. The Horizon landscape and irrigation business is 9 -- with Europe and Australia making up the additional 6%. Our footprint is about 378 facilities. In a given year, we generally have been on a track to open 6 to 10 new facilities. This year will be a little bit less because we tapped the brakes early on with the -- not knowing what the economic outlook was going to be, so we tapped the brakes on expansion. This year, we have 1 that will be opening this month, I believe, and then we'll be evaluating the rest for the balance of the year. Moving on to Page 6. Again, this describes where we sit in the channel. So you see, we have Pool Corp in the middle of the page. To your left, we have over 2,200 suppliers. And to your right, you see we have over 120,000 customers. So this is where distribution is -- in this type of situation, distribution is extremely valuable in a channel, and we are -- nobody is better positioned. If you look at the branded products versus PLEX, private label and exclusive brands, 75% of the products that we sell are branded manufacturers and about 25% to 27% of our sales and gross profit come from our private label and exclusive brands. We have over 120,000 customers. We are purely B2B, we do not sell to the end user or to a consumer. Everything is B2B and we sell to the people that in the blue business or our pool business, we sell to the people that build pools. We sell to the people that maintain pools and remodel pools, and that would be both residential and commercial. And we also sell to the retail -- independent retail chains that are -- service the pool market. So moving on to Page 7. This is a brief snapshot. Again, I'm -- this is probably not news to you guys but if you look at our trends over the last several years, going back to start, start since 2014, you can see that we've had consistent growth. And what I might point out is that unlike other distributors that are -- their growth is really a function of acquisitions, the hallmark of Pool Corp. and what has allowed us to build such a great company is every year, we do acquisitions. But our acquisitions may be -- usually, it's 1 to 2. I think the most we heard on in a year is 4, but that only accounts for, let's call it that 1% of our revenue growth on a average. The rest of our growth is organic growth, which is something we're very proud of. We do a great job on execution and managing our costs, and that drives the continued operating margin expansion that you see in the middle of the chart. And of course, that would flow through to the adjusted EBITDA number, again, a very impressive chart on the right. Moving on to Page 8. Here's a little bit about the evolution of our business and how it's changed over time. So the 2007, that would be pre-Recession. Give you a picture of what the business looked like. I want to draw your attention to one thing or a couple of things on this page. So if you look at the pool maintenance business in North America at the time, in 2007, that represented 43% of our business. Today, that represents 50% of our business. New construction represented 22% of our revenue then. And you can see, as the rest of our business has grown, the remodel and maintenance, the new pool construction piece has fallen to 15%. And the Horizon business, which, again, very heavily tied to new construction, represented 13% of our revenue then, only represents 9% of our revenue today. And international is about in the same spot. So over time, the business has -- our mix of business has greatly improved in that we're not nearly as tied to new construction -- new pool construction, I would say. So a matter of -- a point of information for you, pre-Recession, new pool construction in the U.S. was running at about 200,000, 210,000 units per year. During the bottom of the Recession, that got down to about 40,000 units a year. And in 2019, we believe the new pool construction number was about 78,000 units. So you could see that the company has grown significantly, yet the number of new pools being built is still less than half of what it was at its peak. Turning on to -- moving on to Page 9, a little bit about our financial strength and capacity. Certainly, our low leverage with substantial additional debt capacity is something that is important. Our business has very low rate CapEx requirement so we spend between 1 point, 1.5 point on CapEx every year, so not a huge need for the business. We invest everything we can to continue to improve and grow the business, but that's roughly 1.5 -- 1% to 1.5% of our revenue. We have very good operating cash flow, and it's countercyclical in a downturn environment, as you would imagine. And if you look at our dividend -- has continued to increase. And from a share buyback or share repurchase perspective, we would say that we are disciplined and opportunistic. So moving on to Page 9. Our competitive advantages are many. So let me just talk about our network for a second. So one of the most important things in our business is our footprint. And the reason is, is that another fact that you may not know about our business, over 70% of our transactions actually take place at our facilities, at our counters. That's very different than most distribution businesses. So where our facilities are strategically located, makes a big difference in how we add value to our customers, because the customer base essentially comes in, buys for the most part what they're -- on the maintenance and repair side of the business, certainly, they come and buy the equipment and the chemicals that they're going to use today. They buy it today and install it or use it today. So where our footprint is, is very important. So we have a great reach in most of the -- in all, frankly, all the large metropolitan areas in the U.S. We do a very good job of being in convenient locations for our customers. We are one-stop shopping. If you look at any of our individual branches, we would have probably, on average, 3 -- about 3,500 items in stock for the pool professional at our locations. It's a mix, as I said, of private label and exclusive brands and branded products. Our supply chain is global in nature. It's scalable and it's flexible. We do imports from the Pacific. Although in the beginning of the pandemic, we got a lot of questions about, well, how much do we import from China? It's not that much. It's about $9 million of our product comes directly from China, but we have 4 redistribution centers across the U.S. that allows us to efficiently operate a supply chain to feed the 378 locations. Our capital strength, we talked about. We have plenty of cash and access to capital, lots of dry powder to pursue investment in growth, whether those are internal programs or whether those are acquisitions. As I said, acquisitions are important to us, but they're not the driving factor behind our growth, which makes us somewhat unique, but it's not for lack of access to capital. It's a question of we buy who we think is a great strategic fit for our business. And we buy at fair prices, so we're not overpaying for businesses. The other thing that's very important to understand about our business is the performance-based culture and the focus of return on invested capital. So everybody in our business is -- understands that the attention to detail and the focus on execution is really the differentiator in what we do. It's how we drive those -- the continued operating margin expansion that we have. Our folks are very dedicated to what they do. They're very good at what they do, as evidenced by -- even through the whole pandemic, we really didn't miss a beat. All of our sales centers were -- in North America, I would say, were continually in operation. We had to close a couple of them to -- for some cleaning, but we quickly established new PPE rules and hygiene rules that allowed us to continue to operate. And our team really never missed the beat and was able to be there for our customers as we were designated as an essential business. Okay. Turning to Page 11. I'm going to spend a little bit more time on this chart because we need to make sure that you understand. On the left side are -- that's our 5-year history. The growth has ranged from 5% to 9%. You'll see gross margins. Again, also an important note there, gross margins. They may vary from quarter-to-quarter or slightly year-over-year, but they're essentially very stable. Contribution margins have been again in the 14% to 23% range. And on the share repurchases, we've been in the -- on the low side, $25 million, and on the high side, we bought $185 million back. And the earnings per share growth has been in the 11% to 23% range. The middle of the page, the 2020 expectations, that is what we communicated to investors during our earnings call, which was the third week of April, which was the very beginning of the shutdown in the pandemic, and we had very little clarity on what was going to be allowed, what was going to operate and what was going to be shut down. Since then, last week, we issued an update to the current environment, which is not something we typically do. We only do it in extraordinary situations. And I think the situation at hand is -- was certainly very fluid, and we have a much better handle on what the market is going to look like. Whereas in the -- during the call, we said that the revenue growth for the year could be minus 2.5 to plus 2.5. We will officially update our guidance during our earnings call for the second quarter, which is our seasonally and most significant quarter of the year. So we'll update -- officially update our guidance. This is what we communicated. But also keep in mind that, last week, we issued an update that said that sales were actually better than -- much better than we had anticipated. They were stronger in April, and that trend continued into May. So we're not going to provide earnings update on the call today. That will be coming in July when we do our second quarter recap, and then we will update our guidance at that time. So I would ask you, just kind of put that in the hold pattern. But if you look on the far right, this is the most exciting part about the page, in my opinion. And that is the revenue growth is -- we look at the longer-term outlook as 6% to 8%. Now the 6% to 8% is not a pipe dream, because if you look on the far left, our history says that we can do that very comfortably. We're not looking for gross margins to continually expand. We think our gross margin profile, the mix may change but we believe that our overall, over time, the margins remain fairly stable. The contribution margins, as we grow, are mid-teens, which is something we're very comfortable with and have demonstrated many times. And on the share repurchase, we still have a very large outstanding authorization from the Board on share repurchases, which we exercise opportunistically and judiciously throughout the year. And that should combine for an earnings per share growth that would be in the mid-teens. So overall, I would say the outlook remains positive. We're very excited about the future given that the stay-at-home order has really spurred a lot of interest in pools, in backyards and outdoor living as things like international travel and cruises and resorts and even summer camps, which we've been hearing a lot about kids that -- families that depended on their kids going to summer camps, that those likely will not happen this year, so people are scrambling to get a pool. So our builders are reporting very busy phones and requests for quotations and people wanting to wanting to have a pool. So demand is good. It's still -- the biggest limiting factor we have on new pool construction in the industry is labor. So there was more demand than labor prior to the pandemic. We've not seen as yet a shift in the labor market that would provide more labor, too, that could certainly happen in the future, but it kind of -- the system was pressurized before the pandemic and that there was more demand than labor to build those pools. And if you compound that with the weather, the uncertainty of weather, because, remember, when builders quote you a pool for either a renovation or a remodel or a new construction, it's predicated on the fact that the sun will be out and they'll be able to work. So certainly, things like very -- early onset of winter or a late winter and the spring kind of takes the shoulders off the year. And during the key times of year to build, heavy rain is something that can certainly affect the business, which is something that we saw in the early part of last year. And in summary, so I would ask you to turn to Page 12. Just remember, Pool Corp. has a very, very, very strong balance sheet with very low leverage. So our stated target on debt is -- debt leverage is 1.5x to 2x. Our trailing 12-month EBITDA going into the pandemic, we were at the low end of that. We were designated an essential business, which is very important. It allowed us to stay open and be able to serve our customers and keep our products flowing. And the high-recurring revenue nature of our business is also very comforting in the uncertain environment. The stay-at-home trends support demand for pool and outdoor living products. So we like what we're seeing in the future. And the sustainable competitive advantage with a highly experienced team is something that has delivered solid results for the company in the past, and it should continue -- will continue to deliver those results in the future. I mean if -- there's another salient point that I want you to remember, and that is, that just from a scale perspective, we are unmatched in that we are essentially, from a supplier's perspective, we're everybody's largest customer, and yet, we're over 20x larger than our next biggest competitor. We've been very consistent. And over time, there's not a lot of ups and downs. Pool Corp. is very well-disciplined, very consistent, and that, over time, has led to an exceptional investment performance. And that will complete the presentation. Thank you.

Great. Thanks, Pete. Just a reminder for the audience. Again, there's a box -- should be on the webcast page, where you can submit questions, and I will relay those to the management team here. Maybe just a couple of things to get us kicked off. You commented a lot about the impacts that you saw in March from the stay-at-home orders, how April and May have rebounded some, and you'll be providing updated guidance related to that for Q2. Just broadly, how widespread has that improvement been that you've seen in April and May? And does that -- does it also apply to the commercial and international markets as well?

Great question. Here's how I would respond to that. So the improvement in the business environment has essentially been nationwide. Now there were parts of the country that were shut down to construction activities, and there were some parts of the country that essentially remained open. But I would tell you, at its peak, construction was significantly curtailed in the Northeast, the upper Midwest and in California. Since that time, all of those markets have released contractors for construction and the permitting offices are reopened. So the increase in business activity and demand has essentially been nationwide on the residential side. In Europe, I would tell you, the same thing happened. In Europe, they were a little bit more harsh with the shutdown as at one time, we were forced to shut down in our key markets. We were forced to shut down in Spain, in France, Portugal. Germany never shut down, it remained open. And of course, in Italy, we were forced to shut down. All of those markets have now reopened. And I would tell you that demand has rebounded very nicely in almost all markets in Europe. Your question about residential and commercial is another good one and insightful. If you recall, if you were on our earnings call that we did in April, we mentioned that we saw headwinds coming in the commercial business because of the resorts, the hotel-motel business, municipal pools, competition pools, school pools and things being closed down with the uncertainty on reopening. That is one area that we see continued headwinds. The good news is that it only represents -- it's less than 5% of our total revenue. So although it is a good business for us, it's relatively small in the grand scheme of things. They are starting to open up those public pools, so we think it's going to come back. A big portion of that is hotel and motel. And as somebody that stays in a lot of hotels, I can tell you that there aren't many people in hotels these days. So I would expect continued headwinds in that area for the balance of this year, I would say. But again, just for context, it's relatively small. It's about 5% of our total revenue.

Great. A follow-up question to that. With respect to trends you've seen quarter-to-date, has there been any material impact from weather? I know it was mentioned a little bit on the Q1 call, potentially some pull forward of business with a warmer spring. Have you seen any impact from that in the current quarter?

I mean certainly, the weather in the second quarter has been good. And last year's second quarter was not good, if you remember when we were reporting earnings for second quarter of last year. So I would tell you that we have benefited from a positive weather in the second quarter of this year.

Great. Next question relates to the competitive environment. What does that like right now? Have you seen any material pricing pressure from competitors? Obviously you have a significant scale advantage but just curious as to how the competitive dynamic at the local market level has played out, given obviously the significant revenue pressure that a lot of your peers would have.

Yes. It -- in -- one of the things that we were contemplating when we gave guidance in the -- after the first quarter was, if there was a significant downturn in business, that there may be competitive pressures with people trying to generate cash and liquidate inventory. I'm happy to report that since the business has come back, the good news is we are busy, everybody is busy, which is great for a pricing environment because it means that we don't have people doing irrational things. So the competitive environment is good. And my opinion is that people are acting, by and large, rationally. And we -- one of the fears that we had is that people -- our competitors may act irrationally, but I would say our observation so far is that, that has not happened. People are behaving appropriately.

Great. Next question relates to, I guess, suppliers. Have you seen any benefit in the current environment with respect to product costs? Are there any deflationary benefits that you're realizing in some of your product categories?

Yes. Another good question. We -- as an industry, one of the things that makes us unique is prices tend to be very stable. Pricing for the season essentially gets set at early buy. So pricing for next year will essentially get set with the early buy that distributors will make in the fourth quarter of this year. So although it's not unheard of that there would be a mid-season increase, which happened to us a couple of years ago in a very inflationary environment, last year was stable and this year has been stable. So we've not seen prices move up. We've not seen prices move down. Prices have remained consistent with where the manufacturers set them for the 2020 season.

Okay. Next question, it relates to, I think, cost cutting. So you outlined in the Q1 call a number of steps you had taken to manage costs given the weaker demand environment, things like hiring freeze, adjusting compensation, marketing expenses and so forth. Given the rebound that you've seen a little bit in the last month or 2, has anything changed in terms of your cost-cutting strategy or any of the initiatives that you've undertaken?

I guess here's how I will answer that. If you look at our cost structure, over 60% of our costs are people-related, right? So as the business has enjoyed a more favorable environment, we certainly have had to -- may mean the boxes and product doesn't ship itself, so we have to have people to do that. So we have -- we've certainly kept a very sharp eye on our spending with discretionary spending and such, but we have also had to add some labor back to accommodate the increase in business that we have enjoyed, which is a good problem to have. We are also benefiting from some of the capacity creation activities that we started a couple of years ago where we were in the -- on a hunt to become more efficient with what we did, we did things like we changed some of our warehouse layouts. We merchandised over 100 of our showrooms, which allows customers to access product quicker. We employed technology in these BlueStreak devices. We had a big push on BlueStreak, which is basically a tablet that customers that come and buy bleach and acid every day. They no longer have to go inside the facility. They fill their tanks, signed with their finger and leave, which eliminates the line inside and lowers our costs to serve. And we also have been pushing very hard on POOL360, which is our B2B tool, which again lowers our costs to serve and provide some great productivity tools and information to our customers, either from their smartphone or from a computer. So all of those things that we started working on a couple of years ago are paying benefits to us today. So what I would say is that we still have a very sharp eye on expenses. We have had to bring some additional people on in the areas where we have enjoyed a significant uptick in business, but we are also benefiting from the productivity tools and activities that we talked about. So I would say it's still something that we actively manage and it's -- it will continue to pay dividends for us going forward.

Great. We've got a couple of follow-up questions on topics that were raised earlier from the audience. First one is about the bounce back in demand. Do you have any concerns about channel inventory and your ability to basically, I guess, acquire products to meet demand?

At this point, our supply chains are in very good shape. So consider that when the pandemic happened, from a business cycle perspective, our inventories are at their seasonal peak at the end of the first quarter as we ready for our biggest quarter of the year. So we were in very, very good shape from an inventory perspective. We have a very strong network with, as I said, over 378 branches. Manufacturers, by and large, with a couple of exceptions, have remained open through the pandemic. And between our inventory, our network and their inventories, I think we've done a very good job of keeping the channel full and keeping product in the hands of our customers. Certainly, some of the key manufacturers had some -- you probably heard some reports of some component issues in Mexico here and there. That certainly did -- it did happen. But between our inventories and their inventories, we were able to keep product flowing to our customers. And it's basically, there have been very, very, very few issues, if any, as it relates to supply chain.

Great. And the next follow-up question relates to Europe. I know you mentioned it's a relatively small portion of your sales overall. But the question is just about what does the competitive landscape look like in Europe? What's your market share? And I guess an adjunct to that would also be -- would you consider expansion in Europe?

Yes. Our -- the market share varies by country, certainly, France being the biggest market in Europe. From a market share perspective, I would tell you that we are probably #1 in Europe -- or I'm sorry, #1 in France. Spain, which is -- it would be the second largest market in Europe. We would probably be #2 behind Fluidra, which is a European-based manufacturing and distribution business. And Germany, which would be the third largest market are -- we're relatively small in Germany, but we like the growth opportunity in Europe. So is -- we see Europe as an important part of our growth platform going forward. We'll continue to invest in Europe. It's performed very well for us for the last several years, and we like the outlook in Europe.

Great. And then just a question about M&A and growth by acquisition. Obviously the Pool Corp.'s history, it's been predominantly an organic growth story. You do do M&A from time to time. How does this environment impact your attitude towards acquisitions? Does it make acquisitions more attractive? Does it change the pace of what you might think about acquisitions? How does that all play into your thinking?

Here's what I would say. I think when you think about acquisitions, we have to talk about individual platforms. So because our acquisition strategy on the blue side is different than what our acquisition strategy on the green side is. So in -- let's talk about the environment for a second. This is the -- this is everybody's busy season. So typically, there are very few transactions that happened this time of year because owners are focused very much on the performance of their business and serving their customers through the peak season. Do I believe that the pandemic and the uncertainty that it injected into the market at the end of the first quarter and beginning of the second quarter, will cause some owners to rethink their plans? I do. Do I think there'll be a rush of businesses that come on market? No. I think that people will -- there'll be a lot of conversations in the fourth quarter this year talking about should they sell, is now the right time? I don't see much happening right away, but I certainly think that this will cause people to rethink the -- what the plan is from a succession perspective. Now on the green side of the business, a little bit different because if you look at our presence on the green side, we have a very strong presence in the Pacific Northwest, down through California, Arizona. We have great market share, great position, and into Texas. But if you look at the Southeast, which we view strategically as an opportunity because of the demographic shift and the growth that we see the Southeast continuing to benefit from, if you look at our presence in the green business, it would be light, and it's something that needs to be filled out, and we think that as opposed to just greenfields, which is mostly what we have been doing on the blue side, I think that the M&A on the green side will be a more important part of our growth strategy.

Okay. Great. We're almost out of time. So we've got one question, and hopefully, you can answer it quickly. This is a follow-up from the audience, relates to the backlog of new pools. If you think pool builders not able to get through the current backlog this season, do you anticipate cancellations heading into next season? Or how do you think homeowners -- would attitudes would be towards pool building, if the labor and market continues to be tight?

Yes. I really -- I don't see a lot of cancellations happening. I think people view that this relative safety and predictability and stability of having your own backyard stay-cation, so to speak, will continue to drive interest in demand. So I believe that the -- in any given year, builders don't ever clear the backlog because there's typically more demand than there is supply. I just think that they probably closed the year with a bigger backlog than they had. And frankly, we've talked anecdotally to some builders, and they would say that if there is -- first of all, there haven't been a rash of cancellations, but builders would tell me that if somebody calls and cancels, their position on it is that's fine because there's 3 people behind you that are waiting for their pool. It just gets them moved up. So I don't know that anybody is really concerned about cancellations at this point. I think the backlog, my bet, is that the backlog that the builders exit this year with, will be stronger than normal.

Okay. Great. Well, thank you. I think that wraps it up. So Pete and Mark, appreciate your time and for joining us for the conference. And for the audience, thank you for all the great questions, and I hope everyone has a fantastic day. Great. Thank you.