Pool Corp (POOL) 2014 Q3 法說會逐字稿

Good morning and welcome to the Pool Corporation third-quarter 2014 conference call. (Operator Instructions). Please note this event is being recorded.

I would now like to turn the conference over to Mark Joslin, Vice President and CFO. Please go ahead.

Good morning, everyone, and welcome to our third-quarter 2014 earnings call. I would like to remind our listeners that our discussion, comments, and responses to questions today may include forward-looking statements, including management's outlook for 2014 and future periods. Actual results may differ materially from those discussed today. Information regarding the factors and variables that could cause actual results to differ materially from projected results is discussed in our 10-K.

Now I'll turn the call over to our President and CEO, Manny Perez de la Mesa.

Thank you, Mark, and good morning to everyone on the call. Our overall blue base business sales growth was 5.7% in the quarter and 7.1% year-to-date -- solid, given the market environment. What's especially noteworthy in the quarter was that our sales growth was 8.7% in the year-round markets, and 2.9% in the seasonal markets. Here, the resiliency of our business and performance in the four largest markets -- California, Florida, Texas, and Arizona -- especially given the heightened intensity of competition in these markets, speaks volumes about the exceptional value we provide.

In the case of the seasonal markets, our performance is reflective of cooler temperatures, with lower-than-normal pool use; and, consequentially, less need for pool maintenance and repair products. Our year-to-date blue base business sales growth was 8.5% in the year-round markets and 5.8% in the seasonal markets.

Our green business sales were essentially flat in the quarter, and up 2.4% year-to-date, as we have been more deliberate in the pursuit of bigger-dollar, lower-margin business this year, coupled with a leveling of new home construction.

The 2014 pool season did not meet industry expectations, with both the late start in seasonal markets and a lack of growth in the pool construction dampening what was expected to be a recovery year after the same type of dynamics affected 2013.

Industry unit sales of basic maintenance items, like chemicals, and impulse items like above-ground pools, were both down in 2014. Overall, our estimates are that industry sales increased by a modest 2% to 3% in 2014, with equipment being the best-performing of the major industry product categories, given the ongoing recovery of pool remodeling and equipment replacement.

Our top-performing category again was building materials, up 19% in the quarter and 21% year-to-date. For us, building materials includes both products to go into the pool, like plaster, component pool finishes, pool tile, et cetera; as well as adjacent to the pool, like pavers, natural stone, and associated products.

For a perspective, building materials will approach 10% of total Company sales this year, with both sales and gross profits exceeding those of our green business. Our strong growth in building materials over the past five years reflects the partial recovery in pool remodeling; but, in our case, primarily market share growth, with our expansion of stocking locations and our broader product offering.

A second product category where we have demonstrated strong growth the past several years is commercial pool products. Here our sales growth in the quarter was 19%, with gross profits increasing at an even faster rate. While more modest in size than building materials, at just over 3% of our total sales, commercial represents a similar growth and leverage opportunity for us, given the ability to use our existing facilities selling to many of the same customers products sourced from many of our current vendors.

Our retail products category sales increased by 3% in the quarter and 4% year-to-date, as the pool installed base grew by 1%. This product category experienced virtually no inflation and the seasonality factors mentioned previously. We continued to increase share with our multifaceted marketing programs to help our customers grow their businesses, and our progressively better service and system tools. With approximately 80% of pool owners maintaining their own pools, we believe that effectively managed specialty retailers have a viable opportunity to participate in a $6 billion US retail market, and we are their best resource to succeed.

Turning to gross margins, our ongoing efforts in sourcing, purchasing, and sales execution, coupled with more disciplined practices to ensure we avoid unprofitable business, all contributed to our improvement in the quarter and year-to-date. We believe that our 6.8% increase in base business gross profits in the quarter, and 7.4% increase in base business gross profits year-to-date, properly capture the investments we make and the exceptional value we provide to our customers and suppliers.

It is our industry-unique investment in people and their development, together with facilities inventory, marketing, technology, and our full array of tools and resources, that enable us to provide a value proposition unique within the industry. It is that investment and our execution that has resulted in consistent market share growth without compromising gross margins to rent customer share on a temporary basis.

We continue to make investments in people, technology, and marketing, which are largely expensed, although the benefits may not be realized for several years into the future. Our track record of performance-based, long-term-oriented business investments have served us well, and certainly are a major reason for our success today. Over a 5- to 7-year time horizon, we expect that our base business expense growth will approximate one-half our gross profits growth, with year-to-year variations based on our being more focused on return on invested capital than on the relationship to gross profits in a particular year.

With the 2014 season behind us, our attention has now shifted to 2015, with our kick-off manager meeting in late August and our sales conference two weeks ago. As usual, we have narrowed our EPS guidance range for 2014, essentially reducing the outer limits, keeping the same midpoint, as first communicated in February.

Like every year, 2014 had its challenges, but the one constant we always have is the commitment of our people. They are the heart and soul of our business, and they are the ones that make success a reality for us, our customers, and our suppliers.

Now I'll turn the call over to Mark for his financial commentary.

Thank you, Manny. As previously announced, at the end of July we completed an acquisition with a majority interest in an Australian pool distributor by the name of Pool Systems. While the impact of this acquisition isn't material to our results, I thought I'd take a minute here to explain the somewhat unique financial statement presentation requirements that resulted from this that are included in our Q3 financials.

Our 60% ownership stake gives us control of this entity from an accounting standpoint, which means we must consolidate 100% of the entity's results in our P&L, down through the net income line; and then on the line after net income, we back out 40% of the entity's net income, which for the two months of the quarter that we owned it was $122,000, leaving us with what is called net income attributable to Pool Corporation.

Similarly on the balance sheet, our assets and liabilities balances contained 100% of Pool Systems' assets and liabilities; while the 40% interest which we don't own, which was valued at $3.1 million at the end of the quarter, is reported on a separate line.

Switching over now to our results for the quarter, and starting with SG&A costs, you can see that these have continued to grow, consistent with our results for the first half of the year, with costs up 8% overall and 6% for base business.

I discussed the impact of higher performance-based compensation, freight, and technology investments on our Q2 call, which was the same story this quarter. Added to that was higher employee insurance claims, which were a bit of an issue for the quarter, but reflect modest growth overall for the year.

As I have said in the past, and as Manny mentioned, our goal is to grow our SG&A spending at about half the rate of our gross profit growth, which is an objective that we won't achieve this year, but certainly expect to reach in the future. Despite this, we have gained operating leverages here, with base business operating margins of 10.2% year-to-date, up 30 basis points from a year ago.

Moving on to the balance sheet and cash flow statements, you can see that growth in our working capital so far for the year took a bite out of our operating cash flow, with both net receivables and inventories up in the mid-teen levels over last year. Receivables were impacted by one extra billing day in September this year compared to last, although we had the same number of billing days for the quarter, as August had one less billing day. Adjusting for this, and for the $4.8 million increase in receivables from acquired businesses, our receivable growth over last year is consistent with our sales growth for the quarter.

Our receivables quality remains very high, with only 4.9% of our accounts receivable greater than 30 days past due; and days sales outstanding of 28.5 days at quarter-end -- both excellent results, and virtually unchanged from last year.

Moving to inventories, and adjusting for acquired inventories of $6.3 million, our 12% year-over-year inventory growth reflects both opportunistic buying in the quarter, as well as differences in timing of inventory receipts from last year. As with receivables, the quality of our inventory is high, with the vast majority of growth in inventories -- 92% in the case of our domestic blue inventories -- coming from either new products, or our Class 1 to 4 high-velocity items. Our days of inventory on hand at the end of the quarter was 104.5, an improvement from 105.4 days, a year ago.

These receivables and inventory increases are the cause of our $16.6 million year-to-date decline on operating cash flow from last year, a gap which we expect to largely close by year-end. In addition to working capital use, we've used our debt capacity to fund share repurchases. So far this year, we've used $131 million to repurchase 2.3 million shares, including 835,000 shares purchased in the third quarter at an average price of $55.60. This leaves us $66 million under our current Board authorization.

As a reminder on our debts, we look to maintain a relatively conservative capital structure, with a targeted leverage range of 1.5 to 2 times. We calculate this on a trailing 12-month net debt to EBITDA basis, which gives us a leverage ratio of 1.6 times at the end of the quarter, or towards the bottom of our targeted range.

With that, I will turn to call back over to our operator to begin our question-and-answer session.

(Operator Instructions).

Matt Duncan, Stephens Inc.

Manny, can you start by talking a little bit more about the Australian opportunity? How big is that business, and how big is that market opportunity? And how do you guys plan on addressing that through time?

Sure. I'll just give you a broad perspective. If you look at the Australian business or industry, it's about close to 10% -- between 8% and 10% the size of the US industry. So all together, at wholesale value, it represents about $500 million. Within that, obviously there are multiple channels to market, just like in the US.

For example, the mass participates selling basic maintenance items like chemicals and accessories, just like Walmart and Home Depot have been doing here in the US for 30 years. And there's obviously a distribution sector. There's a few retail chains -- just like our Leslie's Poolmart exists in the United States. So the characteristics are something that we are familiar with.

We began -- our entry in the market, after looking at it for the past 15 years at different opportunities, we began with two simultaneous transactions: one distributor, based in Brisbane, which would be in the northeastern section of Australia; tends to have warmer-type whether, as you would imagine, given the fact that they are in the Southern Hemisphere. And the other business was based in Sydney. So those are our two initial entry points.

We look to first improve and work with the local teams on improving the disciplines of the operations, so as that the service levels increase, some of the fundamentals that we do with every transaction -- whether it be in the United States or Australia or anywhere else. And then we will then look at expanding the network, and we will look at both acquisitions and adjacent markets, as well as the opening of new locations, much like we've done in the United States and Europe.

So that's basically no change to the essential formula. Obviously, there are some product differences that we will have to work through as we do -- just like product differences exist between Florida and New York. But we're familiar with that. And, in fact, several members of our team will be flying out there later today to evaluate some of the things that need to be done, and kind of further along the process of the action plans to make them happen.

So what is the annual revenue base that you are starting with there? And then, Mark, where in the business you guys -- is that going to be North American? Or how are you going to segment that, or are you? Is it just going to be sort of on its own?

It's going to be just on its own, from an overall standpoint. We don't create any particular segment reporting, per se; so it will be part of probably our international, if you want to classify it that way. Maybe on the K, we do that. But, in essence, it's just about $20 million out of the box.

Okay. And then last thing for me on gross margins -- this is the second quarter in a row where you've had year-over-year improvement in your gross margin percentage, which is I know something that you've been very focused on. And it actually picked up -- it was a 50 basis point improvement this quarter. I think it was 20 last quarter.

Remind us what you guys are doing there. And do you think this is something you can keep up -- can you keep seeing these small year-over-year improvements in gross profit margins, given the actions that you are taking?

Well, we are taking a number of actions. But as I think we've talked about in the prior two years, our focus is more on gross profit dollars, not necessarily gross profit percent. I would not read too much into it on a go-forward basis. I think it is reasonable to anticipate that our gross margin percent will remain in the same neighborhood as what it is now on a go-forward basis for the next few years. But the product mix has a lot to do with that, as does geography, in some cases.

Certainly we have a lot of initiatives underway to further improve every facet of our selling execution, purchasing execution, sourcing execution, and even the supply chain dynamics, that work into that to a lesser degree. So that's all part of the solution.

But let me maybe speak to it in a slightly different term. When I look at, for example, selling a pallet's worth of products, if we're getting $500 worth of GP for that pallet's worth of product at 20%, versus getting $300 worth of GP for a pallet's worth of product at 30%, I would rather get the $500 worth of GP instead of -- at 20% than the $300 at 30%, if that makes sense.

Yes.

And that's really the key metric that we are looking at, in terms of improving our efficiencies in our business.

Okay. Great. Thanks.

David Mann, Johnson Rice.

Yes. Thank you. Good morning. Nice job, guys.

Thank you.

A couple of quick questions. A lot of talk about recession impending in Europe. I'm just curious if you could give us a -- elaborate a little bit on the tone of your European business, and how that looks over the next few quarters?

Sure. As I think we all know, on the call, Europe has been challenged I think for the better part of the last five, six years. They were affected not quite as severely by the financing crisis in the United States of 2008, 2009. And then they were -- I think it began in the year 2010 or 2011 -- the initial issues in Greece that then rippled over to other countries.

By every indication, the European economy this year is supposed to be basically flat, after being down the past two years, from a GDP standpoint. There are varying perspectives, as there typically are. But, you know what? We are kind of in a unique space here. When you look at our results this year, our sales have increased by 12% in local currency this year in Europe. And our gross profits have grown at almost the same rate in terms of -- in local currency.

So we are battling through that. And, certainly, we would like to have a robust economy growing at 3%, 4% in Europe and in the US. But despite that not happening in either case, we are still growing share, building our business, executing a little bit better every day.

Great. As a follow-up on the Australian acquisition, they seem to have had a decent sourcing contract manufacturing operation. Can you just talk about that opportunity? Will that be able to accelerate some of the things that you are doing -- that you've been doing in the US?

Yes. And, in fact, that's a great question, David. When we looked at Australia, one of the things that I was concerned about, with a business basically half a world away, was having, first of all, scale for it to be meaningful in the overall context of pool, but also something that brought additional value to the equation.

In one of the two entities that came as part of the transaction, and represents about two-thirds of the business from a sales standpoint -- in that particular case, Pool Systems was the entity -- about half of their sales, or from products that they sell that they in turn have protected, in terms of [contra] having particular patents, as well as tooling -- unique tooling in place that they have, then, contract manufacturers make those products for them. And that's an opportunity for us, from a sourcing standpoint, to also bring into the United States and Europe some of those same products, at a better cost position.

They sold to the traditional dealer base as well as to retail groups or retail chains, and the mass merchants within Australia and New Zealand. And they also sold to other distributors outside of Queensland. So, therefore, to that end, they have a strong network of relationships that we can then build on over time, as we look to build out our own distribution network in Australia.

How quickly could that sourcing capability have an impact on your existing business in the US or North America?

It would have a nominal impact into 2015, and it will be more impactful as years go on. But just for context, you are looking at primarily accessory type items, as well as one particular suction cleaner.

So when you look at the big picture, it's not going to be a big nut in the overall scheme of things. Could it add, three or four years from now, $0.01 or $0.02 to our EPS? Yes. But I wouldn't think it would be much more than that.

Got you. Thank you.

David Manthey, Robert W. Baird.

Can we talk a little bit about the long-term growth formula? You've got the growth in the installed base and inflation market recovery; and then share gain in new products getting to that 6% to 10% range. And I guess as we're turning the page on the season, and looking toward to 2015, any early thoughts in terms of where you might see variants within those categories in 2015, plus or minus?

First, context; if you -- going back to comments in my prepared remarks, in the Sun Belt our growth rate was -- base business growth rate was 8.7% in the quarter, and 8.5% year-to-date. So when you take weather out of the equation, what's evident is that we are doing very well, and those are base business type numbers.

When you go into the seasonal markets, that's where we have taken a hit the past two years. And so there is some expectation that at some point the global cooling effect will revert back to a more normalized factor; and, therefore, we will get a little bit of lift. That will be presumably a one-year impact, from the recovery to the mean, in that particular case.

Take that aside -- if you're looking out -- as we tend to do with a 5-, 7-year type horizon in most of our expectations, we anticipate that building materials will continue to grow at a faster rate as we gain share with both new products, as well as further penetration in markets, now that we've opened up building materials centers. We have 80 now, throughout the country. That's part one.

You have the installed base growing at about 1% a year. We don't see that changing significantly until the latter part of this decade. So if you look at our formula, and how we get to the 6% to 10%, the recovery of remodeling replacement activity affecting us positively in the next several years. And as that begins to wind down, as we get back to normalized levels, new construction kicking in -- that's going to be a positive factor. Our continued market share gains, particularly in markets where we have low share, or markets where -- or product categories where we have low share -- those are certainly opportunities.

So, in my mind, that 6% to 10% is a very solid number. And the fact that in the year-round markets, which represent a little bit over half of our total annual sales, we continue to do that; and do that despite the economic environment not being particularly robust. Again, I think it speaks volumes to what we do, and the commitment of our people.

Okay. And just a bit more granularity on one of those pieces -- a lot of areas of distribution, just given that there's not a lot of commodity inflation out there in the world. Pricing has been sort of very flat recently. I'm just wondering, what is your expectation, near-term, over that 1% to 2% inflation component?

I would think that, in our particular case for 2015, the 1% to 2% is certainly a possibility. One area that is applicable to this industry is chemicals. Chemicals have had, to speak of, no inflation for several years, given basically excess supply. Some of that excess supply has come from China. And in the last 6 to 12 months, the powers that be in Washington have defined that there has been some dumping taking place of Chinese source products. So, therefore, to the extent that duties are imposed, that would serve to tighten up the market. And if that, in fact, holds, then we could see a little bit of an increase in chemical pricing; and, therefore, generating or resulting in the overall 1% to 2% type of price increase for the year.

Great. That's very helpful. Thanks, Manny.

Ryan Merkel, William Blair.

So I just want to ask about the competitive environment. We've had two years now where industry growth has been a bit below the long-term average; weather to blame; installed base is growing slower.

But have you seen the competitive environment change at all? Is it getting more competitive? And then I'm also curious if some of your bigger competitors are actually opening new branches and trying to expand?

Okay. I'll answer it in two parts, Ryan. If you look at the Sun Belt, the Sun Belt has been fine. So, therefore, no particular issues, per se, in the Sun Belt. Certainly new pool construction is still very, very depressed. And there has been very limited recovery from the trought of 2009, and still, generally speaking, at levels about 70% below what they were in 2005.

So therefore -- but there has been a recovery of the replacement and remodeling activity. And as you mentioned, the installed base is growing at a very modest rate. But it's still growing -- about 1% a year, similar to population growth. So, therefore, in the Sun Belt, really the environment has been okay. Yes, competitors open up new locations, or new competitors open up, just like we open up locations. And that's just par for the course.

It's obviously a very local business. Every market has its unique dynamics. Houston is different from San Antonio. San Antonio is different from Dallas. And obviously Dallas is different from Nashville or Memphis, or whatever the case may be. So you have all individual markets, all individual competitors. And we are fighting those battles every day.

In the case of the Snow Belt, which is obviously the seasonal markets that have taken the biggest hit the last two years, we have an environment in this industry -- you know, the macro in terms of installed base growth is very nominal, and the decline of new construction -- very much like the South. But the fact that they have taken a weather hit the last two years certainly puts more pressure on them.

But, on the other hand, most of these businesses have been around for many years. In some cases, they are in their second generation. Whether they are a local distributor with one location, or a regional distributor with a handful of locations, they tend to be financially very conservatively run. By and large these individuals that run these businesses -- they are good in what they do. So I don't see any significant changes.

Occasionally, one distributor in one market will have excess inventory, and dump it, and lower the market pricing for a while. But those things happen every year. Nothing unique this year versus last year, or the year before that.

Okay. That's good to hear. And then the green business -- I think you mentioned kind of staying away from bigger, lower-margin jobs. Is that what the environment is -- is that what you are seeing, just fewer but bigger jobs that are just being bid more aggressively? Or just maybe give us a bit more color on what's going on in the green business.

Sure. The lion's share of what we do in the green business is recurring in nature. And those would be individuals -- residences or small commercial operations putting in irrigation systems, or doing some sort of -- having basic needs on equipment or landscaping type products. So that's a fair share, and the lion's share of our business.

There is a piece that is tied to bigger jobs, whether it be a golf course, for example. In the golf course, it could be turf equipment or it could be irrigation. It could be a large commercial project, and those tend to be more aggressively priced. And depending on the individual situation, we play or don't play. In this particular year, while we have played, we have played, what I will call it, and lost more.

In other words, we have not gone to having been aggressive as some of our competitors have been, and that's fine. Those businesses -- those opportunities are marginal. They help us in the overall scheme of things, perhaps. But you have to have a lot of discipline in how you go after it. You can't be chasing sales dollars without really looking at what's the bottom line.

Okay. And just lastly, quickly, can you give us the growth rate for the maintenance products versus discretionary products? I know you gave some color around building products and stuff, but just headline maintenance products growth, versus discretionary products growth.

I think the retail sector is probably the best depiction of that, Brian. I think I mentioned our retail product sales were 3% in the quarter -- or up 3% in the quarter, and 4% year-to-date. So those would be indicative of basic maintenance and repair. Logically, those numbers are a little bit stronger in the Sun Belt and a little bit weaker in the Snow Belt. Because, for example, as I mentioned earlier, chemical sales, accessory sales, are down for the industry overall this year. So the 3% in the quarter and 4% year-to-date would probably compare with basically overall retail category products being flat to very modestly down, from an industry standpoint.

Okay. Great. Thank you.

Anthony Lebiedzinski, Sidoti.

Mark, you mentioned earlier that part of your inventory growth was for opportunistic inventory purchases. Can you just give us a little bit of detail, as far as how much maybe that was, and what product categories? Could we expect some gross margin expansion because of these opportunistic inventory purchases?

Sure, Anthony. We, from time to time, get sourcing opportunities that we evaluate and look at, kind of whether we want to participate in those opportunities or not, and that creates sometimes some chunkiness in terms of our buying and inventory levels. And particularly, this time of year, you've got the end of the season, as well as the start of the new season. So we are going into what we call the early buy period, where the major equipment manufacturers are putting out their price increases for next year, and allowing you opportunities as distributors to buy in ahead of those price increases, and then they ship product when it's convenient for them.

Most of those are on extended payment terms. So we look at all of those opportunities and decide what makes sense for us in terms of sourcing. Obviously, we're looking to get kind of the best deal for Pool Corporation as we evaluate all of those. And it's mainly in the equipment areas, sometimes chemicals. One year or another, we will have chemical sourcing opportunities that are significant.

And I would say whether it's kind of in-season, late-season, or early buy, all of those things that we participate in certainly help us from a margin perspective. But given the relatively modest level of inflation, the amount of help is relatively modest, compared to years where there is more inflation. So that's kind of the picture.

Okay. That's very helpful. Have you guys -- I assume that, given the results you just talked about, the Sun Belt, it looks like you haven't really seen any impact from the droughts in California. But maybe if you could just touch on that -- if there is prolonged issues with that. What's your outlook for that?

Sure. Two things -- first, we have seen some impact from the drought in Northern California. The impact is diluted when you look at the entire business that we do in the four states. And the impact has not been huge, but there's been some level of impact. So if you look at our Northern California numbers, they are not at the 8-and-change type growth rates that we have seen in, call it, the rest of California; Arizona, Texas, and Florida.

I think the drought -- you have to put things in a little bit of perspective. Every year, it seems that there is a drought somewhere. And every year, there are areas that are inundated with water. If you look at, for example, Florida: Florida has had -- I can't recall the exact number, but it's had significantly more rainfall this year than the average. Several years ago, they were looking about Lake Okeechobee in Florida being at record low levels. Now they are talking about having to take water and feed water off, because Lake Okeechobee is about to overflow.

So you've got dynamics that play over the course of several years. My normal expectation -- just having a little context -- is that it's going to rain in Northern California. And when it does for any length of time -- and by the way, it did last week, and I think the week before that, as well -- when that happens for a certain period of time, things revert back to normal. And then we'll be talking about a drought in Texas or Tennessee or somewhere else.

Got it. Okay. That's helpful context. And also again can you just remind us again, what is the market potential for commercial pools?

That's a great question. When we look at the commercial pools category, we are talking about pools -- well I stated, commercial pools -- they range from small, smaller hotel type pools all the way up to water parks. That's the entire field of commercial category. The volume of units -- which, by the way, domestically are over 300,000 vessels -- the volume is dominated by these smaller type pools that run from 25,000 gallons to 75,000 gallons. Then you get to the full YMCA-type of pools. And then last, in terms of units, you have the water parks. The total market category is approximately $1.8 billion wholesale value; with, like everything else, about 80% of that -- 80%, 85% of that market -- being basic maintenance, repair, and remodeling type products.

Okay. Thank you very much.

(Operator Instructions).

Garik Shmois, Longbow Research.

This is Mark on for Garik today. I'm just wondering, on the quarter, if you can break out sales growth between volume, price, and mix?

I'm sorry -- volume, price, and what else did you mention?

Any mix benefit would be helpful.

Well --.

Mark Joslin

No, is the short answer.

No, is the short answer. I can give you a perspective. And the reason here is when you look at the volume of different products that we sell, when you apply -- I mean, we have it here, but it's really, we have the availability to pull it, but it's really of zero value -- when you look at different unit quantities of chemicals, versus equipment, versus parts, versus whatever, it's really a completely mixed bag.

If you do it by individual product category, it's a little bit more helpful. But I will tell you that, in essence, the price inflation this year has been relatively negligible; maybe 1%. The mix has been -- there has been some mix increment, given the ongoing migration -- for example, in the case of pumps to variable-speed pumps, and lighting to LED lighting, as well as migration in terms of building materials, where we are selling bulk items in a number of cases.

So when you look at overall, there's probably a little bit of a mix impact -- I would say, I doubt that it's more than 1%. And then the balance would be pure volume.

Okay. That's helpful. Just wondering about your use of cash -- just wondering how the acquisition pipeline is looking, going forward here. Thank you.

Sure. Just to go through what we convey in the K -- and have for, I think, 15 years -- priority uses of cash -- first is to fund internal operations, internal initiatives that -- whether it be trucks, computer equipment, opening new locations -- all with the same parameters that we have, from a return on capital standpoint, that we communicated historically.

Second would be for acquisitions. In terms of acquisitions, that's primarily weighted toward markets where we have no presence, or a very limited presence. That's the focus there. And, obviously, again, we have the return on invested capital criteria and disciplines in place. Third would be dividends. And then fourth would be, in this particular environment, share repurchase. And then fifth would be debt repayment, to the extent that our net debt to trailing 12, or average debt to EBITDA over a trailing 12-month period, exceeds 2, 2.5.

So those are the rank order. So we are constantly in the market for acquisitions. We've done three this year -- that's two transactions, of which I capture as one in Australia -- the Stone Supply acquisition that we did in North Texas, as well as our acquisition in the Nova Scotia area of Canada, a market that we had no presence in before.

So this is kind of typical of what we are doing in entering new markets, expanding our product breadth and offering, in the case of that Stone Supply operation. So there's dialogue going on. Whether we do one transaction, two transactions, three or four in a year, really varies based on the sellers. We are always talking to a number of people, but it's really up to them. Our disciplines are the same; our logic is the same; but they have to be ready to sell. And when they are, we are there to buy.

Some of these transactions take many years to develop. In the case of the Stone Supply operation, that was probably one of the shortest ones. In fact, that came to fruition in months. But in the case of Nova Scotia, we've been talking to them for about 10 years. In the case of Australia, I've been looking at that market since 1999.

So that just gives you a perspective of the process. And we are very diligent, and don't have a particular target for acquisitions any one year. What is most important is, does it fit long-term? And what value does it bring to the table long-term, provided it meets the return on invested capital criteria that we have?

All right. Good luck.

Okay. At this time, I am not showing any further questions in the queue. So this will conclude our question-and-answer session for today.

I would like now to turn the conference back over to Pool Corporation for any closing remarks.

Thank you, Robert, and thank you all for listening. Our next call is scheduled for February 12, Abraham Lincoln's birthday, when we will discuss our full-year 2014 results and provide our 2015 outlook. Have a great day.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.