Mark Joslin - Chief Financial Officer, Vice President Manuel Perez De La Mesa - President, Chief Executive Officer, Director.

Matt Duncan - Stephens Incorporated David Mann - Johnson Rice David Manthey - Robert W. Baird Ryan Merkel - William Blair Anthony Lebiedzinski - Sidoti Mark Zikeli - Longbow Research.

Good morning and welcome to the Pool Corporation third quarter 2014 conference call. All participants will be in listen-only mode. (Operator Instructions). After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

And 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 will 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 consequently 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 new 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 aboveground 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 that go into the pool like plaster, component pool finishes, pool tile, et cetera as well addition to the pool like pavers, natural stone and associated products.

For 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 stock locations and our broader product offering.

A second product category where we have demonstrated strong growth for 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 install 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 are 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 U.S. retail market and we are their best resources to source it. 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 investments 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 investments 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 our major reason for our success today.

Over a five to seven 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 and be 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 kickoff 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 will turn the call over to Mark for his financial commentary..

Thank you, Manny. As previously announced at the end of July we completed acquisition of a majority interest in Australian pool distributor by the name of Pool Systems.

While the impact of this acquisition is immaterial to our results, I though I would 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 liability balances contain 100$ 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 to our results for the quarter and starting with SG&A cost.

You can see that these have continued to grow consistent with our results for the first half of the year with cost 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 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 want to achieve this year but certainly expect to reach in the future.

Despite this, we have gained operating leverage this year 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 remain 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 received 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 Class I to IV high velocity items. Our days inventory on hand at the end of the quarter was 104.5, an improvement from 105.4 days a year ago.

These receivables and inventories increases are the cause of our $16.6 million year-to-date decline in operating cash flow from last year, a gap which we expect to largely close by year-end. In addition to working capital use, we have used our debt capacity to fund share repurchases.

So far this year, we have 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 debt, we look to maintain relatively conservative capital structure with the 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 the call back over to our operator to begin our question-and-answer session..

(Operator Instructions). The first question comes from Matt Duncan of Stevens Incorporated..

Good morning guys..

Good morning..

Good morning, Matt..

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. Well, just to 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 U.S. industry. So altogether at wholesale value it represents about $500 million. Within that, obviously there are multiple channels to market just like in the U.S.

For example, the mass participate selling basic maintenance items like chemicals and accessories, just like Walmart and Home Depot have been doing here in the U.S. for 30 years. And there is obviously distribution sector. There is a few retail chains just like a Leslie's Poolmart exists in United States.

So 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 of based in Brisbane, which would be in the Northeastern section of Australia.

It tends to have warmer type weather as you can imagine, given the fact that they are in the Southern hemisphere. And the other business is 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 in adjacent markets as well as the opening of new locations, much like we have done in United States and Europe.

So that's basically no change to the essential formula. Obviously there are some product differences and that will have to work do it as we do and just like product differences exist between Florida and New York. But we are 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 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 are you guys? Is that going to be North American? Or how are you going to segment that (inaudible)? Is it just going to be on its own?.

It's going to be just on its own from 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, until 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 have had year-over-year improvement in your gross margin percentage which is I know something that you have been very focused on and it actually picked up. It was up 50 basis point improvement this quarter and 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 that the actions that you are taking?.

Well, we are taking a number of actions, but as I think we 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's reasonable to anticipate that our gross margin percent will remain in the same neighborhood as where 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 dynamic that's working to that is 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 palace worth of products, if we are getting $500 worth of GP for that palace worth of products at 20% versus getting $300 worth of GP for palace worth of products at 30%, I would rather do to get to $500 of GP at 20% than the $300 at 30%, if that makes sense.

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

Okay, great, thanks..

Thank you..

Okay. The next question will come from David Mann of Johnson Rice..

Hi, yes. Thank you. Good morning, Nice job, guys..

Thank you..

A couple of quick questions. Lot of talk about the recession impending in Europe.

I am just curious if you can give us or 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 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 but 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 are typically are. But you know what, we are kind of in an unique space here.

And 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 were battling through that and certainly we like to have a robust economy growing at 3%, 4% in Europe and in the U.S., but despite that not happening in either case, we are still growing share, building our business, executing a little very everyday..

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 your have been doing in U.S.?.

Yes. And in fact that's a great question, David. When we looked at Australia, one of the things that I was concerned about, was a business basically half a world away was having, first of all, scale for any meaningful 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 were from products that they sell that they in turn have protected in terms of contract having particular patents as , well as 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, retail chains and the mass merchants with 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 U.S.

or North America?.

It would have a nominal impact in 2015 and it will be more impactful as the years goes on. But just for context, I mean 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, four years from now, $0.01 or $0.02 to our EPS? Yes. But I wouldn't think it do much more than that..

Got you. Thank you..

The next question is from David Manthey of Robert W. Baird..

Close enough. Hi. Good morning, guys.

Can you talk a little bit about the long-term growth formula? You have 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 are turning the page on the season and looking forward to 2015, any early thoughts in terms of where you might see variance within those categories in 2015 plus or minus?.

Okay. First, context. If you know, are going back to comments in my prepared remarks in the Sunbelt, our 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 are taking the 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 will get a little bit of a lift.

That will presumably be a one year impact from the recovery to the mean in that particular case. Take that aside.

If you are looking out as we tend to do with a five, seven years 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 have opened up, building materials centers.

We have 18 out throughout the country. That's part one. You have the install 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 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 -- 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 then 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 am 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 of 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 the excess supply has come from China.

And in the last 6 to 12 months, the powers that be in Washington have defined that there have been some dumping taking place of Chinese sourced products.

So therefore to the extent that duties are imposed that would serve to tighten up the market and as 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..

Thank you..

The next question comes from Ryan Merkel of William Blair..

Thanks. Hi, guys.

How are you?.

Good morning..

Hi, Ryan..

So I just want to ask about the competitive environment.

We have 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 am also curious if some of your bigger competitors are actually opening new branches and trying to expand?.

Okay. I will answer it in two parts, Ryan. If you look at the Sunbelt, the Sunbelt is doing fine. So therefore, no particular issues, per se, in the Sunbelt.

Certainly new pool construction is still very, very depressed and there has been very limited recovery from the drought of 2009 and still generally speaking, at levels about 70% below what they were in 2005. But there has been a recovery of the replacement and remodeling activity.

And as you mentioned, the install base is growing at a very modest rate. But it is still growing about 1% a year, similar to the population growth. So therefore, in the Sunbelt really the environment has been okay.

Yes, new competitor or 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 everyday.

In the case of the Snowbelt, which is obviously the seasonal markets have taken the biggest hit in the last two years, we have an environment in this industry, the macro in terms of install base growth, very nominal and the decline of new pool 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, and in some cases they are in their second generation.

And you now whether they are local distributor with one location or a regional distributor with a handful of location, they tend to be financially very conservatively run. By and large, these individuals that run these businesses, they are good in what they do. And 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 I mean 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 share of what we do in the green business is recurring in nature and those would be individuals, residences or small commercial operations, putting an irrigation systems or doing some sort of having basic needs, from equipment or landscaping type products. So that's a fair share and the lion share of our business.

There is a piece that is tied to bigger jobs, whether it be a golf course, for example, and 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 and in this particular year, while we have played, we have played what I call it and lost more. In other words, we haven't been as aggressive as some of our competitors have been. And that's fine. Those businesses or those opportunities are marginal.

They help us in the overall scheme of things, perhaps, but they are yet to have a lot of discipline on how you go after that. 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 mean 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, Ryan..

Yes..

And 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 will be indicative of basic maintenance and repair.

Logically, those numbers are a little bit stronger in the Sunbelt and a little bit weaker in the Snowbelt because for example, as I mentioned earlier, chemicals sales, accessory sales are down for the industry overall this year.

So the 3% in the quarter, 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..

Thank you..

The question will come from Anthony Lebiedzinski from Sidoti..

Good morning. Mark, you mentioned earlier that part of your inventory growth was for opportunistic inventory purchases.

So can you just give us a little bit of detail as far as how much maybe that was and what product categories? And could we expect some gross margin expansion because of these opportunistic inventory purchases?.

Sure, Anthony. You know 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 have got the end of the season as well as the start of the new season. So we are going into what we call our 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 and 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.

And obviously, we are looking to get the best deal for PoolCorp as we evaluate all those. And it is mainly in the equipment areas, sometimes chemicals when you or another will have chemical sourcing opportunities that are significant.

And I would say you know, whether it's kind of in season, late-season or early buy, all 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 here where there is more inflation. So that's kind of the picture..

Okay. That's very helpful. And have you guys, I guess I assume that, given the results that you just talked about, the Sunbelt, 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 has been some level of impact.

So if you look at our Northern California numbers, they are not at the eight-and-change type growth rates that we see in the rest of California, Arizona, Texas and Florida. I think the drought, you have to put things in 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, and I can't recall the exact number, but it has had significantly more rainfall this year than the average. And to the extent several years ago they were talking about Lake Okeechobee in Florida being at record low levels.

Well, now they are talking about having to take water and feed water off because Lake Okeechobee is about to overflow. So you have got dynamics that play over the course of several years.

My normal expectation, just having a little context, is that it is going to rain in Northern California and when it does for an extended period of time and by 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 they we will be talking about a drought in Texas or Tennessee or somewhere else..

Got it, okay. That's helpful context.

And also 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 pool category, we are talking about pools, well I said commercial pools, they range from a smaller hotel type pools all the way up to water parks. That's the entirety of the commercial category. The volume of units which, by the way, domestically are over 300,000 vessels.

The volume is dominated by the smaller type pools that run from 25,000 to 75,000 gallons. Then you get to the, call it the full YMCA type of pools. And then at 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%, 85% of that market being basic maintenance, repair and remodeling type of products..

Okay. Thank you very much..

Thank you..

(Operator Instructions). The next question will come from Garik Shmois of Longbow Research..

Hi, guys. Good morning. This is Mark on for Garik today.

I am just wondering, on the quarter, if you can break out sales growth between volume, price, and mix?.

I am sorry.

The volume, price and what else did you mention?.

Any mix benefit would be helpful..

Okay. Well --.

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 ability 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 categories, it is a little bit more helpful. But I will tell you that in essence, the price inflation this year has been relatively negligible, maybe 1%.

There has been some mix increments 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 where the bulk items in a number of cases. So when you look at overall, there is probably a little bit of a mix impact.

I would say I would doubt that it's more than 1%. And then the balance would be pure volume..

Okay, that's helpful. I am just wondering about your use of cash. I am 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 use of the cash first is to fund internal operation, 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 was communicated historically.

Second would be for acquisitions. In terms of acquisitions, that's primarily weighted towards markets where we have no presence or very limited presence. That's the focus there. And obviously again at the return on invested capital criteria's 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 month or average debt to EBITDA over a trailing 12 month period exceeds to 2 to 2.5. So those are the rank order. So we are constantly in the market for acquisitions.

We have done three this year. The two transactions which I captured is 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, and entering new markets, expanding our product breadth and offering in the case of the Stone Supply operation. So there is dialogue going on. Whether we do one transaction or two transaction or 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 have been talking to them for about 10 years. In the case of Australia, I have 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's most important is that it fits long-term and what value does it bring to the table long-term provided it means the return on invested capital criteria that we have..

All right. Good luck..

Thank you..

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 has now concluded. Thank you for attending today's presentation. You may now disconnect..