SiteOne Landscape Supply, Inc.

Greetings and welcome to the SiteOne Landscape Supply first quarter 2020 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. John Guthrie. Executive Vice President and Chief Financial Officer. Please go ahead, sir.

Thank you, and good morning, everyone. We issued our first quarter 2020 earnings press release this morning and posted a slide presentation to the investor relations portion of our website at investors.site1.com. I'm joined today by Doug Black, our Chairman and Chief Executive Officer, and Scott Salmon, Executive Vice President, Strategy and Development. Before we begin, I would like to remind everyone that today's press release, slide presentation, and the statements made during the call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to the risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Such risks and uncertainties include the factors set forth in the earnings release and in our filings with the Securities and Exchange Commission. Additionally, during today's call, we will discuss non-GAAP measures, which we believe can be useful in evaluating our performance. A reconciliation of these measures can be found in our earnings release and in the slide presentation. I would now like to turn the call over to Doug Black.

Good morning, and thank you for joining us today. In light of the COVID-19 impact, we are going to modify the format of this call versus our typical earnings call. I will start with a review of how we've responded to COVID-19 and discuss the initial impact we've seen on our business as well as our strategy for navigating through the year. John Guthrie will then walk you through our first quarter financial results in more detail and provide additional information on our balance sheet and liquidity position. Scott Salmon will discuss the new companies we've added in the first quarter and how we plan to navigate the short-term challenges from an acquisition standpoint. At the end of the call, I will discuss some of the trends that we are seeing in our specific end markets and address our outlook before taking your questions. Before I jump into our actions, let me first say that our thoughts and prayers go out to all of those who have been impacted by COVID-19. This is a terrible pandemic, unlike anything we've ever seen, and the effects on people across the world and on our communities and economy have been unprecedented. Given that, we feel very fortunate to be here at Site One. We are a financially strong industry leader and part of an industry that has been deemed essential to the maintenance, safety, and welfare of our communities during this pandemic. Further, I cannot tell you how proud I am of the Site One team and our culture of teamwork, service, and commitment to excellence. In this time of crisis, our team is shining. and playing a real role in the continued safety and success of their fellow associates, our customers, our suppliers and our communities. The team has adapted very quickly and is clearly stepping up to the challenge. And I believe we are having significant positive impact on all stakeholders during this crisis. I also believe that we will be a stronger team and business when we come through this challenging time. I'll start on slide five to walk you through our actions to manage through the COVID-19 challenges. In the very early stages when COVID-19 was becoming an issue in China, our supply chain team leveraged our national distribution center network to proactively secure ample quantities of product sourced from overseas. We also created heavy inventory positions in general as we anticipated a very strong spring season. Accordingly, we are in good shape on inventory with only minor product shortages despite the disruptions in both the global and U.S.-based supply. As COVID-19 spread rapidly in the U.S., we quickly rallied our team around four fundamental near-term objectives. First, keep everyone safe in a coronavirus world. This includes obviously our own associates and their families, but also our customers, our suppliers, and our communities. Second, serve and support our customers better than anyone else in the industry. Third, manage our business to the lower short-term demand. And fourth, make sure that we're taking care of all of our associates all along the way. All four objectives are critically important in order to successfully manage through this crisis while protecting our culture and continuing to build our company for the future. Let me describe the actions we are taking to accomplish these objectives. To keep everyone safe in a coronavirus world, we pivoted rapidly to implement all the CDC guidelines and preventative measures. We have canceled all large meetings, events, and most air travel. We have educated our associates on the basic social distancing and hygiene measures, and then executed these in our offices and branches. We are leveraging our supply chain to ship and replenish supplies of disinfectant, hand sanitizer, paper goods, and face coverings to all our facilities. We have also modified our time off policies in order to accommodate associates who are potentially exposed or high risk. With these modified policies, we are being very aggressive about having associates stay home if they have symptoms or are potentially exposed. until it is clear that they are not infected with the virus. We have created a paid time off or PTO donation bank, which has allowed over 250 associates to donate over 6,000 hours of PTO to support over 60 associates who need PTO to take care of their children at home due to the school closings. This is Site 1 teamwork at its best. We have stepped up our communication both to our associates through videos, our intranet, and our HR services team, and to our customers with regular COVID-19 emails and by providing information for them on site1.com. We have instructed our suppliers to not visit our branches, but instead communicate with us virtually or by phone. And finally, all our field support associates who can work from home are doing so in order to reduce the coronavirus risk in our field support offices. In terms of branch operations, we quickly modified our branches in order to maintain the six-foot social distancing standard. In many cases, this meant closing our showrooms and or reorganizing the branch layout. Thankfully, we had just rolled out our barcoding capability with our mobile probe scanners for the spring. which allows us to check out customers anywhere in the branch or yard. This has been a terrific tool to help with social distancing. We also have advertised our online solution and increased our training for customers on how to use SciWarn.com which has given customers another avenue for ordering along with email or phone without coming into the branch. Lastly, our teams are practicing good hygiene techniques at our locations to include constant cleaning of high touch and high traffic areas. Today, all branches remain open and are providing excellent service and support to our customers while ensuring a safe environment for ourselves, our customers, and our suppliers. In terms of demand, our sales were very strong through the first two weeks of March but began to decelerate in the third week and went negative in the final week of March as COVID-19 spread and federal, state, and local safety measures and restrictions were put in place. As I mentioned earlier, our customer services are deemed essential both nationally by the Department of Homeland Security and by most state and local authorities. However, based on the severity of state and local safety measures and restrictions, certain aspects of our customer services have been prohibited in some markets. As a result of these restrictions, our organic daily sales growth has been down approximately 11% in April. In fact, that trend has been very consistent from the last week of March through the first four weeks of April with organic daily sales down 10% to 15% in each week. Furthermore, the restrictions vary significantly by region with a corresponding variance in demand. In the four regions from Texas across the South, including Florida, and up through the Carolinas, we have seen organic daily sales growth of 5% to 15%, with strong markets and limited restrictions for landscaping. In the three most highly restricted regions, in the Northeast and Upper Midwest, sales in April were down 25% to 30%. The three regions in the West and Central Plains are showing declines in organic daily sales that range from 5% to 20%. Accordingly, we have been aggressive but very targeted in adjusting our business to the lower demand. With the aid of the CARES Act, we have chosen to use furloughs in order to reduce our staffing in the heavily affected areas and in the associated field support teams. In this way, we can take care of our associates by keeping them on our benefits while they collect unemployment and receive additional funds from the CARES Act. If demand returns, assuming an eventual loosening or removal of restrictions, we can quickly bring our associates back to meet the additional demand and provide our customers with outstanding service. In addition to staffing, we reduce all other controllable expenses while also tightening capital spending. Our team is seasoned, and we have all been through downturns. And so I've been very pleased with the quick action that we have taken to manage our expenses in a declining sales environment. Through all these actions, we are tightly managing our business and taking care of our associates, to include those who are on furlough. We took proactive steps to enhance our cash position and increased our financial flexibility by borrowing approximately $100 million on our $375 million asset-based lending facility. We have not used these new funds other than for seasonal investments in working capital. We now have approximately $122 million of cash on hand and approximately $47 million in available capacity under our ABL facility. We also postponed the closing of pending acquisitions to further enhance our financial strength and flexibility. When you're in a period of extreme uncertainty, like we are today, it is not in the best interest of the buyer or the seller and their associates to complete an acquisition. Additionally, because our deals are primarily negotiated and based on long-term relationships, there is a foundation of trust which allows us to put things on hold and wait for a better time to complete the deal. Accordingly, our strategy is to wait until the future is more predictable and then resume our acquisition activity. We expect this to be at the very earliest in the second half of 2020. Despite the temporary pause, we remain very committed to our acquisition strategy as a critical means of building our company for the long term. To summarize, I am very proud of how our team has performed in this extraordinary environment to keep everyone safe, serve and support our customers, Manage our business to the lower near-term demand and take care of each other along the way. Given the difficulty in predicting the severity and duration of the COVID-19 impact, we are withdrawing our previously provided 2020 guidance. However, as the leading distributor to an essential industry, we believe Site 1 remains well positioned to support our customers and navigate this challenging period for the benefit of all stakeholders. We are closely monitoring the trends and adjusting as necessary to perform in the short term while continuing to build for the long term. Now, John will walk you through the first quarter in more detail. John?