SiteOne Landscape Supply, Inc.

Greetings and welcome to the Site One Landscape Supply, Inc. fourth quarter and full year 2020 conference 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, John Guthrie, Executive Vice President and Chief Financial Officer.

John Guthrie Thank you and good morning, everyone. We issued our fourth quarter and full year 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 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 relief 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 relief and in the slide presentation. I would now like to turn the call over to Doug Black. Thank you, John.

Good morning and thank you for joining us today. We are very pleased to report our strong results for the fourth quarter, capping off an excellent year of performance and growth for Site 1 in 2020. The COVID-19 global pandemic brought on many challenges during 2020 in operating safely, serving our customers, taking care of our associates, working with our suppliers, and managing our business. As the year developed, the stay-at-home trend associated with COVID-19 also brought about opportunities as more emphasis was put on homeownership with increased investment in outdoor living spaces. With terrific passion, determination, and teamwork, our Site 1 team worked hard to overcome every challenge and moved quickly to capture opportunities during the year while taking care of each other and serving and supporting our customers better than ever before. As a result, we delivered tremendous value to all of our stakeholders. On top of that, we made critical investments during the year and strengthened our business on all fronts while continuing to add great companies and talent to Site 1. Overall, I'm very proud of our team and excited to see our strong culture shine during these toughest times. Moving forward, we have a stronger team, stronger systems, a stronger balance sheet, and even more capability to execute our strategy, achieve excellence, and deliver superior long-term performance and growth. I will start today's call with a brief overview of our unique market position and our strategy for long-term performance and growth, followed by some highlights from 2020. John Guthrie will then walk you through our fourth quarter and full-year financial results in more detail and provide additional information on our balance sheet and liquidity position. Scott Salmon will discuss our acquisition strategy, and then I will come back and review some of the trends that we are seeing in our end markets and address our outlook for 2021 before taking your questions. As shown on slide four of the earnings presentation, we have grown our footprint to more than 570 branches and three major distribution centers across 45 U.S. states and six Canadian provinces. We are the clear industry leader, more than five times larger than our nearest competitor and larger than two through 10 combined. At the same time, we estimate that at the end of 2020, we had only 13% share of the very fragmented 20 billion wholesale landscaping products distribution market. Accordingly, our remaining growth opportunity is significant. We have a very balanced mix of business with 59% focused on maintenance, repair, and upgrade, 27% focused on new residential construction, and 14% on new commercial construction. We are also the only national full product line wholesale distributor in the market. Our balanced end market mix, broad product portfolio, and geographic spread give us multiple avenues to grow, and more ways to add value to our customers and suppliers while providing important resiliency in softer markets. Turning to slide five, our large and local strategy combines the scale, resources, and capabilities of a large world-class company with the passion, deep knowledge, and entrepreneurialism of our local team in order to deliver superior value and differentiate ourselves from the competition. It is important to note, however, that we are still in the early to middle innings of building our company and our capabilities and still have a long way to go in order to fully execute our strategy and reach our full potential. Accordingly, we remain highly focused on our commercial and operational initiatives to build our capabilities and improve the value that we deliver to customers and suppliers. These initiatives are complemented by our acquisition strategy which fills in our product portfolio, moves us into new geographic markets, and adds terrific new talent to Site 1. Taken all together, our strategy creates superior value for our shareholders through organic growth, EVA-DA margin expansion, and acquisition growth. Slide 6 shows Site 1's history and the results from executing our strategy over the past five years. Over this period, we have been able to deliver consistent organic growth, strong acquisition growth, and solid EVDA margin expansion while investing heavily in SG&A to build our IT, category management, supply chain, finance, marketing, operational excellence, and acquisition teams, as well as our underlying systems infrastructure, including our digital capabilities. While we have not finished building our system's infrastructure, our field support teams are firmly established. And you can see in our 2020 results the operating leverage that we are beginning to achieve with these strong teams. We will continue to leverage and build on our capabilities to accelerate our performance going forward. You will also note that we now have completed 57 acquisitions across the irrigation, agronomics, nursery, and hardscapes product lines during the last seven years, with 11 of these added in 2020 and one so far in 2021. We only acquire well-run companies, and so all these acquisitions were already high-performing companies before joining SiteOne. With them, we have added significant capability and tremendous talent, and we have learned many lessons that can be applied to future acquisitions. I would like to highlight that we still have over 50 former owners from these companies with us, as well as many of their sons and daughters and longtime leaders, helping us to stay agile and building our entrepreneurial spirit and local ownership. Our acquisition pipeline remains very robust, and with only 13% market share, we have significant potential to continue growing through acquisition for many years to come. In summary, our strategy is working, we are still early in our execution, and you will see us get stronger every year as our key initiatives gain more traction. Slide seven shows the long runway that we have ahead in filling in our product portfolio, which we aim to do primarily through acquisition, especially in the nursery and hardscapes categories. Nursery and hardscapes operations require larger sites and significant local expertise. and so these product lines cannot just be added to most of our existing branch locations. We are well networked with the best companies in our industry and expect to continue filling in these markets systematically over the next decade. I will now discuss some of the 2020 performance highlights as shown on slide 8. We delivered 15% net sales growth in 2020 with a nice balance between 9% organic sales growth which includes an extra week in December, and 6% net sales growth through acquisitions. Organic daily sales growth was 8%. The market recovery that began during the second quarter has continued through year end and into the new year so far. The increase in the number of families who are working and or attending school from home due to COVID-19 has spurred additional investment in outdoor living. Currently, the new residential construction market has fully recovered with low interest rates and a renewed focus on home ownership. These factors, along with our internal growth initiatives, contributed to our strong organic net sales growth. Geographically, we saw our highest full-year sales growth in the South and West, where COVID-19 restrictions had less impact on landscaping. All regions finished strongly in the fourth quarter, and currently have good momentum. At this point, the market is being constrained by labor availability for our customers. We achieved a 50 basis point improvement in gross margin during the year with contributions from our supply chain and category management initiatives. During the late spring through fall, several of our suppliers suffered from production interruptions due to COVID-19, which limited their ability to fulfill surging market demand. With our three distribution centers and talented supply chain team, we were able to keep our branches supplied, which resulted in good market share gains during the year. Additionally, through our new transportation management system, or TMS initiative, we were able to continue reducing our inbound freight costs relative to the market. We also benefited from excellent private label product growth. Lastly, our recent acquisition of hardscapes and nursery companies which operate at a higher gross margin than the base business, also contributed to our gross margin improvement. On the SG&A side, we achieved excellent operating leverage in 2020 as we tightly managed our business through the use of associate furloughs, avoided discretionary travel and expenses, and benefited from COVID-19-related trends, such as lower healthcare costs. We achieved this leverage even as we continued to invest in mobile pro, our digital capabilities, TMS, and our marketing and operational excellence teams, all of which are increasing our capability to better serve our customers, grow organically, and achieve higher operating leverage in the future. One indicator of our progress is the fact that our customer net promoter score continued to improve in 2020, moving from 71 to 75 during the year. We also invested in our associates, allowing them to stay at home when they were sick or exposed without using their paid time off, or PTO, creating a PTO bank to support associates in need, and paying special thank you bonuses to our frontline associates. These are in addition to the record annual performance bonuses earned by our associates as they achieve a truly exceptional year. We expect to continue making investments in 2021 to serve our customers better while leveraging our prior investments to drive organic growth and achieve further SG&A leverage. The combination of strong organic sales, gross margin improvement, good SG&A leverage, and excellent acquisition performance allowed us to deliver 29% adjusted EBDA growth and expand our adjusted EBDA margin by 110 basis points for the year to 9.6%. We're excited about the great progress that we made in 2020 toward our mid-term milestone of 10% adjusted EBDA margin. On the acquisition front, our team did a great job of getting us off to a strong start with four deals in the first quarter, then pausing our acquisition from March to July, but keeping our prospects warm while we assess the impact of COVID-19, and then picking back up in the second half of the year by closing seven additional deals. Our acquisitions performed well, and we added 8% of trailing 12-month sales to Site 1 through acquisitions in 2020, setting us up for a strong growth through acquisitions in 2021. The year 2020 was also an important year for Site 1 from a balance sheet perspective. We maintained strong liquidity throughout the COVID-19 crisis and then seized the opportunity to reduce our net debt leverage by executing a $262 million equity offering in August. Through this offering, we reinforced and expanded our strong base of shareholders and provided them an excellent return on their new investment in Site 1. At the same time, when coupled with our very strong free cash flow, we reduced our net debt leverage by over one term and ended the year with a net debt to adjusted EBITDA ratio of 1.0 times compared to 2.6 times at the end of 2019. We are now in a great position with maximum flexibility to execute our strategy, including continued acquisition in good times and tougher times. Lastly, I will remind you that we published our first Site 1 responsibility report on site1.com, which outlines all of the terrific work that our teams do to ensure that Site 1 is a great place to work for our associate and a good neighbor in our communities. Environmental, social, and governance best practices are already part of our DNA, and we are happy to introduce our programs, practices, and metrics to communicate and benchmark our actions and results going forward. I would also note that 2020 was our safest year ever as we reduced our recordable and days away incident rates by 40% and 58% respectively. versus the prior year. Based on our benchmarking, Site 1 is among the safest industrial distributors in the world. To summarize, I am very proud of how our team performed in this extraordinary environment to keep everyone safe, serve and support our customers, deliver outstanding financial results, and take care of each other all along the way. In the end, 2020 was a strong year during which we continued to execute our strategy and demonstrated the momentum of our long-term growth story. Despite the challenges of COVID-19, we made significant progress in building our company and strengthening our team. We remain excited about both the short-term and the long-term opportunities that deliver exceptional value to all stakeholders. Now, John will walk you through the quarter in more detail.