SiteOne Landscape Supply, Inc.

Welcome to the Site One Landscape Supply Incorporated First Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If an answer requires operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, John Guthrie. John, you may begin.

Thank you and good morning, everyone. We issued our first quarter 2021 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 this 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 released 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. Thanks, John.

Good morning, and thank you for joining us today. Following a very strong fourth quarter and an excellent year in 2020, we were very pleased to report even stronger results in the first quarter of 2021, getting us off to a tremendous start for the year. We have seen the stay-at-home and outdoor living trends continue to benefit landscaping, repair, and upgrade, coupled with a strong housing market and steady commercial activity, all supporting robust demand for professional landscaping services. At the same time, our exceptional teams continue to overcome the labor and product supply challenges associated with a very strong market, delivering better value to our customers and suppliers than ever before. We believe this has allowed us to gain market share on top of the overall market growth. Further, we continue to add terrific companies to Site 1, all local market leaders with the best teams in the industry. As a result, we are delivering outstanding value to all our stakeholders and gaining strength at the same time. Stronger together works, and I could not be prouder of our team or more confident about our future. I will start today's call with a brief review of our unique market position and our strategy for long-term performance and growth, followed by some highlights from the quarter. John Guthrie will then walk you through our first quarter financial results in more detail and provide an update on our balance sheet and liquidity position. Scott Solomon 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 the remainder of the year before taking your questions. As shown on slide four of the earnings presentation, we have grown our footprint to more than 580 branches and three major distribution centers across 45 U.S. states and six Canadian provinces. We are the clear industry leader, yet we estimate that we only have about 13% share of the very fragmented $20 billion wholesale landscaping products distribution market. Accordingly, our remaining growth opportunity is significant. We have a 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 for 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 teams in order to deliver superior value and differentiate us from the competition. While we have come a long way in building Site 1, we're still in the early to middle innings of developing our full capabilities across all our product lines, and so 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, EBDA margin expansion, and acquisition growth. If you turn to slide six, you will see that our strategy is working. Over the last five years, we've been able to deliver consistent organic growth, strong acquisition growth, and solid EBITDA 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 work remains to be done on building our system's infrastructure, our field support teams are largely in place, and each year our teamwork and synergies across Site 1 improve, along with our ability to leverage our infrastructure investments. We can see this in our increased market share gains and organic growth, and in our improved operating leverage. Going forward, we will continue to build and leverage our capabilities to accelerate performance for all stakeholders. You will also note that we have now completed 60 acquisitions across the irrigation, agronomics, nursery, and hardscapes product line during the last seven years, with four so far in 2021. We only acquire well-run companies, and so all of these acquisitions are already high-performing companies before joining Site 1. With them, we added significant capability and tremendous talent, and we have learned many lessons that can be applied to future acquisitions. Our acquisition pipeline remains very robust, and 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 7 shows the long runway that we have ahead in filling in our product portfolio, which we aim to do primarily through acquisitions, 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 first quarter performance highlights as shown on slide eight. We delivered a record 41% net sales growth in the first quarter with 32% organic daily sales growth and 7% net sales growth added through acquisition. We are seeing very robust demand so far in 2021 across all our product lines customer segments, and geography, supported by very strong residential repair and remodeling activity and a strong new residential construction market. Interestingly, commercial activity has been solid so far this year and seems to have stabilized. On top of the market growth, we believe we are gaining share in all our product categories as our category management, operational excellence, sales force performance, marketing, and digital initiatives gain strength. Through these initiatives, we are improving our product portfolio, customer service, partnership capabilities, and our customers' awareness of our capabilities. As a result, we are attracting new customers and gaining wallet share with existing customers. As I had mentioned, we have seen the strong sales continue so far in the second quarter. so we expect the rate of growth to moderate during the remainder of the year. As you can imagine, with this kind of growth, our suppliers are struggling to keep up with demand, and product supply is very tight across most product categories. Additionally, there is an acute shortage of trucking capacity to bring product to market. All these factors have put a lot of stress on the industry supply chain. Fortunately, this is an area where we have built significant strength and I'm very proud of the Site 1 supply chain and transportation teams for overcoming these challenges and keeping our branches well supplied so far to support our growth and enable us to gain market share. Our gross margin was down 10 basis points during the quarter as we built up inventory for the year, worked through the supply chain and transportation constraints, and managed cost inflation and pricing. We saw particularly high inflation in freight and in a few product lines like PVC pipe and copper wire during the quarter. That said, our teams did a great job managing product costs relative to the market, and we saw minimal negative impact on our gross margin. We remain confident in our ability to improve gross margin for the full year with private label growth, growth with small to mid-sized customers, and the continued execution of our supply chain and category management initiatives. On the SG&A side, we achieved fantastic leverage as our teams worked hard to service the strong demand while also managing costs exceptionally well. Like most companies in our industry, we are challenged in ramping up our field teams this year, and so our associates have had to be very productive and creative in serving our customers. In this environment, our recent investments in MobilePro, our Transportation Management System, or TMS, and insightone.com are paying off. We remain focused through our operational excellence initiatives on helping our associates to be more productive through better systems and technology so that they have more time to do what they do best, help our customers to win. I would also comment that our field support associates who are working from home have been tremendous. And we have learned a lot about how to help them be more productive while also supporting their work-life balance. As we return to the office environment in the coming months, we believe that we can develop a hybrid work structure that will be a win-win-win for our associates, our customers, and for Site 1. In this way, ironically, the COVID experience has made us a stronger company. Overall, we will continue to invest in our systems and processes to create a better place to work for our associates build competitive advantage with our customers and suppliers, and increase our SG&A leverage in the coming years. The combination of strong organic sales, excellent SG&A leverage, and good contribution from acquisitions allowed us to deliver record adjusted EBITDA growth for the first quarter and improve our adjusted EBITDA margin by 610 basis points. We are excited that we now expect to achieve our 10% adjusted EPGA margin milestone for the full year in 2021. On the acquisition front, we are off to a great start with two deals in the first quarter and two deals completed so far in the second quarter. These companies are high performers and give us excellent talent and capability for growth in their respective markets, while adding approximately $80 million or about 3% to our annual sales. With an experienced team, broad and deep relationships with the best companies in the industry, a very strong balance sheet, and an exceptional reputation for being a good home for local companies, we remain well positioned to grow through acquisition for many years to come. Overall, I am very proud of how our team has performed in this extraordinary environment to keep everyone safe, serve and support our customers, deliver outstanding financial results, and create tremendous value for all our stakeholders. We remain excited about both the short and long-term opportunities to drive excellent performance and growth with our strong team and winning strategy. Now, John will walk you through the quarter in more detail. John?