SiteOne Landscape Supply, Inc.

Q3 2021 Earnings Conference Call


spk_0: reading and welcome to the site one landscape supply third quarter two thousand and twenty one earnings call at the same up artist internal listen only mode a question and answer session will follow the formal presentation if anyone should require operator sisters during the conference please press stars zero on your telephone keypad as reminder this conference is being recorded our knowledge and the conference over to your host mister john guthrie executive vice president and chief financial officer for site one landscape supply think you you may begin
spk_1: thank you and good morning everyone we retreat or third quarter twenty twenty one earnings press release this morning and both the slide presentation to the investor relations portion of our website and investors that site one second i'm joined today by got black or chairman and chief executive officer it's got some and 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 reformat of ninety ninety five statements are subject to risks and uncertainties they could cause actual results to differ materially from our expectations and projections such risks and uncertainties includes the back there set forth in earnings release in our filings with the securities and exchange commission additionally during the caught today's call we will discuss non get measures which we believe can be useful in evaluating our performance a reconciliation of these measures can be found in earnings release and in the slide presentation i would now like be turned to call over to black
spk_2: thank you john
spk_3: good morning and thank you for joining us today we pleased to continue are excellent momentum in the third quarter with strong growth in sales and profits we have seen demand for professional landscaping products continue to be healthy as we laps the stronger growth months some last year in this environment or teams had continued to perform well executed or commercial been operational initiative and delivering superior value our customers and suppliers
spk_1: while overcoming rapid thought it cause inflation select supply shortages and ongoing freight and labour constraints
spk_3: as a result we believe that we are steadily gaining market share on top of the underlying market growth
spk_1: furthermore a recent acquisitions perform strongly and we added another high performing company to our family during the quarter accordingly your please to once again be raising our financial gains for the year
spk_3: it is clear at this point that two thousand and twenty one will be a breakthrough year for site one as we continue to build our great company and execute or long term strategy i will start today call with a brief overview of our unique market position and our strategy for long term performance and growth followed by some highlights from the quarter guthrie will then walk you through our third quarter financial results in more detail and provide an update on a balance sheet and liquidity positions got solomon will discuss or acquisition strategy and i will come back and address an outlet for the remainder of the year before taking your question as shown on flood for of the arena presentation we have grown our footprint to more than five hundred ninety branches and four major distribution centers across forty five us states and six canadian provinces we are the clear industry leader yet we estimate that we only have about a thirteen percent share that very fragmented twenty billion wholesale landscaping products distribution marcus accordingly or remaining growth opportunity insignificant
spk_2: we have a balanced next the business with fifty nine percent focused on maintenance repair and upgrade
spk_3: twenty seven percent focused on new residential construction and fourteen percent on new commercial construction we're also the only national for product line wholesale distributors in the market
spk_1: a balanced and market next broad product portfolio and geographic coverage
spk_3: it has multiple avenues to grow and more ways to add value for customers and suppliers are providing important resiliency and softer markets are you slide five always come a long way is building site one were still developing a full capabilities across all our product line and so we remain highly focused on a commercial and operational initiated a bill that capabilities and improves the value that we deliver to customers and suppliers these initiatives are complemented by acquisition strategy which fills and product portfolio losers and the new geographic markets and as terrific new talents the site one
spk_1: take it all together our strategy creates a period i you for shareholders through organic growth
spk_3: he did the a margin expansion and acquisition girls if you turn slide six you'll see that are strategy is working
spk_1: over the last five years we've been able to deliver consistent organic growth strong acquisition growth and solid even be a margin expansion all investing heavily in has ne to build our i t category management supply chain finance marking operational excellent and acquisitions as well as or underline system infrastructure including our digital capabilities
spk_3: overt remains to be done of building our system infrastructure i feel support teams are largely in place and each year or teamwork and synergies across i one improve along with our ability to leverage our infrastructure investments you can see this in our increased marketshare again organic growth and an improved operating leverage said we are continuing to achieve in two thousand and four
spk_1: going forward we will build and leverage capabilities further to accelerate performance for all stakeholders
spk_3: you also know that we have now completed sixty two our position across the irrigation agronomic nursery parts gates and landscape supplies product lines and the last eminent happier with six so far in two thousand twenty one
spk_1: we only acquire well run companies and so all these acquisitions are already high performing companies before join site one after they join us we together enjoy the benefits of i combined commercials and operational capability
spk_3: acquisitions are a key source of the talents and idea
spk_1: and therefore they enhance our competitive advantage as we grow acquisition pipeline remain very robust and we have significant potential to continue going to acquisition for many years to come
spk_3: why seven shows the long run way that we have ahead and filling in a product portfolio which we aim to do primarily through acquisitions especially in the nursery parts gates and landscapes supplies categories we are well networked with the best companies in our industry and expect to continue killing and these markets systematically over the next decade
spk_1: i will now discuss some of the third quarter performance highlights as shown on flight eight
spk_3: we letter twenty five percent net sales girl and third quarter with a nice balance a fifteen percent organic daily sales growth and ten percent net sales growth editor acquisition as expected we saw or organic volume growth level off against a very high volume growth that we experienced in the third quarter of last year accordingly organic sales growth and the third quarter was driven mainly by price inflation as we worked with our suppliers and customers to pass through extraordinary potter cost inflation and has occurred in the market
spk_1: we have seen that trend of lower volume growth and significant inflation continue in the fourth quarter so far and expect inflation will remain higher than normal
spk_3: through the first half of next year due to ongoing product constraints and right and manufacture input costs
spk_4: on top of the market growth
spk_1: i believe that we're gaining share in all of our product categories as we execute er category management operation some salesforce performance and marketing initiative
spk_3: where especially pleased with our targets in attracting new smaller and midsize customers to silence and increasing our marketshare among hispanics customer the segments are going faster with us and our average and they offered tremendous growth opportunities for site one over the next several years overall or initiatives are improving our product portfolio customer service partnership value and our customers awareness of our capabilities
spk_1: as a result we are now attract new customers and gaining wallet share with existing customers on a more consistent basis
spk_3: gross margin improve three hundred and ten basis points to thirty six point four percent in the third quarter as we benefited significantly from are proactive inventory management during a time place and period
spk_1: we earn higher supplier china's with strong here today organic sales and we worked there are mm tory during the remainder of the year and as inflation normalizes in two thousand and twenty two
spk_3: expected dynamics to be less pronounced
spk_1: our we are confident in our ability to continue executing a commercial and operational initiatives
spk_3: and expect to drive further improvements in gross margin of the next several years on the have seen a side or operational the teammates and discipline cost management or more than offset by higher variable compensation expense as our teams work very hard to service or customers and achieve strong sales and profit results for the corner accordingly as soon as the percent of net sales increased by seventy basis points the twenty five point one percent we continue to achieve cost efficiency benefits from mobile pro and for my new transportation management system or tms which we began rolling out in two thousand and nineteen emptied out and twenty a to the point that i liked the power of dust in a new technologies to cheat customer service benefits and increase operating luggage we will continue to broaden the use of mobile pro and him as a cross site one are making more of these types of investments
spk_5: your are operational ashland's teams in the future
spk_3: a combination of stone organic sales impressive goes martin improvements and good contribution from acquisitions allowed us to deliver adjusted easy the a girl
spk_1: a forty six percent for the third quarter and improve our adjusted either the a margin by two hundred basis points
spk_3: as mentioned on our second quarter earnings call respect it's a path the ten percent adjusted he began margin milestone this year
spk_1: we have significant capability to further improve our a biggie a margin and years to come and expect provides a new longer term targets member report or fourth quarter results
spk_3: in addition to mobile prone to him as he continued to make progress on our other important investments during the third quarter to build our capabilities for the future during the third quarter and into october we established our fourth major distribution center in dallas texas to support our growing company and continue achieving competitive advantage but are world class supply chain capabilities the dallas c will support our business in the middle of the united states
spk_1: and help optimize our overall inventory and freight management strategies
spk_2: during the quarter we to see development and roll out of our new salesforce customer relationship management system or see around
spk_3: which will help our over four hundred outside sellers from increased value to our customers and dr lee business for new customers and increased of was we continue to make progress with site were not come as we use the lions game some are tampa florida and los angeles california pilots to further improve the content features
spk_1: and service capabilities of our ecommerce platform
spk_3: we are seeing the usage of site one not can start to ramp up at a higher rates and is the like markets and we look forward to expanding the rollout of these improvements to the rescue site one and two thousand twenty two and beyond
spk_1: at the same time you continue to connect directly with are larger customers
spk_3: he facilitate their ability to secure job and easily order from silence we will continue to invest ensure that site one is the digital meter and a professional landscaping services marcus lastly we like further strategic investments in marketing during the third quarter increase awareness of site on and to drive organic sales growth and are targeted customer and products segments
spk_1: the marketing team also initiated a complete review of our partners program to further improve customer benefits and loyalty and the coming years
spk_2: overall to our strategic investments we remain focused on providing more class tools processes and technology to deliver value to our customers and suppliers and help our associates be more productive so that they can better help our customers to win
spk_3: on the acquisition france we completed the acquisition of green brothers earthworks you're in the course brain are total companies added year to date to six basics companies are all high performers and provide us with excellent new talents and capability for girls and their respective markets while adding approximately one hundred million and trailing twelve months sales to say once or development teams remain active with several attractive target company and we expect a complete additional meals during the remainder of the year ensure that we continue to drive attractive acquisition gross as we become a larger company we recently expanded our development team understaffed solomon including edition of a senior leader focus solely on integrating on any company
spk_2: we plan for expanded team to drive even higher growth is acquisitions in the next several years
spk_3: we can experience same broad and deep relationships with the best companies a strong balance sheets and an exceptional reputation we remain well positioned to grow consistently through acquisitions as a final recent achievements we were excited to share or two thousand and twenty one sg reports that was published in early october in this report we share our vision to become a true company of excellence which we define with five of justice these objectives are one a great place to work for our searches to deliver superior value to our customers three a distributor of choice for our suppliers
spk_1: or deliver attracted performance and growth our shareholders and five the a good neighbor and to movies the two thousand twenty one report included expanded disclosure of our teams progress across these objectives and we look forward to update you on a progress annually and continuing to enhance our disclosures don't force
spk_3: in summary i'm very proud of our team and we are keeping everyone says serving and supporting our customers and deliver an outstanding financial results in this extraordinary man we remain excited about both a short and long term opportunity to drive excellent performance and growth for all our stakeholders
spk_1: now jam will walk you through the quarter in more detail john thanks dog a began i'm five nine months some highlights from a third quarter results we reported a net sales increase of twenty five percent to nine hundred thirty six million in the quarter there were sixty three selling days this quarter which is consistent with the prior year period as a reminder i want to highlight that we will have sixty one selling days in the fourth quarter which it for fewer than sixty five days we hadn't the fourth quarter of twenty twenty this translates into roughly forty one million and reduce sales for the fourth quarter or twenty twenty one organic dairy sales increased fifteen percent in the third quarter compared to the eleven percent we saw in the same quarter last year our again i carry sales benefited from the continuation the stay at home friend as consumers spend more on maintaining and upgrading through outdoor living spaces in addition organic fairy tales benefited from price inflation resulting from rising product costs prices increased fifteen percent for the third quarter and nine percent year to date as we saw supplier cost increases across on make your product fine irrigation products for significantly impacted by increases in pvc pipe and plastic resin resulting from the supply disruptions caused by winter storm uri and hurricane ida as well as strong industrial the man every namic products were significantly impacted by thought think races in fertilizer and grassy area the primary ingredient in fertilizer as increased from approximately four hundred fifty dollars for time at the beginning of the third quarter to over seven hundred dollars per time currently the fire energy costs and strong demand from the agricultural market after enough prices our products have also been impacted by increased rates and shipping costs fortunately our strategic initiatives in supply chain said help mitigate the impact were managing through the cost increases and a market is passing the increases through and i are priceless would you not see the product cost inflation abating any time soon and as a result we are increasing our four year price increase forecast to ten to eleven percent organic he'll excel for landscaping products which includes irrigation nursery gates outdoor lighting and landscape accessories strong again this quarter increase in fourteen percent compared to the prior year period organic ourselves or agronomic products which includes fertilizer control products i smoke and equipment was also strong and grow ninety percent for the quarter of landscaping and agronomic products benefited from the say i'm trying to and price inflation geographically all regions where up with the greatest growth in the sun belt markets while price played a large hole in the growth for the quarter we're pleased that the sales volumes were maintained despite the theft comparison with last year when we saw sales volume increase following the reopening of our markets we've also seen stronger growth this year with our target professional contract year compared to the d i y consumers as as mention we expect organic feel he says got to main healthy for the remainder of physical or twenty twenty one acquisition cells which reflects the cells attributable to acquisitions completed in both twenty twenty and twenty twenty one country really approximately seventy four million or ten percent to the overall third quarter growth rate we are pleased with the performance of our acquisition got will provide more details regarding our acquisition strategy later in the call gross profit increase thirty six percent to three hundred forty one million for the third quarter and gross margin increase three hundred and ten basis points to thirty six point four percent the gross margin improvement reflects the execution of our supply chain initiatives are favorable pricing and increase supply or incentive with regards to the supply chain initiatives we have benefited from the previously mentioned frayed initiatives as well as the strategic inventory purchases and higher inventory staffing levels ahead of the supplier cost increases telling general and administrative expenses or as teenage increased twenty eight percent in two hundred thirty five million for the third quarter as a as a percentage of net sales increase seventy basis points to twenty five point one percent increase it as to a the percentage of net sales primarily reflects increase incentive compensation resulting from are strong performance without the increase in cent of compensation we would have a cheap as in a leverage again that quarter where the third quarter we recorded income tax expensive nineteen point one million compared to thirteen point eight million in the prior year period effective tax rate for the quarter with nike point three percent compared to twenty two point three percent for the prior year period the decrease in the effective tax rate was due primarily to an increase the amount of excess tax benefit from stock based compensation for twenty twenty one with sector effective tax rate where we between twenty five point five and twenty six point five percent excluding discreet items such as excess said sen be recorded net income for the third quarter of eighty million here to forty eight point two million for the prior year period the improvement with primarily driven by a strong sales growth and gross margin improvements a weighted average diluted share account for the third quarter with forty five point eight million compared to forty four point six million for the you period his increase was primarily attributable to or august six twenty twenty equity offering adjusted ebitda for the third quarter was one hundred and twenty eight million compared to eighty eight million for the same period in the prior year just it either to a margin reflecting are gross margin improvement increase two hundred basis points to thirteen point seven percent now and i provide a brief us state or a bouncy castle statement as shown on flights sense networking careful at the end of the third quarter was seven hundred and fifteen million compared to seven hundred and ten million for the prior year period increase networking capital is attributable to hire receivables resulting from a strong sales cars and our decision to operate with higher inventory levels given the supply chain disruption and the strong sales environment the increase in receivables and image it was partially offset by less cash on the balance sheet as we have deployed to care for acquisitions and debt reduction dash provided by operations increased to sixty seven million for the quarter compared to sixty two million for the fire your period increase primarily get in buyer increase power to build least partially offset by the increase in working capital we made cash investment the fifteen million for the quarter compared to thirty one million for the same quarter last year the decrease in cash investments excites less acquisitions send this quarter compared to the prior year period that's that's that the in the quarter with approximately two hundred and eight million compared to one hundred and ninety five million at the end of the priory a period leverage at the end of the third quarter decreases zero point five times are trailing twelve months adjusted ebitda compared to zero point eight times at the end of the third quarter twenty twenty this lower leverage reflects our improve that ability a target that said to adjusted ebitda leverage train at year end is one to three times he expect to be at for below our target leverage range depending upon the amount of acquisition investment in the fourth quarter at the end of it for we're liquidity of five hundred and twenty two million which consisted of one hundred and fifty eight million of cash on hand in approximately three hundred sixty four million in available capacity under our a be a facility as a result of are strong operating performance low leverage and dissidents financial policy moody's upgraded our corporate that rating to be a to this corner this follows a similar upgrade from snp to a double be waiting for earlier this year in summary a priority from a balance sheet perspective to maintain our financial strength and flexibility without sacrificing long term growth a market opportunities i will now turned the columnist got for an update on or acquisition strategy thanks john as shown on slide eleven we flyers won something in the third quarter bringing our total of six year to date with a combined trailing twelve months net sales of approximately one hundred million
spk_5: since two thousand and fourteen we have acquired sixty two companies with approximately one point two billion in trailing twelve months net sales added it's like one
spk_1: but to slide twelve you will find information on most recent acquisition on august twenty third we acquired green brothers earthworks strengthening or landscape supplies and hardscape presence in the atlanta marcus
spk_6: summarizing on flights thirteen or acquisition strategy continue to create significant value for site one or pipeline remain strong and growing with three handshake feels ten active negotiations and over twenty additional companies and early disgusting
spk_1: we expect have a strong finish this year and have good momentum going into two thousand twenty two we are humbled that so many entrepreneurs are choosing site one as the new home for their family business and are continuing to grow their companies with us
spk_6: we provide them with the resources and flexibility to pursue both their personal and professional patch and and we're excited to have over fifty former owners today helping to drive our growth these innovative leaders bring new ideas has like one and help us realize our vision of been stronger together
spk_5: we are also excited as doug mention to be expanding our strategy and development
spk_1: to enable both greater acquisition capacity and increased leadership for world class integration
spk_5: provided an outstanding integration experience for the newly acquired companies delivers to very powerful outcomes
spk_1: first that accelerate our ability to great value for our customers and suppliers and seconds to create many motivated and passionate ambassadors for site ones who help us attract other high performing company
spk_7: i want to thank the entire site once again for the past and and committed to making say one a great place to work and for welcoming the new teams when i joined the like one family i am confident in our ability to deliver value to all of our stakeholders to further acquisition and twenty twenty one of the odds i will now turn the call back to does
spk_4: thank god
spk_3: i'll wrap up on slide forty as mentioned we have seen a strong organic sales growth and we experienced in the third quarter continue in october october represents approximately fifty percent of our fourth quarter sales and so we now anticipate healthy sales growth for the fourth quarter in total he didn't mind that the weather was particularly warm last year in november and december and all organic daily sales growth for the fourth quarter last year was very strong at twelve percent accordingly we have built some moderation and sales growth into our forecasts for the last two months of the year in terms of and markets we're currently seems solid the man trans an hour and markets maintenance repair apparent upgrade and both residential and commercial new construction
spk_1: or contractors remain busy and have strong backlogs to carry them through the remainder of the year and in two thousand twenty
spk_3: taking on the governor weeks back to keep healthy organic daily sales growth in the fourth quarter and record sales growth for the full year two thousand twenty one
spk_5: additionally we will continue to execute a commercial operational initiatives
spk_1: which we believe will yield good gross margin improvements and as dna leverage for the four years leading to solid adjusted just a growth and margin expansion exceeding are ten percent milestones or as he adjusted ebitda margin in two thousand twenty nine in terms of acquisition has gotten mention we currently have a very strong pipeline of high quality companies and look forward to adding more of these to the site one family before the end of and year
spk_3: our tradition that before me very well and we continue prove our ability to integrate them into our company accordingly we'd expect acquisitions to contribute strongly towards performance and growth and two thousand twenty one and the years ahead but all these factors in mind we are raising our fiscal two thousand twenty one adjusted a the diego be in the range of three hundred and eighty million to four hundred which represents year over year growth of forty six percent to fifty four percent
spk_1: there's rank did not factor any contribution from unannounced acquisitions
spk_3: this compares to as far as dumb as a three hundred and thirty five million to three hundred and sixty five in closing i would like to sincerely thank all our one associates the continue to amaze me with their passion commitment teamwork and selfless service we have a tremendous team and it is an honor to be joined with them as we deliver increase in value for all our stakeholders i would also like to thank our suppliers for supporting us so strongly and our customers for allowing us to be their partner
spk_0: operator you open a line for question thinking at this time of the conducting a question and answer session if you'd like to ask a question please press starve one nhl phone keypad and affirmation tunnel indicate your line is in the question can you makes has start to if you'd like to remove your question from the kim for participants using speaker equipment may be necessary to pick up your handset before pressing the starches and the interests of time we ask that you reach keep to one question and one follow us thank you
spk_8: our first question comes from line of ryan merkel was laying last place for stupid question
spk_1: thanks in the morning everyone
spk_9: when i worry right bell lot of good news and as reports i wanted to focus on gross margins keep break out the impact of supply chain price and suppliers centers in terms a year for your impact and then to speak to sustainability kind of focused and for right now but also supply chain how much more larger
spk_1: expansion expect to see from that ah so we would say was roughly i'm kind of one third of the improvement year over year would be covered the quarters it was due to an incentive i'm ah with the remainder of kind of supply chain early buys a combination of driver driving that
spk_10: ah i'm an n with with and load your ballot question and right
spk_1: just the sustainability and afford to in terms of gross margins that a seasonally years ago down a little bit should we expect to see down and when we we would still us that were forecasting continued a positive growth and gross margin in in the fourth quarter we think it'll be another a strong quarter we expect
spk_11: the pricing that we're seeing now the carry through the fourth quarter arm on so it'll be another good clever also with against us are gross margin
spk_8: got it okay
spk_1: and then pricing up fifteen percent that was a little bigger than i was thinking for a quarter was was the big surprise fertilizer and a quarter or is there something else and then house we think about the next few quarters and price and are inactive and guidance can just curious how it's or a trend that you can help us there and then have your suppliers raise prices yet for twenty two ah so we we were following the market so similar to our our other arm what would what we're seem with with with her a rather competitors so as regards to our our the quarter we think the job would break it down that the following wait wait wait think kind of this current ah increase with was fertilizer pvc pipe those those increases that really kind of accelerated at the in really august and september arm we think those of carry through at least through the first half of the rest of this year and through probably the first half of next year i'm with regards when we start pumping the higher ones there then then there may seem to have some some commodity component there may be some fluctuation with regards to that we know also the beginning of twenty twenty two are there are some our suppliers who who haven't put in the full of cost increases that their thing in the raw materials so we do expect day a a second how way to kind of thumb through at the beginning of next few of price inflation
spk_5: of for from from our suppliers self in general at least for the a for the foreseeable future we expect
spk_1: a price whoa whoa
spk_8: some be on a on a historical basis relatively large
spk_5: or it's a play at my own words probably strong double digit price of these two first half a twenty two and then they're still inflation supplies are still there raise prices so still above normal for second half twenty two based on what we know right now
spk_9: yeah they were obviously will be camping this year for arm and the second half of the of of of twenty two but certainly through the first set by that i think that's fair what what what we were we're seeing right now
spk_0: great thanks the comments great core a hazardous
spk_12: think you are next session comes to mind as siemens us in which please i agree more morning guys thanks for taking the question i'm going to stick with the gross margin topic it's that's all right because i'm i'm not quite sure if i understood sort of had a think about maybe twenty twenty two and twenty three because i'm the one hand he talked about further opportunities as you work turned into channel in suffer initiatives but it's the same time i think there's probably some temporary benefits here
spk_5: relative to some of the trends that you mentioned so you should i think about twenty twenty two sort of pulling back a little bit but then longer term it can still expand or where you actually trying to say that twenty twenty two could actually see expansion
spk_4: well i think it is as john mention we got a commodity components which is he then pvc pipe fertilizer iran with seed in there that's driving a little under half of the inflation and that that costs money components will likely at some point
spk_3: he doesn't want to come off and the and they actually river river backside
spk_4: or or go negative at the same time you have the rest of the inflation
spk_1: which is is more of kind of keeping up with cause on on all the other products that also includes phrase
spk_5: that's that's more sustainable and is john mention of the manufacturers really haven't passed all their costs through he and so we expect another way on that that peace and let's call that a little over half and so him to down twenty two yeah the dynamic of does that called the standard inflation
spk_3: you know
spk_1: eighteen you intend to move upward he has it's my the inflation that may tail downward some some thirty thousand twenty two and so the next of those you you still end up with part is inflation in two thousand twenty two a stronger first half not as much in the second half and you have that the dynamic respect obviously a lot can happen between now and but that's that's basically the trend john human yeah i would allow we're not without fully given games right now but i'm a i'm i would i think it would we were to characterize as a flurries that there is there is probably some temporary component on growth
spk_6: margin there is also a temporary component on as dna ah that that somewhat ah offsets longer term we believe you know kind of the the initiatives are driving it
spk_12: a are driving kind of performance ah ah which will we believe long term will take itself so you know we're not get why are giving david our games or or twenty twenty two games today will get more are at the end of next quarter arm but hour just to say they'll be puts in takes on a next year for and you know we we have still in a positive on a on the outlook race as as that's good color i appreciate it's and then one thing as all surprised at that you didn't talk too much about as we've been hearing it everywhere else is just in a bottlenecks with respect to availability of product so maybe that's that has begun deal for you guys but i'm thinking about that in terms of are you do you think he'll be able to add
spk_2: in sort of your normal fourth quarter inventory delves maybe even a little bigger than normal given what's going on with inflation
spk_3: just talk about that dynamic if if you would as we surfaced in the twenty two
spk_13: right
spk_3: so yeah i'm i'm them facing the supply chain non you know issues and bottlenecks delays really for the last two years yeah luckily we had a great supply chain team is the strength of ours we have the three distribution centers
spk_13: you're in georgia california pennsylvania
spk_3: we noted that we're putting in the fourth in dallas texas which gives us and significantly more square footage and through that supply chain team and those disease and in earned over six hundred branches
spk_1: we do plan to continue to to go heavy on inventory we did that the here and it insulated as a lot from a lot of the supply chain challenges and so we're going to continue that strategy don't phone and would have even more capacity to execute that strategy
spk_3: the going forward
spk_12: here you have constraints and nursery and and hard states that don't go to the dc that there in our teams
spk_0: stay out in front of the market and we've we've been able so far too long battle way to to keep in stock and barrel us of our customers and we we yeah we feel will continue to be able to us
spk_10: to manage you know the supply chain shortages in nam impulses you know dc related products and locally procured products on and fifty thousand twenty two
spk_14: great techniques get up as an actor shit
spk_10: a good
spk_3: think you are not as intense line as matty relate with my face precision question eg morty i want sex taken the questions so sticking with the pricing topic and i you called out sort of a commodity component versus the more sticky component of your different categories in that scenario that you just mentioned dive where where commodity prices yeah it's you saw normalization
spk_5: i'm just curious how the mechanics of work and such a scenario would you still see gross margin percentage expansion has kind of an offset to the dollar headwind it is our working capital benefit added that all come together as if you did see that that the scenario i guess
spk_3: forgive give good question you know obviously we'd we'd follow the market read we remain competitive in the market
spk_14: as commodities go up in his company's go down and so your were always
spk_10: working to make your make that and a minimum new gross margin neutral in terms of how we pass and on and due to the market and an obviously years of working capital if you're having higher inflation is going to make work and capital higher and if that drops down if you're you're working capital be a lower lower but so young so all sales and so does does it a dynamics you know we we have very good teams we great place to for our customers and know we're able to to work through those ups and downs and still maintain are gross margin and then of course we have our niche is that are designed to improve our gross margin with that is as a basis
spk_3: got it okay now that that's helpful collar and secondly that the commentary and gaining market share you know it sounds like you're both taking wallet share and winning new customers
spk_1: it's obviously a lot of investments you making alongside that to any any specifics
spk_3: substantially call out that you're doing a kind of hold on to their share gains as as we think about two dozen twenty two well you know what we're going to continue to to focus
spk_5: i'm on the on the smaller customers when are we have last year than and we do with are larger customers course year we serve our customers and and are focused on watch here
spk_13: we are making gains there you know with them in terms of marketshare overall marketshare is thirteen percent it tends to be more towards the twenty to twenty five percent of the larger customers more sixty six to eight percent of a small customers are we have a long way to go with small customers in terms of gaining chair
spk_3: we're feeling good about our progress this year just as a specific our overall customer candidate is up two and a half percent so with all the movie parts we aren't many new customers and we feel like we're once when you wallet share with the and that the larger customers so we're going to continue that to stay focused we we do this really by improving the customer experience to go to i on games
spk_1: the gods pm as we've got mobile pro guns i one dot com
spk_3: those are tools reason to do that are we focus our marketing efforts on on the smartest around and hispanic kushner and those groups and their mother salesforce young continuing to work on or salesforce performance we have a new fear and that we do that we're rolling out across ourselves horse and that's really designed to game or wallet share with those medium to large customers
spk_14: we can also who can directly with are larger customers
spk_0: digitally and that helps us to about sticking as and game a chair with those are to customers so we have more time
spk_15: initiative going after the on the same bang much as we want to win new customers and people and we want to earn greater wallet share and keypad and and we feel like we're making progress a year the measurement of that is always tricky but your the information or get back mars suppliers and what we can see in can measure in the field tell us that we're we're gaining market share more consistently than say we would have to for years ago and and we aim to continue that known board great was second act like up buddy thank you
spk_1: next question comes as clean scientists and with fancies pretty busy question a more guys thanks your ticket question
spk_6: morning what start off with the morning one to start off with say i question on our backs and dumb just what you see is transitory
spk_1: and a match the variable compensation purchased with the strong sales results labour inflation and then the new tout d c he says the right way to think about it that's a very well cop porsche that is is more transitory and against the rest you know catty opportunities to leverage that the growth over that that level of expenses set the right what to talk about
spk_15: that that's right i'm ah we if we hadn't had kind of the the you know some of the incentive com flair for for our our associates we would have actually achieved a screen a leverage it's quarter on with regards to that we we achieved good the average on ah you know the traditional traditional kind of our operations on
spk_1: i'm we're basically the double my things that we didn't wear kind of the things that were one time last year
spk_3: you know if you will you know healthcare a little bit more trouble and expense that relatively minor amounts and and those were weren't weren't significant contributors to earth
spk_16: i'm are overall attacks so we we still will very good about you know what we're doing and and achieving the leverage i'm obviously when we have a a big quarter like that with one or reward or associates and and and that's what you're seeing on the app is up or backside
spk_3: okay make sense and in second we just on demand specifically with them the commercial side and center thing take to hear the strength their arm would you say it's mostly maintenance and upgrades vs new construction or is it pretty pretty broad base there and just what verticals are you seeing the most strength with any commercial
spk_5: yeah so i would call a broad based on and and you can see that really reflected in the in the idea index which is going up we see that in our own products services group which is which are bidding on and those would be primarily new
spk_6: commercial construction projects that bidding has accelerated really in in the fall
spk_17: of this year
spk_4: and so i've said wow date you read me have a typical maintenance and and upgrades on commercial properties but that's a new commercial construction seems to be robust and it's really the type of commercial that follows residential
spk_18: you know retail
spk_3: you know education know except that those types of them
spk_15: the commercial projects
spk_19: and in some of it also is gonna you know apartments and in those types of properties
spk_20: i really you know
spk_3: quite stronger now which is which is interesting but i think it's reflects the strength and residential and the fact that are you get now with with folks kind of working remotely and and and companies going to hybrid scenarios
spk_5: that supports more the neighborhood notes on the outskirts of this of the metro areas and when you when you put in nonsense neighborhood you need to put in sharpie the grocery and gas stations and and other commercial properties to keep up with a grandsons and that's what machine
spk_1: thank you very much
spk_4: our next comes to mind as
spk_3: i think is today and fact sheet is a list of questions and aspect is anything else it's you can add some the process he saw some either a nation that meant it's own a customers are any impact some extent private label
spk_20: well we didn't talk about private label that we we are achieving a lot of success there
spk_0: we have are less go bram riches or private label i'm an onyx brand which we got a lot of new products out with less go hour drive and more let's go equipment news spreaders prayers exact her and so we're just excited that worth it
spk_12: growth of less go brand is is very healthy yeah
spk_14: and we're side about progress there for traders are it or not a private label ran it's more for lighting and tools and and landscape supplies and and pro trade is the seen significant growth and so on private label products are so the around are great and that say
spk_10: they bring it's expanded margins and a you know they allow us to gonna grow and take three or share and so we we are quite happy with the progress on satellite on we're going to continue to push that young forwards the take i thank you
spk_3: thinking or next question comes from a line of my style with rpg capital markets interesting i thanks for telling my questions also just couple clean up one some first with respect to
spk_1: a d c can you just give us any more detail on how to think that the financial impact whether it's on
spk_3: i'll toss with the ramp or worse and on a associated top line benefit just how has your way to thinking about that over the next couple quarters
spk_5: yeah i'll touch on it the are essentially you know reading a dc and out it's a larger these days but thirty three hundred forty thousand square feet
spk_1: where else expanding around or these distribution center in georgia reading a hundred thirty thousand square feet to add to that so if you take our overall you know what we had fire which is about six hundred thousand square feet of space you know you are now creating significant capacity for future
spk_6: yeah we we least that the phillies and we have a third party operator the dc so that the ramp cause is is is pretty reasonable will spend but you have million in dallas and about a million and a half as in server in georgia you know that expansion and on that that really young
spk_1: go some of that capital and and some of that goes into the kind of the gross margin cost a good you are managing the diseases caused would go into the ultimate product costs and and be more of an effect on on gross margin
spk_6: the have expected at the dallas dc to ramp up nicely this year and and beers contributor in two thousand and twenty two overall success peter as to two additional things are i'm ah i'm will get more going into the into the quarter for next year's numbers it's not it's a
spk_10: navigate contributors ah to either expense or or one was profit
spk_12: are you probably see maybe couple million dollars with additional capital ah this year but but really terrible at the justification a why were doing it and we've gotten now and significant enough size arm were were historically kind of the taxes market a lot of that product ashley's coming from the less come
spk_5: so if you will if you think i'm always here he comes from in oakland california i hate it shipped all the way across to atlanta and then we have to ship it back ah to texas with now get sufficient volume with our growth is a company where where instead of keeping it and shipping it back we will we will actually feel free
spk_10: savings by cheese shipping it to the towel gas market directly in addition you know this is kind of as as as to you as inventory and starting ahmed obvious that enable us overall to be able to service those markets better quicker ah we won't have that i'm will be able to get product to market faster
spk_21: ah it's a we're just real excited about kind of now that was grown large enough to kind of justify the additional costs are the benefits that will see going forward
spk_1: yeah that's that's great very helpful on and then my second question is just dumb one more back on the fourth you died when when you talk that has a healthy embedded daily gross
spk_6: but some of the dynamics continuing in terms of price vs volume
spk_1: and any further of case and you give us on how to think about volume i guess it was flattened the corridor and in three to or flattish is it he a flat again on a daily basis and and for to are yeah that a natural decline is off the top the top oh we're not get where i'm we would expect similar performance i mean volume we will lose a week of sales so that that is that will have a little impact of volume n n n and sales in general i'm the exact split between two
spk_22: rice in volume on what we're seeing right now i'm ah
spk_23: in in a through october is very similar to what we signed him
spk_24: that you can be one thing to i guess the one thing that will to to look at his his december was especially warm saw on our last year ah i'm a even in northern markets are the business continue to on on ah
spk_25: we're not certain so you know when the winner shut down comes if you well that that that could cause some are quite a bit of variability i'm with regards to
spk_10: sales and the fourth quarter i'm so so that the i guess lbd other call out with regards to or fourth quarter
spk_6: okay got it thanks on that
spk_1: and you thinking or next question comes to mind as just stevenson capital markets please
spk_14: hey thanks for taking my questions and congrats on the strong quarter
spk_1: my first question was a somewhat and an empire land so the pipeline continues the style of a strong but the pace of acquisitions as a little slower than we've seen from you guys in the past is this primarily at a time in as soon as or anything else we should take note of yeah jeff it's it's exactly timing issue
spk_6: as we noted the pipeline is is very fall
spk_25: and we don't see anything structurally within the markets that would cause us to believe
spk_0: it is in difference in terms are ongoing ability to acquire company so we still feel their company about that
spk_22: okay great and then to spur a quick question on the i waivers professional as he seemed the i waved a man and a moderate factor of closer to normalize levels as shelter in place by the or of decelerated here this year
spk_26: ah i wouldn't say it's gone back it's still and an elevated rate what we have seen though is is kind of the last year as it was really hot if you want some and and and on a on a on as the general lower seen is is a stronger recovery did hear of the
spk_27: professional or i'm so we're at last year i would say it was more heavily weighted says small customers and is the d i y
spk_22: i'm are this year our growth on a relative basis is probably lower thing is is our our target customer the professional contract or an arm or a israelis in it's strong a strong position right now
spk_8: very helpful thanks guys
spk_28: and you
spk_27: i next question comes to mind as a meme can we keep hey the my guys and rats on the solid execution
spk_28: thanks the rid of he says
spk_6: the thing odyssey i covered a lot of ground
spk_3: it's just a follow up question on the organic say of daily sales growth
spk_5: being driven by kind of the
spk_3: fries and and more flash volumes
spk_13: and just wondering if you get the sense says some of this price inflation is starting to have an impact on incremental and or the you just think that the industry is
spk_3: got a maxed out now in terms of capacity
spk_29: yeah it's it's it's more the latter
spk_3: you know since the labour constrained still very real read about it everyday the in the news and our contractors are really struggling to do that
spk_2: to keep in preschool and to hire you associates
spk_5: in and so would would you see is that they still a very strong backlogs
spk_3: like the have a challenging time get into
spk_30: we really feel that the constraints you know price inflation
spk_10: is high but yeah
spk_14: keep in mind that when you look at it does a landscaping project a majority that labour and that in the material costs ranges from ten percent to twenty percent of that overall jobs in a labor and equipment and other costs are going to be more drivers now there has been labeled inflation for our customers and underpass bassinet that through to the end users are we really haven't perceived as far off or a negative effect on demand you know there's always a minute to the to everything right so we're we're keeping an eye on that but so far that man seems to be very robust
spk_1: for our customers
spk_5: they're just have a hard time getting to know at this point
spk_31: got it makes
spk_5: and you did mention the backlog sharing dove under twenty twenty two
spk_0: just curious if you could offer a more visibility and said that letter
spk_3: are you spraying or or or possibly than jail passed through sir all twenty twenty two how much visibility jeff address tajik backlog yeah no we we would rather wait until the a quarterfinal love to talk specifically about two thousand twenty two but suffice to say me our customers are busy and have to back on simply you know i certainly will be optimistic as this point about the about next year
spk_23: the food but no one will get any more specific number four in our fourth quarter and and we will get better visibility

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only. Earnings Call, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.