SiteOne Landscape Supply, Inc.

Greetings and welcome to the Site 1 Landscape Supply third 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 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 for Site 1 Landscape Supply. Thank you. You may begin.

Thank you, and good morning, everyone. We issued our third 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 am 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 release 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.

Thank you, John. Good morning and thank you for joining us today. We were pleased to continue our excellent momentum during the third quarter with strong growth in sales and profits. We have seen demand for professional landscaping products continue to be healthy as we lap the stronger growth months from last year. In this environment, our teams have continued to perform well, executing our commercial and operational initiatives and delivering superior value to our customers and suppliers while overcoming rapid product cost inflation, select supply shortages, and ongoing freight and labor constraints. As a result, we believe that we are steadily gaining market share on top of the underlying market growth. Furthermore, our recent acquisitions performed strongly, and we added another high-performing company to our family during the quarter. Accordingly, we are pleased to once again be raising our financial guidance for the year. It is clear at this point that 2021 will be a breakthrough year for Site 1 as we continue to build our great company and execute our long-term strategy. 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 the quarter. John Guthrie will then walk you through our third 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 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 590 branches and four major distribution centers across 45 US states and six Canadian provinces. We are the clear industry leader, yet we estimate that we only have about a 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 coverage give us multiple avenues to grow and more ways to add value for our customers and suppliers. while providing important resiliency in software markets. Turning to slide five, while we have come a long way in building Site 1, we are still 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, EBITDA 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 have been able to deliver consistent organic growth strong acquisition growth, and solid EBDA 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 systems 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, organic growth, and in the improved operating leverage that we are continuing to achieve in 2021. Going forward, we will build and leverage our capabilities further to accelerate performance for all stakeholders. You also note that we have now completed 62 acquisitions across the irrigation, agronomics, nursery, hardscapes, and landscape supplies product lines during the last seven and a half years, with six 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. After they join us, we together enjoy the benefits of our combined commercial and operational capabilities. Acquisitions are a key source of new talent and ideas, and therefore they enhance our competitive advantage as we grow. Our acquisition pipeline remains very robust, and we have significant potential to continue growing through acquisition for many years to come. 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, hardscapes, and landscape supplies categories. 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 third quarter performance highlights as shown on slide eight. We delivered 25% net sales growth in the third quarter with a nice balance of 15% organic daily sales growth and 10% net sales growth added through acquisition. As expected, we saw our organic volume growth level off against the very high volume growth that we experienced in the third quarter of last year. Accordingly, our organic sales growth in the third quarter was driven mainly by price inflation. as we worked with our suppliers and customers to pass through the extraordinary product cost inflation that has occurred in the market. We have seen this trend of lower volume growth and significant inflation continue in the fourth quarter so far, and we expect inflation will remain higher than normal through the first half of next year due to ongoing product constraints and rising manufacturer input costs. On top of the market growth, We believe that we are gaining share in all of our product categories as we execute our category management, operational excellence, Salesforce performance, and marketing initiatives. We are especially pleased with our progress in attracting new, smaller, and mid-sized customers to SiteOne and increasing our market share among Hispanic customers. These segments are growing faster with us than our average, and they offer tremendous growth opportunities for SiteOne over the next several years. Overall, our initiatives are improving our product portfolio, customer service, partnership value, and our customers' awareness of our capabilities. As a result, we are now attracting new customers and gaining wallet share with existing customers on a more consistent basis. Gross margin improved 310 basis points to 36.4% in the third quarter, as we benefited significantly from our proactive inventory management during this high inflation period and as we earn higher supplier incentives with strong year-to-date organic sales. As we work through our inventory during the remainder of the year and as inflation normalizes in 2022, we expect this dynamic to be less pronounced. However, we are confident in our ability to continue executing our commercial and operational initiatives and expect to drive further improvements in gross margin over the next several years. On the SG&A side, our operational achievements and disciplined cost management were more than offset by higher variable compensation expense as our teams worked very hard to service our customers and achieve strong sales and profit results for the quarter. Accordingly, SG&A as a percent of net sales increased by 70 basis points to 25.1%. We continue to achieve cost efficiency benefits from MobilePro and from our new Transportation Management System, or TMS, which we began rolling out in 2019 and 2020. These two deployments highlight the power of investing in new technologies to achieve customer service benefits and increase operating leverage. We will continue to broaden the use of MobilePro and TMS across Site 1, while making more of these types of investments to our operational excellence teams in the future. The combination of strong organic sales, impressive gross margin improvement, and good contribution from acquisitions allowed us to deliver adjusted EBDA growth of 46 percent for the third quarter and improve our adjusted EBDA margin by 200 basis points. As mentioned on our second quarter earnings call, we expect to surpass the 10 percent adjusted EBDA margin milestone this year. We have significant capability to further improve our ABTA margin in years to come and expect to provide some new longer term targets when we report our fourth quarter results. In addition to MobilePro and TMS, we continue 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 with our world-class supply chain capabilities. The Dallas VC will support our business in the middle of the United States and help optimize our overall inventory and freight management strategies. During the quarter, we continued the development and rollout of our new Salesforce Customer Relationship Management System, or CRM, which will help our over 400 outside sellers bring increased value to our customers and drive new business through new customers and increased share of wallet. We continue to make progress with SiteOne.com as we use the learnings gained from our Tampa, Florida, and Los Angeles, California pilots to further improve the content, features, and service capabilities of our e-commerce platforms. We are seeing the usage of SiteOne.com start to ramp up at a higher rate in these select markets, and we look forward to expanding the rollout of these improvements to the rest of SiteOne in 2022 and beyond. At the same time, we are continuing to connect directly with our larger customers to facilitate their ability to secure jobs and easily order from SiteOne. We will continue to invest to ensure that SiteOne is the digital leader in the professional landscaping services market. Lastly, we made further strategic investments in marketing during the third quarter to increase awareness of Site 1 and to drive organic sales growth in our targeted customer and product segments. The marketing team also initiated a complete review of our partners program to further improve customer benefits and loyalty in the coming years. Overall, through our strategic investments, we remain focused on providing world-class tools, processes, and technologies 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. On the acquisition front, we completed the acquisition of Green Brothers Earthworks during the quarter, bringing our total companies added year-to-date to six. These six companies are all high performers and provide us with excellent new talent and capability for growth in their respective markets, while adding approximately $100 million in trailing 12-month sales to Site 1. Our development teams remain active with several attractive target companies, and we expect to complete additional deals during the remainder of the year. To ensure that we continue to drive attractive acquisition growth as we become a larger company, We recently expanded our development team under Scott Solomon, including the addition of a senior leader focused solely on integrating our new companies. We plan for our expanded team to drive even higher growth through acquisition in the next several years. With an experienced team, broad and deep relationships with the best companies, a strong balance sheet, and an exceptional reputation, we remain well positioned to grow consistently through acquisition. As a final recent achievement, we were excited to share our 2021 ESG report 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 objectives. These objectives are, one, be a great place to work for our associates. Two, deliver superior value to our customers. Three, be the distributive choice for our suppliers. four, deliver attractive performance and growth to our shareholders, and five, be a good neighbor in our communities. The 2021 report includes expanded disclosure of our team's progress across these objectives. And we look forward to updating you on our progress annually and continuing to enhance our disclosures going forward. In summary, I'm very proud of our team as we are keeping everyone safe serving and supporting our customers, and delivering outstanding financial results in this extraordinary environment. We remain excited about both the short and long-term opportunities to drive excellent performance and growth for all our stakeholders. Now, John will walk you through the quarter in more detail. John?