SiteOne Landscape Supply, Inc.

Greetings and welcome to the Site One Landscape Supply fourth quarter and full year 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, John Guthrie, Executive Vice President and Chief Financial Officer for SiteOne Landscape Supply. Thank you. You may begin.

Thank you and good morning, everyone. We issued our fourth quarter and full year 2021 earnings press release this morning and posted a slide presentation to the investor relations portion of our website at investors.siteone.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 release and in our filings with the Securities and Exchange Commission. Additionally, during today's call, we will discuss non-GAAP measures, which we believe can be useful in evaluating our performance. A reconciliation of these measures can be found in our earnings release and in the slide presentations. I would now like to turn the call over to Doug Black.

Thanks, John. Good morning and thank you for joining us today. We were pleased to continue our excellent momentum during the fourth quarter, finishing 2021 with tremendous growth in sales and profitability. Despite the overall economic uncertainty, the market demand for professional landscaping services has remained healthy. In this environment, our teams performed very well, executing our commercial and operational initiatives and delivering superior value to our customers and suppliers while overcoming COVID-19 challenges, rapid product cost inflation, select supply shortages, and ongoing freight and labor constraints. As a result, we believe that we are steadily gaining share on top of the underlying market growth. Furthermore, our recent acquisitions performed well, and we added eight more high-performing companies to our family during the year. In total, 2021 was an exceptional year in which the power of Site 1, stronger together, was on full display. With stronger teams, even more capability, healthy underlying demand, and a good backlog of potential acquisition targets, We enter 2022 with significant momentum and look forward to another year of outstanding performance and growth. 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 2021. John Guthrie will then walk you through our fourth quarter and full year 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 to address our outlook for 2022 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 distribution centers across 45 U.S. states and six Canadian provinces. We are the clear industry leader, over five times the size of our nearest competitor, yet we estimate that we only have about a 15% share of the very fragmented 23 billion wholesale landscaping products distribution market. Accordingly, our remaining growth opportunity is significant. We have a balanced mix of business with 64% focused on maintenance, repair, and upgrade, 21% focused on new residential construction, and 15% on new commercial and recreational 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 create value for our customers and suppliers, while providing important resiliency in software markets. Turning to slide five, our strategy is to leverage the scale, resources, functional talent, and capabilities that we have as the largest company in our industry, all in support of our talented, experienced, and entrepreneurial local teams to consistently deliver more value than our competitors to our customers and suppliers. We have come a long way in building Site 1 and executing our strategy over the last six years, but we are still in the third or fourth inning of our overall development as a truly world-class company. Accordingly, we remain highly focused on our commercial and operational initiatives to further 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, acquisition growth, and EBDA margin expansion. If you turn to slide six, you will see that our strategy is working. Over the last six years, we've been able to deliver consistent organic growth, strong acquisition growth, and excellent 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 to include our digital capabilities. You will note that over the last five years we grew our sales by over 100% and our adjusted EBITDA by over 200%. This shows the power of our three value creation levers, organic sales growth, acquisition growth, and EBITDA margin expansion. Given that we are still relatively early in our development, we feel confident in our ability to continue driving all three of these levers going forward. We have much work to do in building our systems infrastructure and our digital capabilities across Site 1, in addition to executing the more advanced phases of our commercial and operational initiatives. Accordingly, we will continue to invest heavily in these. Our field and field support teams, who play a big part in leveraging our investments and facilitating our initiatives, are largely in place, and so each year our teamwork experience, and synergies get stronger across Site 1. We can see this in the increased market share gains, organic growth, and improved operating leverage that we achieved in 2021. Going forward, we will build and leverage our capabilities further to accelerate performance for all stakeholders. You will also note that we have now completed 64 acquisitions across the irrigation, agronomics, nursery, hardscapes, and landscape supplies product lines during the last eight years, with eight completed in 2021. We only acquire well-run companies, and so all of these acquisitions were already high-performing companies before joining SiteOne. 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. As a final note on slide six, we are very pleased in 2021 to achieve 11.9% adjusted EBDA margin, exceeding the 10% adjusted EBDA margin milestone that we set for ourselves at the time of our IPO in 2016. Back in 2016, we knew that we had an extraordinary potential for improvement in our return on sales, and so 10% represented a reasonable milestone for the midterm. Six years later, we have learned a great deal and achieved many improvements. However, we also realized that we have the potential to continue improving our profitability as we deliver even higher value to our customers and suppliers in the future. Longer term, with full execution of our commercial and operational initiatives, we believe that Site 1 should be able to consistently gain market share while operating with an adjusted EBDA margin of between 13% and 15%. Through our three value creation levers, organic growth, acquisition growth, and EBDA margin expansion, we will continue to provide superior returns to our shareholders in the years to come. Slide 7 shows the long runway 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 our 2021 performance highlights as shown on slide eight. We delivered 29% net sales growth in 2021 with 20% organic sales growth and 9% net sales growth added through acquisition. Organic daily sales growth was an exceptional 22% and was evenly divided between 11% volume growth and 11% price inflation. We are particularly pleased that we achieved excellent organic volume growth across all product lines, all geographies, and across all sizes of customers, reflecting the healthy underlying end market demand and our ability to gain market share. This result also reflects our investments in marketing to better reach small customers, especially small Hispanic customers, and attract them to Site 1. In total, our net organic customer count increased by 8,400 customers, or approximately 3% in 2021. Gross margin improved 160 basis points to 34.9% for the year, as we benefited significantly from our proactive inventory management during this high inflation period. I would note that we would not expect some of this gain to repeat in 2022. On the pricing front, rapid cost inflation was a challenge, and we were very pleased with the ability of our local teams to work closely with our suppliers and customers to pass through the extraordinary product cost inflation that occurred in the market. We also continued to execute our initiatives with private label products and small customers, both of which grew faster than our average. On the SG&A side, our operational initiatives and disciplined cost management offset the higher variable expenses associated with the strong organic sales volume and our continued investments in marketing and digital. Accordingly, SG&A as a percent of net sales decreased by 100 basis points to 25.9%. We achieved good cost efficiency benefits from MobilePro, which allows mobile branch transactions and from our Transportation Management System, or TMS, both of which we began rolling out in 2019. These two deployments highlight the power of investing in new technologies to improve customer service 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 through 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 60% for the year and expand adjusted EBDA margin by 230 basis points to 11.9%. We are extremely proud of this achievement as we exceeded our 10% adjusted EBDA margin milestones. As I mentioned before, we will now set our sights on improving our adjusted EBDA margin further to the 13% to 15% range in the coming years. In addition to MobilePro and TMS, we continue to make progress on our other important investments during 2021 to build our capabilities for the future. We opened our fourth distribution center near Dallas, Texas in the third quarter and is now fully operational and supporting our growing company. During the last two years, our distribution centers have proven to be critical in managing supply chain challenges and navigating periods of rapid inflation. The DCs also allow us to expand our private label brands and increase efficiencies with our suppliers. In 2021, we made great progress with the rollout of our new Salesforce Customer Relationship Management System, or CRM, which will help our over 400 outside sellers bring increased value to our current customers and drive growth through new customers and increased share of wallet. We expanded and strengthened our digital team and made good progress with SiteOne.com in 2021 as we used 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 platform. We have also significantly improved our product data on SiteOne.com with better images and descriptions over more of our product catalog. We have achieved higher usage of SiteOne.com in these test markets and are now launching a more aggressive rollout across SiteOne in 2022. We expect to make great progress in online usage this year. At the same time, we are connecting directly with our larger customers through their business management software and or through EDI to facilitate their ability to secure jobs and easily order from Site 1. We will continue to invest aggressively to ensure that Site 1 is the digital leader in the professional landscaping services market. Lastly, we made further strategic marketing investments during 2021, to increase the awareness of Site 1 and to drive organic sales growth in our targeted customer and product segments. We are excited with the results that we achieved with increased awareness, growth among Hispanic customers, and good growth from our product marketing efforts. The marketing team also completed a review of our partners program and will be piloting changes in 2022 to further improve customer benefits and loyalty in the coming years. We are very optimistic that our investments in digital and marketing can create significant competitive advantage for SiteOne. Overall, through our strategic investments and initiatives, we will remain focused on providing world-class tools, processes, training, 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 added eight high-performing companies to our family during the year, all of which provide us with excellent new talent and capability for growth in their respective markets while adding approximately $155 million and trailing 12-month sales to Site 1. Our acquisitions performed very well during 2021 contributing significantly to our growth in adjusted EBITDA. Our development teams remain active, and we expect a busy 2022. To ensure that we continue to drive attractive acquisition growth as we become a larger company, we expanded our development team during the year under Scott Salmon, including the addition of a senior leader focused solely on integrating our new companies. We expect 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 publish our 2021 ESG report in early October. In this report, we shared 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 for our shareholders. And five, be a good neighbor in our communities. The 2021 report includes expanded disclosures of our team's progress across these objectives. We look forward to updating you on our progress annually and continuing to enhance our disclosures going forward. In summary, 2021 was a breakthrough year in many respects, and we are excited about the significant momentum that we carry into 2022. I could not be prouder of our teams and the way in which they worked through the many challenges that we faced in 2021 and yet executed our strategy at a very high level to take care of each other, serve and support our customers, and deliver tremendous value for our suppliers, shareholders, and communities. The passion, commitment, and teamwork across Site 1 is second to none, and we remain excited about both the short- and long-term opportunities to achieve excellent performance and growth for all our stakeholders. Now, John will walk you through the quarter and full year in more detail. John? John?