SiteOne Landscape Supply, Inc.

Greetings and welcome to Site 1 Landscape Supply fourth quarter 2022 earnings call. At this time, all participants are in a listen-only mode. A brief 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. It is now my pleasure to introduce your host, John Guthrie, Executive Vice President and Chief Financial Officer. Thank you, sir. You may begin.

Thank you, and good morning, everyone. We issued our fourth quarter and full year 2022 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 filing 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 achieved another year of double-digit growth in organic daily sales, net sales, and adjusted EBITDA in 2022, on top of the record growth in 2021. I'm very proud of our terrific teams who continue to get stronger every year and who adapted well to the challenges of continued high inflation, tight labor, and reduced product volume last year. We were also very pleased to add a record 16 new high-performing companies to SiteOne during the year. All these companies have talented teams and strong customer relationships, and they expand our product lines and market presence in their respective markets. Through the execution of our commercial and operational initiatives and our acquisition strategy, we continue to build SiteOne as a world-class market leader for the long term, while delivering consistent performance and growth in the near term. As we face softer markets in 2023, our well-balanced business, strong balance sheet, exceptional teams, improved capabilities, and robust acquisition pipeline have us well-positioned to navigate the year ahead and achieve continued success. 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 2022. 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 latest outlook and guidance for 2023 before taking your questions. As shown on slide four of the earnings presentation, we have grown our footprint to more than 630 branches and four distribution centers across 45 U.S. states and six Canadian provinces. We are the clear industry leader over four times the size of our nearest competitor. yet we estimate that we only have about a 16% share of the very fragmented $25 billion wholesale landscaping products distribution market. Accordingly, our future growth opportunity remains significant. We have a balanced mix of business with 65% focused on maintenance, repair, and upgrade, 21% focused on new residential construction, and 14% on new commercial and recreational construction. As the only national full product line wholesale distributor in the market, we also have an excellent balance across our product lines as well as geographically. Our strategy to fill in our product lines across the US and Canada, both organically and through acquisition, strengthens and reinforces this balance over time. Overall, our balanced end market mix broad product portfolio, and good geographic coverage offer us multiple avenues to grow and more ways to create value for our customers and suppliers while providing important resiliency in softer markets. I would note that our balanced business mix will be very important as we navigate through an uncertain 2023. 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 superior value to our customers and suppliers. We have come a long way in building SiteOne and executing our strategy, but we are relatively early in our development as a true world-class company. Accordingly, we remain highly focused on our commercial and operational initiatives to further build our capability to create value for all our stakeholders. 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 can see our strong track record of performance and growth over the last seven years with consistent organic and acquisition growth and good EBDA margin expansion. We've done this while investing heavily in our teams and in new systems and technologies to build the foundation for Site 1 and to create superior capabilities for our customers and suppliers. We're still building and investing, and we remain confident in our ability to gain market share and continue driving all three of our value creation levers going forward. You will also note that we've now completed 80 acquisitions across all key product lines since 2014. We leveraged our expanded development team to increase acquisition activity this past year, and our pipeline of potential deals remains robust. All these companies are high performers, and so they strengthen our company with excellent talent and new ideas for performance and growth. Given the fragmented nature of the industry and our modest market share, we have significant opportunity to continue growing through acquisition for many years to come. Slide 7 shows the long runway that we have ahead in filling in our product portfolio. 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 2022 performance highlights as shown on slide 8. We achieved 16% net sales growth in 2022 with 11% organic daily sales growth and 5% net sales growth added through acquisitions. The organic daily sales growth was driven by 18% price inflation, partially offset by a 7% volume decline, which follows the approximately 30% organic daily sales growth and 17% volume growth that we saw in 2020 and 2021 combined. We experienced the most significant volume declines in the northern markets and in our maintenance products. as customers temporarily adjusted their use of our products to meet their fixed budgets. Accordingly, we believe that there is some upside in maintenance demand in 2023. Overall, we believe that we outperformed the market in 2022. Gross profit increased 17%, and our gross margin increased 50 basis points to a very healthy 35.4%. With the continued high inflation during the first half of 2022, we were able to, once again, take advantage of the large price realization benefit, which was slightly less than the extraordinary gain we achieved in the second half of 2021. We will lose this benefit in 2023. Gross margin also benefited from our hardscapes and landscape supplies acquisitions, which operate with a higher gross margin and higher SG&A percentage. On the SG&A side, our operational initiatives and disciplined cost management were offset by lower volume, contribution from acquisitions, elevated fuel and wage expenses, and our continued investment in marketing, digital, and operational excellence. Accordingly, SG&A as a percent of net sales increased by 140 basis points, 27.3%. A combination of good organic sales and a solid contribution from acquisitions allowed us to deliver adjusted EBDA growth of 12%, despite the SG&A headwinds. Adjusted EBDA margin declined 30 basis points to 11.6%, following our 230 basis point increase in adjusted EBDA margin achieved in 2021. Overall, we have meaningfully expanded the profitability of the company since our IPO and remain focused on driving continued improvements toward our adjusted EBDA margin goal of 13% to 15%. In terms of our initiatives, we made good progress in 2022. On the gross margin side, we continue to grow with small customers, drive private label growth, and improve our inbound freight costs through our Transportation Management System, or TMS, initiative. Though we expect gross margin to reset during 2023 without the benefit of extraordinary price realization, we expect to improve gross margin through these initiatives in the years to come. We have several initiatives aimed at improving our customer experience while making our teams more efficient. thereby increasing organic growth and improving our SG&A leverage. MobilePro helps automate our branch transactions while allowing our associates to serve customers from anywhere on the branch site. We can serve customers quicker and more accurately, especially at our larger nursery and hardscape sites. And our branch associates are more efficient, a win-win. Enhancing the functionality of MobilePro in 2022 and continue to roll it out across the company. DispatchTrack allows us to manage our outbound deliveries to customers and proactively update customers on their delivery status by text. We now have over 60% of our deliveries going through DispatchTrack and our customer feedback has been very positive. We expect to have all parts of SiteOne fully utilizing this new capability by the end of 2023. and can now leverage dispatch track to make our deliveries more efficient and achieve higher fleet utilization in each market. In 2022, we completed the two-year development and rollout of our new Salesforce Customer Relationship Management System, which is designed to help our outside sales and sales support associates better serve our medium to large customers. We conducted our 2023 account planning in the CRM, and now we'll be able to leverage this new capability to deliver more value to our customers and drive more intentional and consistent market share gains with our over 600 outside sellers and almost 200 inside sales support associates. During the last two years, we significantly strengthened our digital team, and they, in turn, have accelerated our progress with SiteOne.com. Field associates and customers are becoming more comfortable with the site as we have improved the ease of use and functionality to help landscape contractors run their business more efficiently. We will continue to add features to SiteOne.com and are excited to leverage it more fully in 2023 and beyond to bring market-leading value to our customers and gain market share. In addition to our technology-driven initiatives, we also now have a full-time operational excellence team in each major line of business, working with the field and with our newly acquired companies to isolate pain points and develop and implement operational solutions across the company. These solutions improve our associate efficiency and our customer experience to help drive organic sales and adjusted EBDA growth, along with improved adjusted EBDA margin. Overall, we are excited about our opportunities to improve our customer experience and increase our operating efficiency in the years to come. On the acquisition front, we had a record performance in 2022, adding 16 high-performing companies to our family. These companies provide us with excellent new talent and capability for growth in their respective markets, while adding approximately $240 million in trailing 12-month sales to Site 1. Development teams remain very active, and we expect to continue adding strong companies to Site 1 in 2023. An experienced and expanded team, broad and deep relationships with the best companies, a strong balance sheet, and an exceptional reputation as the acquirer of choice, we remain well-positioned to grow consistently through acquisition this year and for many years in the future. Moving to slide nine, we've made great progress in 2022 in building Site 1 as a company of excellence, one that creates exceptional value for our associates, customers, suppliers, shareholders, and communities, and remains resilient for the longer term. A few highlights for the year included launching Site 1 CARES, which is our grant assistance program to help take care of our associates in their times of need. We added a fifth associate resource group, Inspire, for our Asian and Pacific Island associates. We increased the diversity of our leadership and the overall diversity of Site 1 in 2022, ensuring that we have the strongest and most diverse team possible to drive success. And finally, we continued to enhance our supply chain and improve our fleet efficiencies. Overall, we are pleased with our progress and look forward to continuing to build Site 1 for the benefit of all our stakeholders. In summary, 2022 was a strong year of performance and progress in building Site 1. We remain confident in our ability to navigate through challenging market conditions, outperform the market, and continue to build our company both organically and through acquisitions. Now, John will walk you through the quarter in more detail. John?