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spk08: Greetings and welcome to the Site One Landscape Supply fourth quarter 2023 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.
spk10: Thank you and good morning, everyone. We issued our fourth quarter and full year 2023 earnings press release this morning and posted a slide presentation to the investor relations portion of our website at .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 meeting 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 presentation. I would now like to turn the call over to Doug Black.
spk09: Thanks, John. Good morning and thank you for joining us today. We finished 2023 with a strong fourth quarter as our teams achieved good sales volume growth, which mostly mitigated commodity product price declines. We achieved a modest increase in adjusted EBDA with 8% growth in net sales, recovering gross margin, and good SG&A management balanced with the seasonal dilution of recent acquisitions. Overall, 2023 was a tough year where we faced many challenges, including softer markets, operating cost inflation, gross margin normalization, and commodity price deflation. Against these headwinds, we continued to execute our initiatives and work through the challenges to achieve 7% net sales growth, adjusted EBDA, which was just above our guidance range, and record operating cash flow for 2023. We were also pleased to add 11 new excellent companies to Site 1 during the year, with a record $320 million in trailing 12-month revenue. 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 continued to build Site 1 as a world-class market leader for the long term, while delivering consistent performance and growth in the near term. As we move into 2024, we are optimistic about our end markets and excited about our stronger teams and improved commercial and operational capabilities. When coupled with our well-balanced business, strong balance sheet, and robust acquisition pipeline, we expect to resume adjusted EBDA growth in 2024 and make good progress toward our longer-term performance and growth objectives. I will start today's call with a brief overview of our unique market position and our strategy, followed by some highlights from 2023. 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 Salmon will discuss our acquisition strategy, and then I will come back to address our outlook and guidance for 2024 before taking your questions. As shown on slide 4 of the earnings presentation, we have grown our footprint to more than 690 branches and four distribution centers across 45 U.S. states and six Canadian provinces. We are the clear industry leader, over three times the size of our nearest competitor, yet we estimate that we only have about a 17% share of the very fragmented $25 billion wholesale landscape products distribution market. Accordingly, our long-term 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 U.S. and Canada, both organically and through acquisition, further strengthens this balance over time. Overall, our end market mix, broad product portfolio, and good geographic coverage offer us multiple avenues to grow and create value for our customers and suppliers, while providing important resiliency in softer 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 superior value to our customers and suppliers. We have come a long way in building Site One and executing our strategy, but have more work to do as we develop into 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 One. 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 our strong track record of performance and growth over the last seven years, with consistent organic and acquisition growth and EBDA margin expansion. We have done this while investing heavily in our teams and in new systems and technologies to build the foundation for Site One and to create superior capabilities for our customers and suppliers. 2023 was a reset year for gross margin and adjusted EBDA margin, as we did not repeat the extraordinary price benefits that we received in 2021 and 2022. We are now experiencing commodity price deflation, which causes a temporary negative impact on organic daily sales growth, gross margin, and adjusted EBDA margin. We expect this negative impact to subside in the second half of 2024, and we continue to have significant opportunities to increase our gross margin and improve our operating leverage through our commercial and operating initiatives. Accordingly, we remain confident in our strategy to drive revenue growth, both organically and through acquisition, while expanding our adjusted EBDA margin toward our longer-term objective of 13% to 15%. We now have completed 91 acquisitions across all product lines since the start of 2014. We expanded our development team in 2021, leveraged them to increase acquisition activity in 2022, and completed 11 acquisitions for a record $320 million trailing 12 months acquired sales in 2023. Our pipeline of potential deals remains robust, and we expect to continue adding and integrating more new companies to support our growth. These companies strengthen Site 1 with excellent talent and new ideas for performance and growth. Given the fragmented nature of the industry and our modest market share, we have a 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, which we aim to do primarily through acquisition, especially in the nursery, artscape, 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 2023 performance highlights as shown on slide 8. We achieved 7% net sales growth in 2023 with flat organic daily sales and 7% net sales growth added through acquisition. Organic sales volume was flat as our teams continued to gain market share to offset softer markets. Additionally, commodity products like fertilizer, seed, and PVC pipe experienced significant inflation during 2023, which balanced with normal cost increases in our other product lines to yield overall flat pricing for the year. Gross profit increased 5% driven by our acquisitions, and our gross margin decreased 70 basis points to 34.7%. This result was in line with our expectations as we did not repeat the significant price realization benefits achieved in 2021 and 2022. In fact, the rapid price deflation that we experienced during the third quarter of 2023 created an additional near-term headwind to gross margin. Acquisitions benefited gross margin in 2023 as our mix of acquired companies operate with a higher gross margin and higher SG&A. Our SG&A as a percentage of net sales increased 190 basis points to 29.2%. This increase was driven by our acquisitions and by the combination of flat organic sales, operating cost inflation, and continued investment in our initiatives in digital and operational excellence. The timing of our largest acquisition, Pioneer Landscaping Centers, during the second half of the year also contributed to the increase in SG&A as a percent of net sales. Going forward, we expect to gain significant SG&A leverage as we continue to grow. Flat organic growth and a reset in gross margin led to a 12% decline in our adjusted EBDA for the full year. Adjusted EBDA margin declined 210 basis points to 9.5%. We are encouraged to have this reset year behind us and look forward to driving continued improvement in adjusted EBDA margin in 2024 and making steady progress toward our long-term goal of 13% to 15%. In terms of initiatives, we continue to grow our small customers faster than our average, while also driving growth in our private label brands and improving our inbound freight costs through our transportation management system. These initiatives helped to mitigate the gross margin decline in 2023 and will contribute to expanding gross margin in the future. During the year, we enhanced our Partners Program and were able to increase our membership by almost 50% to approximately 37,000 customers. Most of the new members are small to mid-sized customers. Partners Program customers grow faster than non-members as they benefit from the full Site 1 value proposition. We increased our percentage of bilingual branches from 56% to 58% in 2023 and are continuing to focus on Hispanic marketing to create awareness among this important customer segment. We are making great progress in our Salesforce productivity as we leverage our CRM and establish more disciplined revenue generating habits among our over 600 outside sales associates. The continued rollout of MobilePro and DispatchTrack allows us to offer better customer service while also increasing the productivity of our branch staff and delivery fleet. Both capabilities are now deployed company-wide and we continue to see usage and benefit increase across the company. For example, DispatchTrack is now used for over 93% of all customer deliveries across Site 1. We made good progress in growing our digital sales and cultivating regular users of Site1.com in 2023, which helps us increase market share while allowing our associates to focus more on creating value for our customers and less on transactional activity. And finally, we achieved meaningful benefits from our operational excellence teams who are helping to systematically spread best practices in each product line of business across Site 1 to drive value for our customers, suppliers, and company. For example, we significantly improved the procurement and inventory management of our nursery line of business in 2023, leading to low double-digit sales growth and higher inventory concerns. We believe that there are significant opportunities to improve our hardscapes and landscape supplies, lines of business, in a similar fashion. Taken all together, we are continuing to improve our capability to drive organic growth, increase gross margin, and achieve operating leverage through our initiatives. On the acquisition front, as I mentioned, we added 11 excellent companies to our family in 2023, with over $320 million in early 12-month sales added to Site 1. 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 for many years. In summary, our teams did a good job of managing through the many challenges in 2023, adjusting to a lower growth environment, yet continuing to gain momentum on many of our key initiatives to drive long-term growth and profitability. We are excited to move into 2024 with increased capabilities to add more value to our customers and suppliers, to grow faster than the market, and to drive attractive performance and growth. Now, John will walk you through the quarter in more detail. John?
spk10: Thanks, Doug. I'll begin on slides 9 and 10 with some highlights from our fourth quarter and full year results. We reported a net sales increase of 8% to $965 million for the quarter. There were 61 selling days in the fourth quarter, compared to 60 selling days in the prior year period. For the full year, net sales increased 7% to $4.3 billion. We had 252 selling days in fiscal year 2023, which is the same as fiscal year 2022. In fiscal year 2024, we will again have 252 selling days, with the selling days the same each quarter as fiscal year 2023. Organic daily sales decreased 1% in the fourth quarter, compared to the prior year period, as price deflation of 5% was partially offset by volume growth of 4%. For the full year, organic daily sales were flat due to moderating economic conditions and no benefit from price increases. Similar to the third quarter, price deflation in the fourth quarter was driven by our commodity products like PVC pipe, which was down almost 25%, and fertilizer and grass seed, which were both down 17%. For the full year, the price impact on sales was roughly flat, as we started the year with a positive benefit before the onset of deflation in the second half of the year. In 2024, we expect price deflation to be a headwind in the beginning of the year, but moderate as we work through 2024 and fully lap the price decreases of 2023. For the full year, fiscal 2024, we expect price deflation to be between 1% and 2%. Organic daily sales for landscaping products, which includes irrigation, nursery, hardscapes, outdoor lighting, and landscape accessories, grew 1% for the fourth quarter due to increased volume, reflecting solid and market demand and weather in November and early December, partially offset by lower prices for products like PVC pipe. For the full year, organic daily sales for landscaping products also grew 1%, primarily reflecting slightly higher prices in the first half of the year. Organic daily sales for agronomic products, which includes fertilizer, control products, ice melt, and equipment, decreased 8% for the fourth quarter due to lower prices for fertilizer and grass seed, partially offset by volume growth resulting from lower prices and solid demand. As we have previously discussed, we believe high prices for agronomic products negatively impacted sales volumes for those products. For the full year, organic daily sales for agronomic products decreased 4%, as price deflation of 7% was partially offset by 3% volume growth. Geographically, four of our nine regions achieved positive organic daily sales growth in the fourth quarter with the greatest growth in the southern markets, which have benefited from strong construction and markets. We're off to a slow start in 2024 due to rainy weather in many regions with organic daily sales down mid-single digits. However, January is only about 6% of our annual sales, and we expect demand in these markets will continue to be strong for the full year. Acquisition sales, which reflect sales attributable to acquisitions completed in both 2022 and 2023, contributed approximately 71 million, or 8%, to net sales growth. For fiscal year 2023, acquisition sales contributed approximately 279 million, or 7%, to net sales growth. Scott will provide more details regarding our acquisition strategy later in the call. Gross profit for the fourth quarter was 327 million, which was an increase of 8% compared to the prior year period. Gross margin decreased 20 basis points to 33.8%, primarily due to lower prices and less vendor support than the prior year period. Partially by the positive impact from acquisitions. While -over-year gross margin performance improved during the quarter, we are still experiencing a negative headwind from deflation. Just as we benefited from the rapid rise in market prices relative to our lower inventory costs on the way up, the drop in market prices relative to our higher inventory costs creates a temporary headwind on the way down. We are managing through this headwind and expect gross margin to be lower in the first quarter of 2024, but improved for the full year of 2024. For fiscal 2023, gross profit increased 5% and gross margin decreased 70 basis points to 34.7%. The decrease in gross margin for the full year reflects the absence of the price realization benefit recognized in the 2022 fiscal year, partially offset by a positive impact from acquisitions and lower freight costs. Selling general and administrative expenses, or SG&A, increased 9% to 333 million for the fourth quarter. SG&A, as a percentage of net sales, increased 30 basis points in the quarter to 34.5%. The increase in both SG&A and SG&A is a percentage of net sales primarily due to the impact of acquisitions. Excluding acquisitions, SG&A for a base business decreased 2% during the quarter as we have taken steps to better align SG&A spending with our lower sales. For the full year, SG&A increased 15% to approximately 1.3 million and SG&A as a percentage of net sales increased 190 basis points to 29.2%. The higher SG&A reflects the impact of acquisitions and operating costs inflation, particularly wage inflation. For the fourth quarter, we recorded an income tax benefit of approximately 5 million, which was similar to the prior year period. For the full year, income tax expense was 49.8 million compared to 67.7 million in the prior year. Our effective tax rate was .3% for the 2023 fiscal year compared to .6% for the 2022 fiscal year. The increase in the effective tax rate was due primarily to a decrease in the amount of excess tax benefits from stock-based compensation. Excess tax benefits of 5.9 million were recognized for the 2023 fiscal year as compared to 10.4 million for the 2022 fiscal year. We expect that 2024 fiscal year effective tax rate will be between 25 and 26% excluding discrete items such as excess tax benefits.
spk11: We recorded
spk10: a net loss of 3.4 million for the fourth quarter of 2023 compared to a net loss of 0.9 million for the prior year period. The net loss was attributable to our higher SG&A and reduced gross margin, partially offset by our increase in net sales. Net income for fiscal year 2023 decreased to 173.4 million from 245.4 million in fiscal year 2022 as our sales growth was offset by higher operating costs and lower gross margin. Our weighted average diluted share count was 45.7 million for the 2023 fiscal year which is slightly less than the prior year share count. Adjusted EBITDA increased by 3% to 39.9 million for the fourth quarter compared to 38.9 million for the same period in the prior year. Adjusted EBITDA margin decreased 30 basis points to 4.1%. For the full year, adjusted EBITDA decreased 12% to 410.7 million compared to 464.3 million for the 2022 fiscal year. Adjusted EBITDA margin decreased 210 basis points to .5% for the 2023 fiscal year. Now I'd like to provide a brief update on our balance sheet and cash flow statement as shown on slide 11. Working capital at the end of the 2023 fiscal year was 827 million compared to approximately 760 million at the end of the prior year period. The increase in networking capital is primarily attributable to the increase in cash on hand and higher receivables resulting from our sales growth including acquisitions. Inventory turns improved as we continue to make progress on our supply chain initiatives. Cash flow from operations increased to approximately 108 million in the fourth quarter compared to approximately 105 million in the prior year period. Cash flow from operations increased to approximately 298 million for the full year compared to approximately 217 million in the prior year. The record operating cash flow primarily reflects our improved inventory management. We made cash investments of 17 million in the fourth quarter compared to 73 million in the same quarter of 2022 and 226 million in fiscal year 2023 compared to 284 million in fiscal year 2022. The decrease in cash investment reflects less acquisition spend in fiscal year 2023 compared to fiscal year 2022. Capital expenditures were 8 million for the fourth quarter compared to 7 million for the same quarter in 2022 and 32 million for fiscal year 2023 compared to 27 million for fiscal year 2022. The increase in capital expenditures reflects our continued investment in our branch locations including relocations. Net debt at the end of 2023 fiscal year was approximately 382 million compared to 380 million at the end of the prior year. Leverage increased to 0.9 times our trailing 12 months adjusted EBITDA compared to 0.8 times at the end of the 2022 fiscal year but remains below our target net debt to adjusted EBITDA leverage range of one to two times. At the end of the year we had available liquidity of approximately 661 million which consisted of approximately 83 million cash on hand and approximately 578 million in available capacity under our ABL facility. On slide 12 we highlight our balance approach to capital allocation. Our primary goal regarding capital allocation is to invest in our business including the execution of our acquisition strategy. We're also committed to maintaining a conservative balance sheet as demonstrated by our target leverage ratio. To the extent we have excess capital after achieving these objectives, the share repurchase authorization provides us with a mechanism to return capital to shareholders. In the fourth quarter of 2023 we completed share repurchases of approximately 11 million dollars. Our priority from a balance sheet and capital allocation perspective is to maintain our financial strength and flexibility without sacrificing long-term growth or market opportunity. I'll now turn the call over to Scott for an update on our acquisition strategy.
spk11: Scott Thanks John. As shown on slide 13 we acquired one company in the fourth quarter bringing our total to 11 for 2023 with the record combined trailing 12-month net sales of approximately 320 million. Since the start of 2014 we have acquired 91 companies with approximately 1.8 billion in trailing 12-month net sales added to site one. Turning to slide 14 you will find information on our most recent acquisition Newsome Seed. On December 1st we acquired Newsome Seed, a wholesale distributor of agronomic products with two locations serving the Baltimore and Washington DC markets. The acquisition of Newsome Seed expands our strong agronomics position in these populous markets and extends the range of landscape products and services we provide to our customers. Summarizing on slide 15 our acquisition strategy continues to create significant value for site one. We have a strong balance sheet and a robust pipeline across all lines of business and geographies and we are confident that we will be able to add more outstanding companies to site one in 2024 and over the coming years. Our acquisitions continue to add excellent talent to site one and move us forward toward our goal of providing a full line of landscape products and services to our customers in all major U.S. and Canadian markets. We are honored and excited that so many owners continue to choose site one as a great home for their family businesses and continue to thrive in leadership positions across our company. These strong leaders and innovators are a powerful force within site one as they help us improve the value that we deliver to customers and suppliers. They bring fresh ideas and entrepreneurial agility and we support them and their teams with the resources and flexibility to pursue both their personal and professional passions. Ultimately we all win stronger together. I want to thank the entire site one team for their passion and commitment to making site one a great place to work and for welcoming the newly acquired teams when they join the site one family. We look forward to updating you as we add more outstanding companies to our family through acquisition in 2024 creating terrific value for all our stakeholders. I will now turn the call back to Doug.
spk09: Thanks Scott. I'll wrap up on slide 16. As we look forward to 2024 we expect customer demand to moderately improve and we expect to continue gaining market share with our strong teams executing our commercial and operational initiatives. In terms of end markets we expect new residential construction which comprises 21 percent of our sales to grow modestly in 2024. There is good momentum in new residential construction to start the year with growth in single family permits and starts over the past several months. This should produce growth for landscaping products in this end market especially in the second half. New commercial construction which represents 14 percent of our sales was strong in 2023. However we believe this market will cool off in 2024 with the architectural billing index showing contraction though our own project services bidding is still slightly positive. Our customer backlogs in commercial construction remain solid and so we will be flat to slightly up this year. The repair and upgrade market which represents 31 percent of our sales was clearly weaker in 2023 than in 2022 but seems to have stabilized at lower levels of demand. Unfortunately we expect repair and upgrade demand to be flat in 2024. Lastly we expect sales volume in the maintenance category which represents 34 percent of our sales to continue growing in the low single digits in 2024 as contractors and end users take advantage of lower commodity prices and continue to restore application rates from the depressed levels in 2022. As John mentioned we expect commodity price deflation to continue in the first half of 2024 and moderate in the second half as we lap the price decreases in 2023. Overall we expect prices to be down one to two percent in 2024. With this backdrop we expect our organic daily sales growth to be in the low single digits for the full year 2024. We believe that sales growth will be higher in the second half than in the second half as the price headwind diminishes. As John has mentioned the weather has been unfavorable so far and we were trailing last year though we have seen solid growth on days with good weather. With our continued initiatives and the benefit of acquisitions completed in 2023 we expect to achieve gross margin improvement in 2024. We expect to achieve SG&A leverage as we drive productivity improvements with the benefit of positive organic daily sales growth more than offsetting the negative impact of acquisitions. Accordingly we expect to improve our adjusted EBDA margin in 2024. In terms of acquisitions as Scott mentioned we have a strong pipeline of high quality targets and we will continue to add excellent companies to the SiteOne family in 2024. We will benefit from the sizable synergies and a full year of performance with Pioneer Landscaping Centers along with good contributions from our other 2023 acquisitions this year. With all these factors in mind we expect our full year adjusted EBDA for fiscal 2024 to be in the range of $420 million to $455 million. This range does not factor any contribution from unannounced acquisitions. In closing I would like to sincerely thank all our SiteOne associates who 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 increasing 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. Operator please open the line for questions.
spk08: Thank you. At this time we'll be conducting a question and answer session. Ask a question please press star one on your telephone keypad. The tone will indicate that your line is in the question queue. Star two if you would like to remove your question from the queue. Submit yourself to one question and a follow-up so that others may have the opportunity to ask questions. Using speaker equipment it may be necessary to pick up your handset before pressing the star keys. Please while we pull for questions. First question comes from David Manci with your question.
spk05: Thank you. Good morning everyone. John in your comments you mentioned that gross margins expected to be lower in the first quarter and then Doug you just reiterated it should be higher for the full year. Just trying to get a finer point on that first quarter number. Is that lower than 34.3 in the year ago period or lower than 33.8 in the just reported period possibly both? And then secondarily there does the does the complexion of gross margin throughout the year look pretty normal to you this year lowest in the first highest in the second then moderating from there into the third and fourth quarters?
spk04: Thanks
spk10: David. Certainly we would say it is going to be lower in the first quarter relative to prior year was the reference point. And as we look out I think there's a couple of things going on with regards to Q1 of 2024 with regards to gross margin. The first is we are coming off one a very very strict tough comp of gross margins. I think a lot right with gross margin in Q1 last year acquisitions outperformed and so we're facing a more challenging comp with regards to gross margin. Secondly we are still to a certain extent feeling the challenges of deflation while it improved during the quarter which kind of led to some of our outperformance. It's still definitely there and until we work through kind of the price deflation in the first half of next year largely in the first quarter that is going to provide a headwind especially relative to last year where even in the first quarter of last year we were still seeing a positive price also which contributed to the strong gross margin performance. And then the third aspect with regards to the quarter is I will say the amount of snow and kind of weather impact that has happened so far this quarter has negatively impacted gross margin primarily from a mix. We're selling more ice melt and a lot of stocking orders. We're not seeing the day in and day out orders yet kick in. Now I caution that to say you know this is very early in the season. We're in a shoulder quarter so it's kind of like in a lot of our markets they're not really selling a lot yet and so really when March kicks in it really determines the quarter but with regards to that we are off to a slower start than I would say certainly less than last year in January but also less than a normal year from a weather perspective.
spk05: Okay thank you for that and my follow-up here is on Pioneer, Doug or maybe Scott could you give us an overview of that business? It's my understanding that it's not really a traditional kind of bolt-on acquisition. It's more of an aggregates business and can you just overview the opportunities and challenges here six months in?
spk09: Yeah so you know Pioneer at 34 locations about 160 million in sales in both Arizona and Colorado so they have a terrific network of branches and locations in two extremely high growth markets where we have a we already have a significant presence and you're right they're mostly a bulk materials business but they do sell you know our traditional hardscapes and that's the synergy is we can really ramp up that business in the hardscape side you know we can add lighting and you know other product lines that fit in addition to continuing to you know to grow the bulk business. They you know they were an integrated company where they had the quarries and the distribution and they really ran it for profitability of the quarries and so there was the other opportunity you know it's not our normal acquisition where they're kind of already at or above where we are EVDA that you know they underperformed from an EVDA standpoint you know that was reflected in the acquisition investment that we made but we see you know a clear line of sight for ramping them up and getting them up you know to our average or above over the next couple years so there's the opportunity when we bought it late last year so you know they contributed negative EVDA and it was they're going into kind of the loss making part of their season if you will and you know this year the synergy this year we'll have synergies we'll have you know their SG&A was higher than you know than it should be and so we've done some significant taking some significant actions there but we'll get a full the benefit of full year the synergies SG&A reductions etc in 2024 so we're excited about it but that's the nature of the business and some of the background and color
spk05: appreciate it thank you
spk08: our next question comes from Ryan Merkel with William Blair please proceed with your question
spk01: hey everyone thanks for taking the question I wanted to start off on the price outlook Doug the last time we spoke you you thought that the raws were bottoming just curious that that's exactly what you've seen and then I think you mentioned price would be positive in the second half of 24 is that because you're seeing the finished goods suppliers raise prices
spk10: we're seeing a few of the finished good products raise prices it's primarily the fact that a lot of the price decreases in last year we will have lapped I would say in general it seems like mostly even for the commodity products have somewhat stabilized the one one exception is we are still seeing some decreases this year in pvc pipe some price going but otherwise there is not as much action with regards to even the commodity products and we are seeing some puts and takes with regards to kind of the more manufactured products
spk09: yeah so we're kind of seeing it you know slowly pricing slowly improve kind of month to month and we think it'll be a you know a gradual march through the you know through the year turning positive in the second half and you know net positive we believe in the second half but you know we do see the improvement kind of month to month but it's gradual and like John mentioned pipe kind of took another leg down that's you know slowed down the improvement if you will a bit but but we still see it happening you know here in the last couple of months
spk01: okay that's helpful and then I wanted to follow up on one cue as well I know Dave asked about margins so that's pretty clear but I think you said down mid single digits to start for organic daily sales and you mentioned weather can you just unpack the weather is it the lack of snow was the weather just too cold and then what are you assuming sort of the rest of the way do you do are you assuming gets better and I realize march is kind of the whole quarter so just curious how you're thinking about that
spk10: we would expect it to get better I think where it's really impacted us is is in the southern markets especially Florida here in the southeast and Carolina's in Texas we've gotten more rain and had slightly colder weather which has prevented sales even I would say we were expecting a big a relatively large bounce back in California then the if you will the pineapple express hit it California also so so it's been primarily rain and colder weather even when we've had good good sales in the north it's not enough to offset the rain and cold weather in the south this time of year but but Ryan you said
spk09: it I mean it's always you know January and February can be way up or way down you know it kind of happens every year um the quarter is really defined by March and when spring hits and you know if spring hits late then the sales move to the second quarter from the first if spring comes early you know we could have a it could come all the way back so you know we're just noting that you know the progression it's the typical weather volatility that we get especially in these slow overall sales months in the winter
spk01: got it thanks so much
spk08: our next question comes from Stephen Volkman with Jeffries please proceed with your question
spk03: great uh hi guys thanks I'm going to switch over to the M&A uh if I could um and I'm curious about a couple things one uh Scott are there other sort of larger acquisition opportunities in the pipeline a la pioneer or should we expect things to kind of go back to maybe the smaller average uh size and then the second question is I'm just curious it seems like perhaps there's a little bit less competition uh these days for some of these properties um I just don't see as much happening in the PE space and I'm curious if you guys would agree with that or not so those are my two questions thanks
spk11: yeah thank you um taking your first question uh you know it's always hard to tell when uh certain acquisitions might become available but um you know I definitely think there are still some larger opportunities out there that could become active this year um certainly you know we always hope for that but you can never guarantee that um so it's you know no reason why it would have to return back to our lower average there are some opportunities I think um and then with respect to competition uh you know it's it's difficult to get an exact read out there um you know when you do have a competitive uh situation uh with a broker uh you know you don't really know who's on the other side you know I do know that that some of the more active uh folks you know did acquire fewer companies in 2023 than 2022 but I would fully expect them to be in the market uh you know with good strength in 2024 so I wouldn't see anything structurally different over the coming years
spk03: great thank you
spk08: our next question comes from Mike Dahl with RBC Capital Markets please proceed with your question
spk02: Hi thanks for taking my question I want to first focus on um SG&A so if I think about kind of the backdrop that you're outlining a little price deflation some some volume growth to offset that but low single digit total organic um you know in the past that that's been an environment where you haven't really leveraged SG&A with those puts and takes with the M&A mix that you have coming out in with the the level of investments the level of wage inflation it sounds like maybe you've got some other initiatives that have started to take hold uh John your comments about kind of base business SG&A dollars being down maybe can you just you know further elaborate on on that and and then kind of the the the bridge or puts and takes around how you're thinking about getting SG&A leverage this year?
spk09: Yeah great question um the we do have you know obviously there's there's a heavy focus on that as as the market slowed down in 23 you know we had to make those adjustments and so you know we did those through the year in our base business and I think you know through that we're entering 2024 in better shape if you will or more matched to the market than we entered 2023 so that's a that's a tailwind to SG&A you also have you know um you know for example we noted at the the pioneer acquisition that really brought a lot of SG&A and and not you know not as much sales that's the timing of that is meaningful as we go and get a year there while at the same time you know adjusting their levels to to be more appropriate and then I think our initiatives you know more and more start to take hold in terms of mobile pro you know dispatch track or you know siteone.com we feel better about where those are and you know they're fully deployed now and you know the productivity that we're able to get out of those in the field has increased so I think when you put those together we feel good about our ability to drive leverage where maybe we hadn't you know in years past I think we just got better and we're better capable of doing it now.
spk02: Okay that's helpful Doug and then just to follow up on on pioneer more specifically giving your comments on say it was a negative net contribution to you that's on 23 given the timing you and you just spoke to some of the positives so should in in our terms is pioneer alone like a 15 to 20 million dollar positive swing in in EBITDA this year when we think about kind of a negative 23 contribution versus a more normalized and potentially synergized margin for this year?
spk10: I think that would be a little high but you're actually in the right ballpark I mean.
spk02: Got it okay thanks.
spk08: Our next question comes from Damien Cross with UBS please proceed with your question.
spk06: Hey good morning everyone.
spk09: Morning Damien.
spk06: Morning. So I think you said you're expecting repair and upgrade to be more or less flat this year. There are some concerns out there on homeowner R&R spend just given where rates are and the supercharged demand that resulted from the pandemic so I'm just curious what gives you confidence that that part of the business can hold steady this year?
spk09: Yeah well you know we saw you know if you will the drop in 23 right so you know as it turned out for the year you know repair remodel at least for us was down it was weaker and we saw that you know kind of across the country with high interest rates low housing turnover and like I said just an adjustment from the from the go-go days of of of COVID but we really feel like that's stabilized I mean that's just talking to our customers and seeing the you know the sales that we're getting and backlogs etc. You know we feel like it's just kind of adjusted and that now it'll be fairly stable so we don't see it getting worse and again we're playing at the higher end of homes you know you can see interest rates starting to come down a bit we you know we can see projects you know in the pipeline at least for kind of the first quarter first half of the year so it's just the read that we're getting from customers that we feel like will be flattish in 2024 coming off of a down year in 23.
spk06: Got it that makes sense and then I want to ask you specifically about hardscapes which continues to become an increasing proportion of your business if my math on the slides is right you know hardscapes was up something like mid teens in 23 does that sound about right and I was wondering if you'd maybe be able to give us a sense for you know how much of that is coming from acquisitions versus you know the underlying hardscaping business how it's been performing thanks
spk09: yeah well I think you know I don't know the specific match on might but you know that would be mostly through acquisitions you know we saw hardscapes kind of hanging in there obviously hardscapes is tied to repair or remodel so you know the market was going the other way for hardscapes I would say hardscapes for us longer term is a great product line net net it's it's going to grow faster than the market because you still have some penetration going on there it's a good profitable part of our business and and we're you know we're excited to continue to you know increase the amount of hardscapes we have in our overall mix but you know those types of numbers that that would have been additions through acquisitions not not an organic type of performance for 2023 yeah
spk10: up until 23 hardscapes has been one of our stronger strongest grower and in 23 it's primarily as Doug mentioned tied to repair and remodel so there was a pullback um um slight um on a volume basis the other the other aspect of it um uh just in the mix percentages is that that you know I the one big drop was um was fertilizer and it's because of the deflation so it kind of came down um hardscapes grew through acquisitions that's that those are the primary um mechanics that drove this switch in our product mix yeah
spk09: um did that answer your question
spk06: hey yes thanks guys appreciate it best of luck
spk08: our next question comes from Andrew Carter with steeple please proceed with your question
spk07: hey thanks good morning pricing got worse in the quarter though I know it's not perfect but the prices actually got a little better so what I wanted to ask is is the dislocation issue getting work did that get worse of trying to kind of price down to the competition and if you could is there's a headwind there from the mismatch of you take having to match the market but then uh not get the full favorability and input cost how big is that headwind in gross margin did it grow does it improve from here anything can help me us out on that thanks uh
spk10: I would say the the price difference um um was similar in q3 as in in q4 as in q3 maybe not as as tough as it was at the end of a q3 but but and maybe it got a little bit better as we as we finished the year than than it was in in in in in the beginning of the quarter but but in general um um we were still um in a deflationary environment um it was five percent in um which is kind of where we thought it would be and and it's we're seeing improving so far this year though obviously the year's still still there um we had previously talked about kind of dynamic where we looked back on kind of price cost and and that variance relative to like pre-covid and and that that dynamic where we're probably 40 to 50 basis points below kind of the um a price cost ratio there that we had there um um and this is a variance to kind of like I would call it equilibrium um where we were above equilibrium um and then and now we're probably you know 40 50 basis points below equilibrium from that standpoint we expect that kind of that that that to kind of switch in the second half of this year which which is what we talked about on on the last call that that hasn't not changed
spk07: second question I have and then if I put like a high end of your EBITDA guidance on what I think is the low end of your sales I get a 10% EBITDA margin you've said 13 to 15 percent in the past so at best we're looking at 50 basis points of EBITDA margin expansion this year is it going to be a slow plod consistent uh of getting there is there some kind of step change initiative once you reach some kind of scale and is there any way you could give us uh kind of the margin differential by vintage i.e. branches that have been the been in the portfolio for six years versus two years anything to help us and give confidence in that path to 13 to 15 percent thanks
spk09: yeah so I think it'll be a gradual steady steady climb um you know as John mentioned we we switched from from the price realization you know tailwind which you know actually carried us in 21 and 22 to 23 becoming a headwind um that headwind will continue in 24 we'll make progress in 24 despite that uh but that'll come back to us in 25 so we got it 25 that that comes from that that headwind going away and going back to equal equilibrium and then I think you'll just see us a steady climb you know there's no there's no one event there's a lot of things pointed at that you know on the gross margin side as we grow with our small customers we drive our private label brands um you know and as we you know do some of our other initiatives and freight and otherwise you know we we attack that gross margin and on the SGA side you know with site one dot com and mobile pro and the technologies that we deployed with our tms and freight management which we're now focused on the last leg of delivery that's going to help us on the overhead there you know we further leverage our dcs and our and our center um you know we're going to get sgna leverage there and quite frankly as we spread best practices across nursery and hardscapes which are the you know the more operating intensive parts of our business so with a combination of those you know we had kind of steadily toward that and just to give confidence we have whole regions you know that are five six hundred million of of of sales already in that you know and they're fully loaded with our you know our overhead and our head office overhead etc already operating there so you know we've got hundreds of branches already operating we've got many operating above that you know so we see it all over site one it's just it's just getting the average up to that level and we're very confident we can do that
spk07: thanks i'll pass it on
spk08: our next question comes from matthew with barclays please proceed with your question
spk04: hey morning guys thanks for taking the question um i just wanted to ask on the on the volume cadence um i think to the extent your organic daily sales are down mid single digits year to date and assuming you're kind of in the same price bucket i don't know if that means your volumes are kind of flattish um so far this year and and so the question is um as you move forward i do think the the comparisons on volumes year over year perhaps get a little bit tougher as volumes did grow for for most of last year so how are you guys thinking about that cadence of volumes and q1 q2 uh and and kind of what's assumed in the guide from a volume perspective in the second half thank you
spk09: yeah i think you know again the near-term sales and the weather you know don't give you a read on on volume um so i wouldn't i wouldn't take too much into you know well you know we're here in january etc etc because you know the weather really moves things around in january and february and it can change from week to week and then you hit march and it could change even further so um i think well what we believe is that the market is stronger right residential is going to be stronger we think um we think a repair and remodel will be net stronger meaning it won't be down we think it will be flattish maintenance is solid and commercial still solid right and so if we take that backdrop um and we look at the comps from the prior year we think the volume growth that we that we've seen in the third and fourth quarter is going to continue and um as we hit the you know the third and fourth quarter of 2024 we've got price we've got the price headwind abating and we still have strong markets and we've got stronger teams where we can drive more volume so that that's kind of how we think the year will play out you know outside some of the weather movements you know that we're that we're seeing here today so you know in general we feel we feel good um about the the forecast there and our ability to go generate consistent volumes throughout the year
spk04: gotcha okay that that's helpful thanks for that doug then second one the um you know i don't know if it's possible to kind of call the ball on gross margins you know beyond q1 on a quarterly basis but i guess my question is given you still have some deflation rolling into the second quarter and i know you're saying that that that should turn positive by the second half um you know is it possible for gross margins to expand on a -over-year basis when you still have deflation and so is the assumption that you know the really all the gross margin expansion would come in the second half because you're past the deflation headwind just kind of any color on on how that dynamic might play out thank you
spk10: i think directionally you're correct i think i think there will be more uh outperformance um um in the in the second half of the year i think q2 is a little too early to call but we're certainly i would say we will on a just on a -over-year basis we will be in a hole in q1 q2 will be digging ourselves out maybe maybe slightly positive and then we would expect um outperformance in the second half of the year
spk04: okay thanks john thanks good luck thank
spk09: you
spk08: there are no further questions at this time and i would now like to turn the floor back over to duck black for closing comments
spk09: okay thank you and thank you everyone for joining us today we appreciate your interest in site one um and we look forward to speaking to you again um after our first quarter uh we'd like to once again thank our terrific associates for all that they do to us a great company our customers and suppliers we certainly appreciate them as well thank you bye
spk08: this includes today's teleconference you may disconnect your lines at this time thank you for your participation
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