SiteOne Landscape Supply, Inc.

Good morning and welcome to the Site 1 Landscape Supply first quarter 2024 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to John Guthrie, CFO. Please go ahead.

Thank you and good morning, everyone. We issued our first quarter 2024 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, 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. and uncertainties include 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.

Thanks, John. Good morning, and thank you for joining us today. During the first quarter, our teams continued to execute well, overcoming persistent commodity price deflation and poor weather in our stronger construction markets to achieve positive organic daily sales growth and good overall growth in net sales. Though our near-term adjusted EBDA results were dampened during the traditionally slower first quarter, we believe that we will be able to expand our adjusted EBDA margin for the full year as we move through the selling season and lap the price declines experienced during the second half of 2023. We were also pleased to add two high-performing companies to Site 1 in April, including Devil Mountain, which is an exciting new platform for growth in our nursery product line in the western United States. Both companies have talented teams and strong customer relationships, and they expand our product lines and market presence in their respective markets. Through our acquisition strategy and our commercial and operational initiatives, we continue to build SiteOne for the long term as a world-class market leader while delivering consistent performance and growth in the near term. With our well-balanced business, strong balance sheet, exceptional teams, improved capabilities, and robust acquisition pipeline, we remain confident in our ability to navigate the current environment and achieve continued success in 2024 and beyond. I'll start today's call with a brief overview of our unique market position and our strategy, followed by some highlights from the quarter. John Guthrie will then walk you through our first quarter 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 latest outlook before taking your questions. As shown on slide four 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, and larger than two through ten combined. Yet we estimate that we only have about a 17% share of the very fragmented $25 billion wholesale landscaping 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 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, further strengthens this balance over time. Overall, our end market mix, broad product portfolio, and 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've come a long way in building SiteOne and executing our strategy, but we 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 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 eight years with consistent organic and acquisition growth and solid 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 1 and to create superior capabilities for our customers and suppliers. Shifting to current conditions, we are 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. Longer term, we have ample opportunities to increase our gross margin and improve our operating leverage through our commercial and operational 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 have now completed 93 acquisitions across all product lines since the start of 2014. Our pipeline of potential deals remains robust, and we expect to continue adding and integrating more new companies this year to support our growth. These companies strengthen SiteOne with excellent talent and new ideas for performance and growth. Given the fragmented nature of our 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, artscapes, and landscape supplies categories. We are well connected 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 first quarter highlights as shown on slide eight. We achieved 8% net sales growth in the first quarter with organic daily sales growth of 1% and 7% added through acquisition. Organic sales volume grew by 5% as our teams continued to gain market share to supplement the sluggish market demand. Overall pricing declined 4% for the quarter as double-digit deflation in commodity products like fertilizer, seed, and PVC pipe more than offset very modest cost increases in our other product lines. Gross profit increased 5% driven by our acquisitions, and our gross margin decreased 100 basis points to 33.3%. This result was in line with our expectations as the ongoing price deflation in commodity products continues to drive a near-term headwind to gross margin. Additionally, in the first quarter of 2023, we were still enjoying significant price inflation, which aided gross margin, thereby providing a tougher comparable. Acquisitions increased our gross margin in the first quarter 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 by 140 basis points 36.2%. This increase was driven by our acquisitions and by a significant increase in our health care costs in the base business. We expect the health care costs to stabilize during the remainder of the year, and we expect to gain good SG&A leverage on our base business as we move through the main selling season in the second and third quarters. As a result, we expect to achieve SG&A operating leverage for the full year 2024. We have a significant opportunity to achieve further SG&A leverage over the coming years as we implement our commercial and operational initiatives and grow our company. Adjusted EBDA for the quarter declined 47% to 21.1 million, and adjusted EBDA margin declined by 250 basis points to 2.3%. as the combination of lower organic daily sales, lower gross margin, and higher seasonal SG&A from acquisitions affected our short-term financial results. I would note that despite the reduction in adjusted EBDA for the quarter, our operating cash flow improved by $53 million versus the first quarter of 2023, with the benefit of our supply chain initiatives and good overall working capital management. 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 inbound freight costs through our transportation management system. These initiatives are helping to mitigate the gross margin decline that we are experiencing in 2024 and should contribute to expanding gross margin in the future. We continue to increase our percentage of bilingual branches now at 60%. and are executing focused Hispanic marketing programs to create awareness among this important customer segment. We are also 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. 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. Acquisition of Pioneer has allowed us to gain new functionality in bulk delivery and in our point-of-sale system, which we plan to develop further and leverage with our existing business. During the quarter, we continue to make good progress in growing our digital sales and cultivating regular users of SiteOne.com. This helps us increase market share while allowing our associates to focus more on creating value for our customers and less on transactional activity. Continue to introduce new functionality for SiteOne.com and are ahead of our goal to double sales online in 2024. Taken all together, we are continuing to prove 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 two excellent companies to our family after the quarter, with approximately $120 million in trailing 12-month sales added to Site 1. With an experienced team, broad and deep relationships with the best companies, strong balance sheet, and exceptional reputation, we remain well-positioned to grow consistently through acquisitions for many years. In summary, our teams are doing a good job of managing through the near-term headwinds, leveraging our many opportunities for improvement, and building our company for the long term. Now, John will walk you through the quarter in more detail. John?