SiteOne Landscape Supply, Inc.

Greetings and welcome to the Site One Landscape Supply, Inc. fourth quarter 2024 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 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 Before we begin, I would like to remind everyone that today's press release slide presentation, the statements made during this call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Such risks and uncertainties include the factors set forth in the earnings release and in our filing with the Securities and Exchange Commission. Additionally, during today's call, we'll 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. We are pleased to finish a challenging year in 2024 with positive momentum as we achieved 1% organic daily sales growth in the fourth quarter against a 3% price deflation headwind. We have seen organic daily sales consistently improve from negative 3% in the second quarter to negative 1% in the third quarter of 2024 as price deflation moderates and as our commercial and operational initiatives drive increasing sales volume growth. Coupled with the strong cost reduction actions that we took in the second half of 2024 to include 22 consolidations and closures, and with Pioneer fully integrated, we entered 2025 in a good position to drive positive daily organic sales growth and solid operating leverage. We also added seven excellent companies to Site 1, in 2024 with $200 million in trailing 12-month revenue and recently added our first acquisition of 2025 in January. All of these companies have talented teams and strong customer relationships, and we expect them to contribute to our performance and growth in 2025 and beyond in their respective markets. As we move into 2025, we are seeing price deflation continue to normalize, as price decreases in products like PVC pipe are offset by price increases in our other product line. We're also seeing steady demand in our end markets, though the overall macro environment remains uncertain due to a number of factors that include interest rates, potential tariffs, and labor supply. Taken all together with stronger teams, a more cost-effective branch network, momentum with our commercial and operational initiatives, and a robust pipeline of potential acquisitions, we feel confident in our ability to achieve solid performance and growth in 2025 and to continue building Site 1 to deliver strong long-term value for our shareholders. I will start today's call with a brief review of our unique market position and our strategy, followed by some highlights from 2024. John Guthrie will then walk you through our fourth quarter and four-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 and guidance for 2025 before taking your questions. As shown on slide four of the earnings presentation, We have a strong footprint of 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 an 18% share of the very fragmented $25 billion wholesale landscaping products distribution market. Accordingly, our long-term opportunity to grow and gain market share remains significant. We have a balanced mix of business, with 55% focused on maintenance, repair, and upgrading, 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, 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 Site 1 and executing our strategy, but we have more work to do as we develop into a truly world-class company. Current challenging market conditions require us to adopt new processes and technologies faster and to be even more intentional in driving organic growth, improving our productivity, and mastering the unique aspects of each of our product lines. Accordingly, we remain highly focused on our commercial and operational initiatives to overcome the near-term headwinds, but more importantly, to build a long-term competitive advantage 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 EBITDA margin expansion. On slide 6, you can see our strong track record of performance and growth over the last eight years, with consistent organic and acquisition growth. From an adjusted EBITDA margin perspective, we benefited from extraordinary price realization due to rapid inflation in commodity products during 2021 and 2022. 2023 and 2024, we experienced significant headwinds as those commodity prices have come down. 2024, we also experienced further adjusted EBITDA dilution from the acquisition of Pioneer a large turnaround opportunity with great strategic fit, and from our other focus branches as a result of the post-COVID market headwinds. We expect to experience less commodity price deflation in 2025, which will be offset with modest price increases in most of our products. Furthermore, with Pioneer fully integrated and restructured under new local management and with progress on our focus branches, we expect to achieve significant performance improvement in 2025. We believe that we have consistently outperformed the market in terms of organic sales volume growth in 2023 and 2024, and we continue to have ample opportunities to drive sales growth, increase our gross margin, and improve our operating leverage through our commercial and operational initiatives. In summary, we expect our earnings growth going forward be enhanced with steady adjusted EBGA margin expansion as we recover from the post-COVID headwinds and drive forward our longer-term objectives. We now have completed 99 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 companies in 2025 to support our growth. These companies strengthen Site 1 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 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 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 full-year 2024 performance highlights, as shown on slide eight. We achieved 6% net sales growth in 2024, with an organic daily sales decline of 1%, offset by 7% growth due to acquisitions. Organic sales volume grew 2% during the year as our teams continued to gain market share and softer market conditions. Sales volume improved throughout the year with 0%, 2%, and 4% volume growth achieved during the second, third, and fourth quarters of 2024, respectively. We believe that this positive trend reflects a stabilizing repair and upgrade market that along with improved execution of our commercial initiatives. Pricing declined 3% in 2024, driven primarily by double-digit declines in PVC pipe and grass seed, while the prices of most of our other products remained flat with the prior year. We expect the rate of commodity price deflation to moderate in 2025 and balance with modest price increases in most other products, creating a more stable pricing environment. Gross profit increased 5% driven by our acquisitions, and our gross margin decreased by 30 basis points to 34.4%. Base business gross margin was down approximately 50 basis points as lower price realization more than offset gains from our gross margin improvement initiatives. Our acquisitions, which were primarily nursery and hardscape businesses, operated a higher gross margin but also operate with higher SG&A. Our SG&A as a percent of net sales increased 130 basis points to 30.5% due to our acquisitions. SG&A of the base business was flat compared to 2023 as we continued to closely manage our labor and expenses in relation to sales volume. In terms of acquisitions, Pioneer represents an ongoing significant SG&A reduction opportunity as we completed the system integration during the fourth quarter of 2024 and optimized staffing. We expect the improvement in Pioneer to contribute to our overall SG&A leverage in 2025. Adjusted EBDA in 2024 decreased 8% year-over-year to $378.2 million, and adjusted EBDA margin for the year declined by 120 basis points to 8.3%. due to negative organic growth, the absence of price realization, and the dilutive effect of acquisitions. As I mentioned after the third quarter, our acquisitions typically perform at a similar adjusted EBDA margin as the base business. But with the addition of Pioneer with approximately $150 million in annual sales operating well below our adjusted EBDA margin, We experienced meaningful adjusted EBDA margin dilution from acquisitions this past year. We are confident in our ability to improve the profitability of Pioneer to match the Site 1 average over the coming years. In terms of initiatives, we continue to increase sales with our small customers faster than our company averaged, drive growth in our private label brands, and improve inbound freight costs through our transportation management systems. These initiatives help to mitigate the gross margin decline that we experienced in 2024 and to contribute to expanding gross margin in the future. We continue to increase our percentage of bilingual branches from 58% to 63% in 2024 and are executing focused Hispanic marketing programs to create awareness among this important customer segment. We're also making great progress and our Salesforce productivity as we leverage our CRM and establish more disciplined revenue-generating habits among our over 600 outside sales associates. Continued adoption of MobilePro and DispatchTrack allows us to offer better customer service while increasing the productivity of our branch staff and delivery fleet. The acquisition of Pioneer has allowed us to develop new functionality in bulk material delivery and in our point-of-sale systems. which we plan to further leverage with our existing businesses. We grew our digital sales by 180% in 2024, while cultivating thousands of new regular users of SiteOne.com. The growth in digital sales is encouraging as it increases the connectivity with our customers, helping them to be more efficient and helping us increase market share while making our associates more productive. A true win-win. Customers who purchase online are growing their total business with SiteOne significantly faster than our company average, thereby contributing to our outperformance of the market. During our last earnings call, we mentioned that we are intensely managing our underperforming branches or focus branches to ensure that they have the right teams, the right support, and are executing our best practices to bring their performance up to or above the SiteOne average. As a part of these aggressive efforts, we consolidated or closed 22 locations in 2024 to strengthen our operations and better serve our customers at a reduced cost. Overall, we expect to gain a meaningful adjusted EBITDA margin lift for Site 1 in the coming years as we improve the performance of these focus branches. Taken all together, we made good progress in 2024 and are continuing to improve our capability to drive organic growth, increase gross margin, and achieve operating leverage through our commercial and operational initiatives in 2025 and beyond. On the acquisition front, as I mentioned, we added seven excellent companies to our family in 2024, with over $200 million in trailing 12-month sales added to Site 1. These additions include Devil Mountain, a large high-performing nursery distributor based in California, which provides an exciting new platform for nursery growth in the West. With an experienced acquisition team, broad and deep relationships with the best companies, strong balance sheet, and an exceptional reputation, we remain well-positioned to grow consistently through acquisition for many years. In summary, while we certainly are not pleased with our profitability in 2024, our teams did a good job of managing through the headwinds, leveraging our many opportunities for improvement, and creating strong momentum as we move into 2025. We are excited about our future as we continue to develop our company and create superior value for our customers, suppliers, and shareholders for the long term. Now John will walk you through the quarter and full year in more detail. John?