SiteOne Landscape Supply, Inc.

Greetings and welcome to the Site One Landscape Supply, Inc. Third Quarter 2025 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone requires operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, John Guthrie. You may begin.

Thank you and good morning, everyone. We issued our third quarter 2025 earnings press release this morning. I 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, Scott Salmon, Executive Vice President, Strategy and Development, and Eric Allema, Vice President, Finance and Corporate Controller. 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 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. We were pleased to achieve solid results during the third quarter with 4% net sales growth, including 3% organic daily sales growth and 11% growth in adjusted EBDA compared to the prior year period, despite the continued softness in our end markets. Our teams are executing our initiatives well, yielding excellent SG&A leverage, good gross margin improvement, and meaningful market share gains. We also benefited from a more favorable price-cost environment, yielding a 1% improvement in pricing for the quarter. Finally, we added three excellent companies to Site 1 during the quarter and one more in October, expanding our full product line capability in those local markets. Overall, with strong teams, a winning strategy, and excellent execution of our commercial and operational initiatives, We are delivering solid performance and growth in 2025, despite softer end markets. Heading into 2026, we are confident in our ability to drive continued performance and growth in the coming years. I will start today's call with a brief review of our unique market position and our strategy, followed by some highlights from the quarter. John Guthrie will then walk you through our third 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 question. As shown on slide four of the earnings presentation, we have a strong footprint of more than 680 branches and four distribution centers across 45 US 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 10 combined. Yet we estimate that we only have about an 18% share of the very fragmented 25 billion wholesale landscape products distribution market. Accordingly, our long-term opportunity to grow and gain market share 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, further strengthens this balance over time. Overall, we believe 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 resilience in softer markets, like the markets we are experiencing today. 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 putting the teams and systems in place to fully execute our strategy at a high level across each of our product lines. In the current challenging market environment, We are making good progress in leveraging our capabilities to drive tangible results with consistent market share gains, improved SG&A leverage, and steady gross margin improvement. For our commercial and operational initiatives, we believe that we are delivering industry-leading value for our customers and suppliers, and solid performance improvement and growth for our shareholders this year. Importantly, we are gaining momentum for continued success in the years to come. 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, we believe our strategy creates superior value for our shareholders through organic growth, acquisition growth, and adjusted EBDA margin expansion. On slide six, you can see our strong track record of performance and growth over the last eight years. From an adjusted EBDA margin perspective, we benefited from extraordinary price realization due to rapid inflation in commodity products during 2021 and 2022. In 2023 and 2024, we experienced significant headwinds as those commodity prices came down. In 2024, we also experienced further adjusted EBDA dilution from the acquisition of Pioneer, a large turnaround opportunity with great strategic fit, and from our other focus branches, which resulted from the post-COVID market headwinds. In 2025, our pricing has transitioned from negative 1% in the first quarter to flat in the second quarter to up 1% in the third quarter as commodity deflation continues to dissipate. We expect to exit 2025 with pricing up 1% to 2%. setting us up for more normal inflation and price realization in 2026. Furthermore, we are achieving excellent progress with Pioneer and our other focus branches in 2025 and expect to continue achieving improvements over the next several years as we bring their performance up to the Site 1 average. In summary, we believe we are positioned to drive strong adjusted EBITDA margin improvement in 2025 and in the coming years as we execute our initiatives and as the market headwinds turn to tailwinds. Since the beginning of 2014, we've completed over 100 acquisitions, adding more than $2 billion in acquired revenue to Site 1, which demonstrates the strength and durability of our acquisition strategy. These companies expand our product line capabilities and strengthen Site 1 with excellent talent and new ideas for performance and growth. Given the fragmented nature of our industry and our current market share, we believe that we have a significant opportunity to continue growing through acquisitions for many years to come. Slide seven 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, 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 third quarter highlights as shown on slide eight. We achieved 4% net sales growth in the third quarter with 3% organic daily sales growth and 1% growth due to acquisitions compared to the prior year. Organic sales volume grew 2% during the third quarter, reflecting continued share gains partially offset by end market softness and new residential construction and repair and upgrades. Pricing was up 1% in the third quarter, marking a meaningful improvement versus the prior year period. As expected, the growth in maintenance-related demand remained steady in Q3, and we achieved 3% organic daily sales growth with our agronomic products. The residential new construction end market was down during the quarter, especially in Texas, Florida, Arizona, and California. The repair and upgrade market continued to be soft, but we believe this market is beginning to stabilize versus prior year, while commercial demand also remains stable. Accordingly, with the benefit of market share gains and more favorable weather, we achieved 3% organic daily sales growth with our landscaping products. Overall, we believe that we are consistently outperforming the market through our commercial initiatives, which, in combination with the recovery in pricing, should allow us to achieve positive organic daily sales growth for the remainder of this year, even in a down market. Gross profit increased 6%, and gross margin improved by 70 basis points to 34.7%. due to higher price realization and gains from our initiatives. This outcome was higher than expected as our teams executed well and as the deflation in grass seed and PVC pipe was more than offset by stronger pricing and other products, which had a positive impact on gross margin. Our SG&A as a percentage of net sales decreased 50 basis points to 28.4% compared to the prior year period. For the base business, on an adjusted basis, SG&A as a percent of net sales decreased approximately 60 basis points versus last year, demonstrating our strong cost control and execution of our key initiatives, including continued improvement with our focus branches. We remain highly focused on achieving SG&A leverage through our initiatives, while benefiting from the impact of positive pricing on organic daily sales growth. Adjusted EBDA for the quarter increased 11% to 127.5 million, and adjusted EBDA margin improved 60 basis points to 10.1% due to higher net sales, improved gross margin, and increased SG&A leverage. With pricing continuing to normalize and with our commercial and operational initiatives yielding stronger results, we are pleased to resume adjusted EBDA margin expansion this year and expect to drive continued improvement in the coming years. In terms of initiatives, we are executing specific actions to improve our customer excellence, accelerate organic growth, expand gross margin and increase SG&A leverage. For gross margin improvement, we continue to increase sales with our small customers faster than our company average, drive growth in our private label brands and improve inbound freight costs through our transportation management system. These initiatives not only improve our gross margin, but also add to our organic growth as we gain market share in the small customer segment, as well as across product lines with our competitive private label brands like ProTrade, Solstice Stone, and Portfolio. Collectively, these three brands grew by 50% in the quarter and nearly 40% year to date. To further drive organic growth, we are leveraging our increased percentage of bilingual branches and executing Hispanic marketing programs to create awareness among this important customer segment. We are also making great progress with our Salesforce productivity as we leverage our CRM and establish more disciplined revenue-generating habits and processes among our inside sales associates and over 600 outside sales associates. This year, our outside sales force is covering approximately 10% more revenue than in 2024 with no additional headcount, which has allowed us to achieve higher organic sales growth at lower cost. Our digital initiative with SiteOne.com is also helping us to drive organic daily sales growth as our results have shown that customers who are engaged with us digitally grow significantly faster than those who are not. New to date, we've grown digital sales by over 125% while adding thousands of new regular users of SiteOne.com, helping customers to be more efficient and helping us to increase market share while making our associates more productive. A true win-win-win. Through SiteOne.com and our other digital tools, We are accelerating organic growth and we believe we are outperforming the market. With the benefit of dispatch track, which allows us to more closely manage our customer delivery, we are now able to improve both associate and equipment efficiency for delivery while more consistently pricing this service. We believe that we can significantly lower our net delivery expenses while improving the experience for our customers. So far this year, we have reduced our net delivery expense by approximately 30 basis points on delivered sales, which represent approximately one-third of our total sales. This is a major initiative and we expect to make significant progress this year and in the next two to three years. Last year, 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 Site 1 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. Through the third quarter, we improved the adjusted EBDA margin of our focus branches by over 200 basis points. and we expect to gain a meaningful adjusted EBDA margin lift for Site 1 in the coming years as we improve the performance of these branches. To support further progress in 2026 in the face of potentially soft markets, we are planning to consolidate or close an additional 15 to 20 branches and serve existing customers from nearby branches at a lower cost. We will provide further detail on this later in the call. Taken all together, we are gaining momentum with our commercial and operational initiatives, which are improving our capability to drive organic growth, increase gross margin, and achieve operating leverage. On the acquisition front, as I mentioned, we added four excellent companies to our family during the quarter and in October. and we have added six companies and approximately $40 million in trailing 12-month sales to Site 1 so far in 2025. As we had mentioned earlier in the year, most of our more advanced discussions are with smaller companies this year, and so we expect 2025 will be a lighter-than-normal year in terms of acquired revenue, even as we aggressively cultivate key targets for future years. In our fragmented industry, we still have plenty of high-quality targets, and we remain well positioned to grow consistently through acquisition for many years with an experienced acquisition team, broad and deep relationships with the best companies, a strong balance sheet, and an exceptional reputation for being a great long-term home for companies in our industry. In summary, our teams are doing a good job of managing through the near-term market environment, leveraging our many opportunities for improvement, prudently adding new companies to Site 1 through acquisition, and building our company for the long term. Now, John will walk you through the quarter in more detail. John?

Thanks, Doug. I'll begin on slide 9 with some highlights from our third quarter results. There were 63 selling days in the third quarter, the same as the prior year period. Organic daily sales increased 3% in the third quarter compared to the prior year period driven by our sales initiatives and improved pricing.

Overall, we saw 2% deflation in Q1 2025 to 1% growth this quarter.

Price increases due in part to tariffs have now more than offset the price decreases we were experiencing with certain commodity products. We have positive pricing in almost all categories, while commodity products like grass seed and PVC pipe, which were down approximately 13% and 10% respectively this quarter, are becoming less of a headwind. Our outlook for price contribution for the fourth quarter is between 1% and 2%, And for the full year, pricing should end up flat to up approximately 1%. Organic daily sales for agronomic products, which include fertilizer, control products, ice melt, and equipment, increased 3% for the third quarter due to solid demand in the maintenance and market and market share gains. Organic daily sales for landscaping products, which include irrigation, nursery, hardscapes, outdoor lining, and landscape accessories, increased 3% for the third quarter due to our sales initiatives, improved pricing, and more favorable weather. Geographically, seven out of our nine regions achieved positive organic value sales growth in the third quarter. Consistent with last quarter, we continued to see weaker sales in the Sunbelt states, like Texas, due to softness in the new residential construction and market. Acquisition sales increased which reflects sales attributable to acquisitions completed in 2024 and 2025, contributed approximately $13 million, or 1%, to net sales growth. Gross profit increased 6% to approximately $437 million for the third quarter, compared to approximately $411 million for the prior year period. Gross margin for the third quarter expanded 70 basis points to 34.7% due to improved price realization and benefits from our commercial initiatives like private label and small customer growth. Selling general and administrative expenses, or SG&A, increased 2% to approximately $357 million for the third quarter. SG&A as a percentage of net sales decreased 50 basis points for the quarter to 28.4%. The SG&A leverage improvement reflects our actions to increase productivity and better align operating costs with the current market demand. For the third quarter, we recorded income tax expense of approximately $16 million, which is consistent with the prior year period. The effective tax rate was 20.4% for the third quarter, compared to 26.2% for the prior year period. The decrease in the effective tax rate was primarily due to an increase in the amount of excess tax benefits from stock-based compensations. continue to expect the 2025 fiscal year effective tax rate will be between 25% and 26%, excluding discrete items such as excess tax benefits. Debt income attributable to Site 1 for the third quarter increased 33% to $59 million due to net sales growth, improved gross margin, and SG&A leverage. Our weighted average diluted share count was approximately $45 million at the end of the third quarter, compared to $45.6 million for the prior year period. We did not make any share repurchases during the quarter, but post-quarter, we repurchased approximately 161,000 shares for $20 million under a 10b-5-1 plan. Year-to-date, we have repurchased approximately 656,000 shares for a total of approximately $78 million at an average price of approximately $118 per share. These repurchases reflect our continued commitment to disciplined capital allocation and returning value to our shareholders. Adjusted EBITDA increased 11% to $127.5 million for the third quarter compared to $114.8 million for the prior year period. Adjusted EBITDA margin improved approximately 60 basis points to 10.1%. Adjusted EBITDA includes adjusted EBITDA attributable to non-controlling interest of $1 million for the third quarter of 2025 compared to $0.8 million for the third quarter of 2024. Now I'd like to provide a brief update on our balance sheet and cash flow statement as shown on slide 10. Working capital at the end of the third quarter was approximately $1.06 billion compared to approximately $992 million at the end of the same period prior year. The increase in working capital is primarily due to higher inventory purchases ahead of tariffs and growth in accounts receivable due to increased sales. Net cash provided by operating activities was approximately $129 million for the third quarter compared to approximately $116 million for the prior year period. The increase in operating cash flow is primarily due to the improvement in United Income. We made cash investments of approximately $16 million for the third quarter compared to approximately $21 million for the same period prior year. The decrease reflects lower acquisition investment compared to the same period prior year. Capital expenditures of approximately $10 million were flat compared to the same period last year. Net debt at the end of the quarter was approximately $423 million compared to approximately $449 million at the end of the third quarter of last year. Leverage declined to one times trailing 12-month adjusted EBITDA from 1.2 times a year ago. As a reminder, our target year-end net debt to adjusted EBITDA leverage range is one to two times. At the end of the quarter, we had available liquidity of approximately $685 million, which consisted of approximately $107 million cash on hand and approximately $578 million in available capacity under our ABL facility. Our priority from a balance sheet and funding perspective is to maintain our financial strength and flexibility so we can execute our growth strategy in all market environments. Before I turn the call over to Scott, I'd like to take a moment to share that this will be my final earnings call as CFO. As previously announced, I will be retiring at the end of the year. It's been a true privilege to serve SiteOne over the past 20 plus years, and I'm incredibly proud of the company we built and the progress we've made together. I'm also pleased to welcome Eric Alamo, our incoming CFO, who will be stepping into the role beginning in January. Eric has been a key leader and partner in building our finance organization and has played an integral role in shaping the strategy and driving execution at Site 1. I'll now turn it over to Eric to briefly introduce himself.

Thanks, John. I want to start by thanking you for your leadership and mentorship. You've built the best-in-class finance organization and have set a strong foundation for continued success. I'm honored to step into the CFO role. and excited to continue supporting our teams and executing our strategy. From a financial and operational standpoint, nothing is changing. We remain focused on discipline execution, driving performance and growth, and delivering value for our stakeholders. I look forward to working closely with Doug and the leadership team, as well as all our associates in the next chapter. I will now turn the call over to Scott for an update on our acquisition strategy.

Thanks, Eric, and thank you, John, for your leadership and contributions to Site 1. It's been a pleasure working alongside you. I'll now provide an update on our acquisition strategy. As shown on slide 11, we acquired three companies in the third quarter and one more post-quarter, bringing the total to six acquisitions year-to-date with a combined trailing 12-month net sales of approximately $40 million. Since 2014, we have acquired 104 companies with approximately $2 billion in trailing 12-month net sales added to Site 1. Turning to slides 12 through 15, you will find information on our most recent acquisitions. On July 24th, we acquired Grove Nursery, a single-location wholesale distributor of nursery products in northwest Minneapolis, Minnesota. The addition of Grove Nursery now enables us to provide a full range of products to our customers in the Twin Cities. Also on July 24th, we acquired Nashville Nursery, a single location wholesale nursery in Northwest Nashville, Tennessee. Joining forces with Nashville Nursery further strengthens our position as the leading wholesale distributor of nursery products in Central Tennessee. On September 19th, we acquired Autumn Ridge Stone, a single location hardscapes distributor in Holland, Michigan. expanding the range of products we provide to our customers in Western Michigan. And lastly, on October 1st, we acquired Red's Home and Garden, a single location hardscape and nursery distributor in Wilkesboro, North Carolina. The addition of Red's allows us to better service our many customers in Western Carolina. Summarizing on slide 16, our acquisition strategy continues to provide a significant growth opportunity for Site 1 by adding excellent talent and moving 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. As we've noted throughout the year, acquired revenue is expected to be lower in 2025, reflecting a more modest contribution from recent acquisitions. We have a large pipeline of potential acquisitions, and we are actively building relationships with many other companies. We have significant runway to grow and create value through our acquisitions in the years to come. As always, I want to thank the entire SiteOne team for their passion and commitment to making SiteOne a great place to work and for welcoming the newly acquired teams when they join the SiteOne family. I will now turn the call back to Doug.

Thanks, Scott. Before we wrap up, I'd like to take a moment to thank John for his outstanding leadership and many contributions to SiteOne over the years. John has been a terrific partner and trusted colleague from the day I joined the company back in 2014. Over the years, he's been instrumental in building our strong company, executing our strategy, and achieving excellent performance and growth. We wish him all the best in his well-earned retirement. I'd like to also congratulate Eric Ellema on his appointment as CFO. Eric is a proven leader with deep knowledge of our business. and I look forward to working with him in his new role as we continue to execute our strategy and drive long-term value. Now turning to our current outlook for the rest of the year on slide 17. With continued market uncertainty, elevated interest rates, and weak consumer confidence, we believe that the softness in new residential construction and repair and upgrade demand will continue, more than offsetting growth in maintenance demand. With the benefit of positive price growth and our commercial initiatives driving market share gains, we expect to achieve positive organic daily sales growth during the remainder of the year. In terms of our individual end markets, we have seen a decline in new residential demand this year, especially in the high growth markets across the Sunbelt. Accordingly, we expect the demand for landscaping products for new residential construction which comprised 21 percent of our sales, to be down during the remainder of 2025. Continued elevated interest rates, housing affordability challenges, and lower consumer confidence are constraining demand, and we expect this end market to remain weak until some of these factors improve. The new commercial construction end market, which represents 14 percent of our sales, has remained resilient in 2025 so far. and we believe it will be flat for the remainder of the year. Meeting activity from our project services teams continues to be slightly positive, but with the ABI index remaining below 50, there is uncertainty in new commercial construction future demand. The repair and upgrade end market, which represents 30% of our sales, has been down this year, but in talking with our customers and monitoring our volume in specific products, we believe demand has begun to stabilize in the last few months. We expect this market to remain soft during the remainder of the year, but would be optimistic that we may have reached a foundation for future growth in repair and upgrade demand. Lastly, in the maintenance end market, which represents 35% of our sales, we've continued to achieve solid sales volume growth. We expect the maintenance end market to continue growing steadily in 2025. Taken all together, we expect our end markets to be slightly down for the remainder of the year. Despite this backdrop, we expect sales volume to be slightly positive in the fourth quarter with the benefit of our commercial initiatives. Coupled with modest price inflation, we expect low single-digit organic daily sales growth during the remainder of the year. With strong actions taken to reduce SG&A and continued focus on branch improvement, sales productivity, and delivery efficiency, we expect to continue achieving improved operating leverage during the remainder of the year. We expect solid adjusted EBDA margin expansion for the full year 2025. In terms of acquisitions, as mentioned earlier, we expect to add more excellent companies to the Site 1 family during the remainder of the year. though we expect to add less revenue for the full year 2025 compared to 2024 due to the smaller average acquisition size. As mentioned earlier, to proactively address the potential for continued soft market conditions and to further optimize our footprint and cost structure, we plan to consolidate or close 15 to 20 branches in the fourth quarter and incur a charge to adjusted EBDA of approximately $4 million to $6 million. We expect to retain most of the sales from these branches. With all of these factors in mind, and including the fourth quarter charge, we expect our full year adjusted EBDA for fiscal 2025 to be in the range of $405 million to $415 million. This range does not factor in 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 like to also 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.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. We ask to please limit to one main question and one follow-up in the interest of time. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Thank you. Our first question comes from the line of David Manthe with Baird. Please go ahead.

Thank you. Good morning, everyone. First question, a simple one. Just on the charge that you mentioned, Why are you not excluding that from adjusted EBITDA guidance? It seems like a non-recurring item, just optically wondering why that's not being factored out.

We've always had relatively strict guidelines with regards to our adjusted EBITDA, and this is consistent with all of our adjustments primarily reflect acquisitions and the adjustments within the first year. So that's been our policy. We provide the information so you and the investors can make those adjustments themselves.

Yeah, appreciate it. That's great. And then the next line of questioning on pricing, if you could talk to us about the price you realized in agronomics versus landscape products. And then... Thinking about the fourth quarter and seasonality, the mix of the business, for example, grass seed, obviously lower in the fourth quarter than the third. How should we think about price realization as it relates to mix as we go into the season, the off season? And then any thoughts about 2026 as that's going to evolve?

Sure. Price for the quarter, landscape products was up 1%. And agronomic products was flat. I mean, it was actually down slightly, but you would round it flat. Going into the fourth quarter, graph feed, which is the largest component, still with negative price, will be a smaller component of the business. And so we expect price in the fourth quarter to be between 1% and 2%. And then going into next year, as kind of the deflationary items continue to diminish, we would think it would be kind of more of a normal pricing year. Historically, we're around 2%, you know, 1% to 3% would probably be a good range right now. But I think we would probably say we're at the midpoint of that range would be our outlook today. Okay.

Perfect. All right, John, congrats. All the best. Thank you. And Eric, we look forward to working with you.

Thank you. Thank you. Thanks, David.

Our next question comes from the line of Ryan Merkle with William Blair. Please go ahead.

Hey, good morning, all. Thanks for the question, and my congrats to John and Eric as well. I wanted to start off on the fourth quarter of the outlook for low single-digit organic. Are you seeing this in October is the first part of the question. And the second part is you mentioned repair and upgrades stabilizing a bit. I'm wondering if you could provide a little more color there, because that's a bigger ticket item usually, and I'm just surprised that you'd be seeing the stabilization now.

Yeah, so the comment on the growth first, we are seeing positive organic sales growth in October. Keep in mind that the fourth quarter is a tougher comp. Last year, we had 4% volume growth in the fourth quarter, which was quite strong. And the fourth quarter is highly impacted by weather. But we are seeing that positive growth so far in October. In terms of the repair and upgrade market, in talking with our customers and monitoring Our product lines that are tied to that, like hardscapes, lighting, we've seen that kind of stabilize. The performance there has been stronger. I think our customers clearly remodeled us down this year, but I think it seems to have settled. We hope it's a bottom, if you will. Don't know that for sure, but certainly the numbers there and discussions with customers They don't have long backlogs, but they seem to be settled into a rhythm of work. So more to come later, but the numbers that we see and the conversations that we're having, we're more optimistic now than we would have been three months ago.

Okay. Good to hear. Okay. And then on fourth quarter, you know, on inline sales with the street, the EBITDA is coming in a few million dollars below, and that's if I back out the branch closures. So how should we think about gross margin and SG&A in 4Q, just trying to square why EBITDA is a little below? And I realize fourth quarter with the weather can be, right, it's a small quarter. So I appreciate being conservative.

Yeah, I think in the fourth quarter, our guidance does not quite have as strong an outperformance year over year on gross margin as we achieved in Q3. We still expect to achieve good SG&A leverage, and that to be the primary driver of performance is what's built into our guidance.

All right, thanks. I'll pass it on.

Thanks, Ryan.

Our next question comes from the line of Damian Karras with UBS. Please go ahead.

Hi, good morning, everyone. Morning. Morning. Yeah, I was going to say that, you know, obviously the market environment for housing and homeowner spend isn't great right now. I'm just curious if you've been seeing any change in competitor behavior, just given some of the demand softness out there.

You know, we operate in competitive markets, and I wouldn't say we're seeing anything unusual. Obviously, when things are softer, people, you know, things naturally get more competitive. Those are typically around, you know, the larger customers and and around the commercial side of the business. And so we've seen that, but we've been seeing that for the last couple of years. So nothing more than usual. And we have strong teams and with our initiatives and capabilities like siteone.com and our delivery capabilities and the way we're private label and going after small customers, we're able to combat that competitive activity and still we believe, gain market share.

That makes sense. Then I wanted to kind of throw a little bit of a hypothetical your way, thinking about some of the additional store closures and footprint optimization that you're doing. If you were to see a comeback in housing and the demand environment sooner rather than later, would you still be in a position to fully serve the market I recognize that's not an expected turn of events at the current moment, but just any thoughts on how you might need to respond to such a scenario?

Right, that's actually a great question. Yes, we would be able to fully serve, let's say, a strong market with our current network. We have ample capacity, and of course, as things ramp up, we can add associates at the front line and our branches, etc., We have our DCs, and we have the capability to feed the system, if you will. And so the network optimization that we're doing with the store closures wouldn't prevent us from servicing a stronger market. We don't expect that to be the case. If it was, it would be a pleasant surprise. But we would be more than capable of serving that. And obviously, that would accelerate our SG&A leverage and and our EBDA expansion that we're planning for next year, but we're planning within a soft market.

Okay, good to hear. Thanks for the color. Good luck, everyone.

Thank you.

Our next question comes from the line of Keith Hughes with True Securities. Please go ahead.

Hey, this is Julian Normal on for Keith Hughes. Can you talk a little bit about how inflation is going to look like for the rest of the year? Any outlook on what inflation looks like in commodities?

I mean, I think that's carried through in our guide for inflation for the year. We're not seeing fertilizers and stuff like that. We're not seeing necessarily kind of major swings. So all that really. side that we'll give it.

Thank you. And then going back to the focus initiatives, I know you talked about you want to close 15 to 20, branching 26. Do you have any idea of what the cadence of that would look like and kind of how that would contribute to margins, you know, going through the year?

Well, if you take our focus branches in total, you know, which, you know, represents about 20% of our revenue, you As we mentioned, the EBDA margin, adjusted EBDA margin for those sets of branches are up over 200 basis points this year, and we would expect to continue that improvement trend. They're not up to the average, and there's a ways to go before they get up to the average, and so we would expect that improvement trend to continue into next year, and the new sets of closures and consolidations are really just part of making sure that we can make those improvements next year without a lot of help from the market, if you will.

Got it. Thanks.

Thank you.

Our next question comes from the line of Andrew Carter with Stiefel. Please go ahead.

Yes, thank you. Good morning. Question I have is around the margin targets you've said before. I know you've put out there a double-digit near-term kind of margin. If we're in a soft volume environment for 26 and 27, do you have the internal levers to get there, whether it be focus branches, whatever, independent of volume meaningfully accelerating?

Yeah, of course. The short answer is yes, we have a lot of self-help capacity with our focus branches, with the productivity with our sales force, with the delivery productivity that we've mentioned, and then on the gross margin side with our private label growth, which we're driving quite successfully with small customer growth, et cetera. You know, given that, you know, we do need a base, you know, if there was a big fall off next year or whatever, obviously that would interrupt that. But as long as we have a solid market, you know, a stable market, you know, call it soft, stable, then we have the opportunity to continue to expand our adjusted EBITDA. Obviously, the stronger the market, the quicker we can make gains. but we do have the capacity to continue the gains that you're seeing this year on into the next year, next couple of years in continued soft market conditions.

Second question on the M&A landscape. You said that this is going to be a softer year, which you've done six to date. Do you see that meaningfully picking up in 26, given your pipeline? Are you going to be more focused going forward on the smaller guys And I know you've said Pioneer was kind of uncharacteristic. Would you be willing to do something like that again, given kind of the challenges that had? I'll stop there.

Yeah, so, you know, we are having a lighter year revenue-wise this year with acquisitions. But if you look at the course of acquisitions, the size moves around. You know, every once in a while we'll do a larger one like a Pioneer or a Double Mountain acquisition. And then you have the midsize acquisitions, and then you have more small ones, right? And so, you know, we sell or sell when they're ready to sell, not when we're ready to buy. And so we're out there talking to all the, you know, all the companies that we would like to join. And, you know, any one year, you could have it be up, you could have it be down, et cetera. Given how it's falling this year, we would expect next year to be higher than this year, just because of the law of averages. You know, if you look at the 10-year period, $2 billion, that's a pretty good gauge of where we'll be going forward. In terms of would we do a pioneer, I'll call it a fixer-upper, we don't look to do those. And I wouldn't know of anything in our pipeline, Scott, you can correct me, that we have any more pioneers. We had tracked pioneer for a long time, so we kind of knew it was coming. But We'd much prefer to buy well-run companies, and I believe our target set going forward would be all well-run companies. Scott, could you confirm that?

Yes. To the extent we can know the performance of the companies, I would agree. We're not searching or tracking a larger turnaround or anything like that.

Thanks. I'll pass it on.

Our next question comes from the line of Matthew Booley with Barclays. Please go ahead.

Good morning. You have Elizabeth Langen on for Matt today. I just wanted to start off asking on SG&A. Obviously, you've made some improvement into this quarter. I was wondering if you could dig into that a little bit and maybe speak on how you're tracking with your SG&A initiatives and if you expect a similar magnitude of improvement through the end of this year. and into 2026?

We expect. We're still tracking. We would expect to continue the trend we've seen for the rest of the year. So obviously we're in queue for where we are taking the charge, but we had a similar magnitude charge last year. So we would expect to continue to achieve the SG&A leverage. In Q4, it's our plan to be without, you know, we're not giving guidance today on SG&A for 26, but, you know, certainly that SG&A leverage is foundational to what we're doing going forward.

Okay. And then I had another question on the commercial end markets. Could you speak to what you're seeing in those markets like in the Venn markets, and then also if you're seeing any regions that are having relatively lighter or more outsized demand on the bidding side.

In terms of commercial, we're seeing that continue to be stable. It has been all year. We have a project services group that puts together takeoffs for customers for commercial work, and so they're looking at all the commercial jobs coming down the pipelines. Their activity in terms of bidding is slightly up. We take that as a positive. When we talk to our customers, the backlogs are less than they would have been a year ago, but they're seeing continued work coming down the pike. It's been stable. We think it'll continue to be stable, flattish. No, we don't see any out-sized growth in any particular regions. It just seems to be kind of flat, stable going forward.

All right. Thank you very much, and good luck both John and Eric.

Thank you.

Our next question comes from the line of Mike Dahl with RBC Capital Markets. Please go ahead.

Hi. This is Chris from Mike. Just shifting back over to pricing and your initial expectation of a more normal plus two price environment, I was hoping you maybe give some initial presentation in terms of the drivers there, based on what you're seeing in commodity pricing, how do you expect commodity pricing to play out relative to non-commodity? And should we think about, given the easy first outcome, should we think about kind of trending towards the higher end of that 1% to 3% range and then settling out to something more normal, just the evolution of that based on where you see things today?

Thanks. I think it will accelerate as you go, just primarily because the grass seed probably won't. That'll be an overhang in the first half on the commodity side. The rest of the products are in pretty good shape from a commodity standpoint. Most of the PVC pipe prices decreases were, frankly, in 2024, and so that's been relatively stable in 2025. And then really the uncertainty is we'll have to see what the price increases are coming from our suppliers in the first quarter of next year. Right now, we're hearing low single-digit type numbers coming from those suppliers, but that's a little bit uncertain at this point, and we'll get greater visibility of that over the next three months.

Got it. I appreciate that. And just drilling in deeper into the SG&A outlook, I realize you guys aren't providing guidance, but just trying to get a better sense of magnitude of potential leverage next year given actions to date. Should we think about taking volume out of the equation and just the pricing expectation and the actions you're doing around branch closures that we can see kind of similar magnitude of SG&A leverage as we've seen in the last couple quarters looking to next year?

You know, we're really in our planning process right now. That's our goal is to achieve it next year. I think it's a little premature to give too much guidance in Q4 since we're really having those discussions right now.

Understood. Fair enough. Thanks for taking the questions.

Our next question comes from the line of Charles Perrin-Piche with Goldman Sachs. Please go ahead.

Good morning, everyone. First, congrats on retirement to John and Eric. Congrats on the new role. Maybe I could start with capital allocation. Maybe for John or Eric, if you have anything you have to add. Your leverage is now at the low end of the one to two times range as of September. It's good to see that you guys were active on share purchases in October. Against that, I guess, should the M&A market remain softer for longer, would you consider a higher focus on shareholder return going forward?

Yeah, I think that's fair. Our guidance is to invest in the business first with acquisitions. Obviously, we will have some acquisitions in the fourth quarter. But in so much as we are at the bottom of our leverage range and that certainly lends itself to doing increased share repurchases.

Okay. And then second, just following up on pricing, I think in your preparatory mock, you talked about the benefits of commercial initiatives on pricing this quarter. Can you expand on that notion and if you expect to see further mixed benefits to results going forward on top of life-for-life pricing?

The benefit of commercial is really not, I think that's two separate things. We benefited from stronger pricing and then also we also benefited from our commercial initiatives with regards to gross margin. So we're also, you know, some of the outperformance and what we've seen with regards to gross margin has been as a result of our private label and small customer initiatives. They're both contributing to our overall performance in addition to the So those were the two drivers that we talked about that kind of helped us from a gross margin perspective this quarter.

Our next question comes from the line of Jeffrey Stevenson with Loop Capital Markets. Please go ahead.

Hey, thanks for taking my questions today, and John, congrats on your retirement. So site successful internal initiatives continue to drive 2% to 3% above market growth and offset choppy end market demand this year. I just wondered, you know, how sustainable is the growth you're seeing in areas such as private label and small customers over the coming years? And do you expect share gains to continue to track above pre-pandemic levels?

Yes, we've got quite a bit of runway with those two in particular. You know, we're still significantly lower market share with the smaller customers than we are with our larger customers. And so we've got quite a bit of catch up there that will take you know, the next, you know, probably three to five years. And so that's a long-term play. In terms of private label, same thing. You know, we're at about 15% private label. We'd like to be 25%, 30% long-term. And so we're continuing to drive initiatives. We mentioned the growth in the quarter. You know, we intend, you know, we're already teeing up our forecast for next year, but we intend to keep keep pace and keep that percentage of our total sales growing as we move forward. And then, you know, the other initiatives is just, you know, our customer excellence initiatives. We work with our sales force and our CRM. You know, we aim to be an above market grower for many years to come. And so we are looking to keep pace including to adding adjacent product lines like pest control and erosion control. There's high growth in synthetic turf. Plenty of opportunities to outperform the market, not just this year, but in many years to come.

Got it. Thanks for all that color. Then pricing came in better than expected in the third quarter versus original flattish expectation. You know, I wondered what the primary variance, you know, with your results compared with prior expectations. Was it, you know, tariff-related price increases? You know, grass seed declines maybe not as severe as expected. Any more color layer would be helpful.

I think we went into the quarter thinking probably that it was going to be a more competitive pricing than especially with grass seed and some of the other products relative to what it actually was. from that standpoint, so it held up just a little bit better from that perspective. And so it was a pleasant surprise from that perspective, but that was the primary driver. And we are talking small.

We thought it would be flat, and it was up 1%.

Yeah, it should be relative. We didn't really put in a lot of price increases. It's more of the bids and quotes where things ended up. And so we're probably within rounding, but it was slightly stronger than we thought.

Got it. Thank you.

This now concludes our question and answer session. I would now like to turn the floor back over to management for closing comments.

Okay, well thank everyone for joining us today. We very much appreciate your interest in Site 1 and we look forward to speaking to you again at the end of next quarter. A big thank you to our amazing associates for the great job that they do for us. Also to our customers for allowing us to be their partner and our suppliers for supporting us. And then a final thank you to John, who's been such a terrific partner for these years. And congratulations to Eric. We're excited about our future, and we look forward to talking to you at the beginning of next year. Thank you.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.