Greetings. Welcome to the SiteOne Landscape Supply Fourth Quarter and Full-Year 2019 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to John Guthrie, Executive Vice President and Chief Financial Officer. Thank you. You may begin.

Thank you, and good morning, everyone. We issued our fourth quarter and full-year earnings press release this morning and posted a slide presentation to the Investor Relations portion of our website at investors.siteone.com. I am 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 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. I will start today's call with a brief review of our unique market position, our strategy to deliver long-term performance and growth and some highlights from 2019. John Guthrie will then walk you through our fourth quarter and full-year financial results in more detail, and Scott salmon will cover our acquisition strategy. At the end of the call, I will discuss some trends that we are seeing in our markets and address our outlook for 2020 before taking your questions. As shown on Slide 4 of the earnings presentation, we've grown our footprint to more than 550 branches and three major distribution centers across 45 U.S states and 6 Canadian provinces. At the end of 2019, we estimate that we had approximately 12% share of the wholesale landscaping products distribution market. We are 4x larger than our nearest competitor and larger than 2 through 10 combined. We have a very balanced mix of business with 59% focused on maintenance, repair and upgrade, 26% focused on new residential construction and 15% on new commercial construction. We are also the only national full product line wholesale distributor in the market. Our balanced end market mix, broad product portfolio and geographic spread give us multiple avenues to grow and provide important resiliency in softer markets. Turning to Slide 5, our large and local strategy combines the scale, resources and capabilities of a large world-class company with the passion, deep knowledge and entrepreneurialism of our local teams in order to deliver superior value to our customers and suppliers. It is important to note, however, that we're still in the early to middle innings of building our company and still have a long way to go in order to fully execute our strategy and…

Thanks, Doug. I will begin on Slide 9 with the income statement for our fourth quarter results. We reported a net sales increase of 13% to $535 million in the fourth quarter. For the full-year, net sales increased 12% to $2.36 billion. During the quarter, we had 61 selling days, which was unchanged compared to the prior year period. For the full-year, we had 252 selling days, which was also unchanged from the prior year. In 2020, we will pick up a 53rd week in fiscal December and our selling days will increase to 256. Organic daily sales increased 8% in the quarter and 5% for the full-year. Geographically, 10 out of 11 regions had positive sales growth in the quarter with the strongest sales growth occurring in the South. Organic daily sales for landscaping product, which includes irrigation, hardscapes, nursery and landscape accessories finished strong, growing 10% during the quarter and 5% for the year. Landscaping product sales in the quarter benefited in part from pent-up demand that resulted from the challenging weather we had in the first half of the year. Organic daily sales for agronomic products, which includes fertilizer, control products, seed, ice melt and equipment remained steady, growing 5% for the quarter and 4% for the year. Prices increased 1% in the quarter and 3% for the year compared to the same period in 2018 as cost increases from suppliers were passed through by the market. A number of price increases was put in place in the fourth quarter of 2018, and as a result, price inflation for the quarter was less than the full-year. For 2020, we are forecasting moderate price inflation of 1% to 2%. Acquisition sales growth, which reflected sales growth attributable through the acquisitions completed in 2018 and 2019 was $25 million…

Thank you, John. As shown on Slide 11, 48 companies have joined the SiteOne family since the beginning of 2014. They added 230 branches to SiteOne and represent approximately $915 million in sales on a TTM basis. In 2019, we acquired 10 outstanding companies, bringing approximately $100 million in TTM sales as we continue to be the first choice for entrepreneurs seeking up their valuation, excellent opportunities for their associates and a long-term partnership with the industry leader. Now as we turn to Slides 12 through 17, you'll be able to find information on our 6 most recent acquisitions. On September 30, we acquired Design Outdoor Incorporated, which serves the greater Reno/Lake Tahoe market from a single location focused on the distribution of hardscapes products to landscape professionals. The Reno/Lake Tahoe market is a new market for us and we are very excited to add the Design Outdoor team as part of the SiteOne family. On December 20, we acquired Dirt Doctors, a leading New England distributor of hardscapes and landscaping products with three locations. This acquisition expands upon our 2018 and 2019 acquisitions of Landscape Express and Landscape Depot. On December 27, we acquired Daniel Stone Incorporated, which serves the Greater Austin Texas market from a single location. Daniel Stone represents the third hardscape and landscape supplies acquisition we've made in Texas since July 2018. We’ve continued our momentum into 2020 by adding three more excellent companies, Wittkopf Landscape Supplies, Empire Supplies, and The Garden Dept. These acquisitions have allowed us to extend our hardscapes product offerings into both the greater Spokane Valley area in Washington as well as the Newark-Union metro-area, New Jersey. In addition, we significantly expanded our already leading nursery and landscape supplies presence in Long Island. As we turn to Slide 18, we continue to see a significant opportunity to grow profitably through acquisitions, which allow us to move into new markets, expand our presence in existing ones, broaden our product offerings and add outstanding talent to our team. Our pipeline remains very deep. Thanks to the strong efforts of our development professionals, field leaders and the leaders of previously acquired companies. Together they’ve earned an outstanding reputation for helping newly acquired teams to successfully join the SiteOne family of companies. 95% of our deal activity in 2019 involve exclusive negotiations with sellers. With nearly 50 companies added since 2014, we have a growing number of successful entrepreneurs who have joined the SiteOne family. Many of these leaders have stayed on to help drive our success and act as terrific ambassadors for SiteOne. We would like to thank all of our SiteOne associates for helping us to attract the best companies to join us in the future. While the timing of our acquisitions cannot be fully predicted, we’re pleased with our current pipeline of deals and confident that we will continue to add strong companies to SiteOne 2020 and beyond.

Thanks, Scott. I will wrap up on Slide 19. We're optimistic about 2020 as we see steady markets providing another year for SiteOne to continue to execute our strategy and achieve good performance and growth. With the stronger team, new system capabilities and good momentum on our initiatives, we expect to accelerate our market share gain and adjusted EBITDA margin expansion, while continuing to produce excellent cash flow in 2020. We will also continue to add companies to SiteOne through acquisitions. Before we get into our 2020 guidance, I would like to provide an update on the trends we are seeing across our end markets, and how those trends impact our organic sales growth prospects for 2020. The maintenance end market represents 42% of our business and we are seeing good growth in this segment due to a strong economy, steady price inflation and our improved ability to gain market share. As mentioned, our agronomics business, which is primarily maintenance grew 4% last year and we would expect similar growth in 2020. Similarly, the repair and upgrade end market, which comprises approximately 17% of our business is still benefiting from a strong economy, low unemployment and good consumer spending. Additionally, we benefit from two trends in repair and upgrade. First, there is the ongoing focus on outdoor living, which involves making the backyard a living space, particularly, with hardscapes and lining. Second, there is the increased scrutiny on stormwater management, which is driving double-digit growth in our drainage and stormwater category. We expect these two trends to continue for many years. Accordingly, we expect growth in repair and upgrade to remain healthy in the mid-single digits in 2020. The new commercial construction market, which is approximately 15% of our business has been very strong now for several years. While our…

Thank you. [Operator Instructions] Our first question is from David Manthey with Baird. Please proceed.

Hi. Good morning. Thank you. Doug, you said you expect a higher pace of adjusted EBITDA margin improvement in coming years, but when we look at the midpoint of the range for 2020, it's looking like maybe 10 basis points of improvement, which is in line or less than what we’ve seen since the IPO. Could you talk about the major cost factors or mix factors that are preventing you from getting more EBITDA margin expansion in t 2020, specifically?

Yes. Thanks, David. So we craft the range around a myriad of scenarios in terms of sales and performance. But overall, our expectation would be that we would see more improvement in 2020 than we saw in 2019. And we've got a bit of ahead win on the gross margin side with the -- we had the early buys in '18, helping us in '19. But we've got plenty of initiatives to overcome that and still achieve some margin improvement. We’ve got the blocking and tackling in category. We’ve got -- privately, we’ve got some excellent private label initiatives that are well advanced. We talked about the TMS and we would expect freight logistics savings, and we are still growing faster with a small and medium customer than we are overall. So those all give us good avenues to improved gross margin. And then on the SG&A side, our teams more fully builds and with good organic growth and some of our initiatives, social mobility and some of our efficiency initiatives and lack of some one-time hits that hit us in 2019, we think we will have good SG&A leverage as well. So put those together, we think we are in stronger position this year to achieve EBITDA margin expansion in 2020 than we were in '19. And acquisitions will affect that, but they seem to be coming in at the same EBITDA percent level as we are. And of course, we get some synergies there. So all told, range aside, we expect to get to -- more EBITDA margin improvement in '20 than in '19.

Okay. Thank you for that. That’s helpful. Could you characterize 2019 just to baseline us on weather quickly. I know second quarter was really tough for you, but third quarter seem nearly perfect and I know it's always a combination of factors that lead you to the mid-single-digit growth. But how would you characterize 2019 as a year? I mean with the -- with those two quarters, would you say it was roughly normal, and then as you mentioned you got non-res maybe coming off a bit, price coming off a little bit and maybe weather a little bit better to get you back to the mid-single-digit. Is that how you’re thinking about the comparison with last year?

Yes, that’s -- you got it. The second quarter was tough. And so we were at 2% organic growth at the half year, last year. The fall was a good season, right, weather was good, we didn't have any major hurricanes interrupt us in the South. And so, weather does tend to balance. And in 2019, we saw some of that balance come through. We got less price inflation than we had going into last year, but we feel better quite frankly. If you remember last year, the residential market was a bit stalled and there were some question marks there. Residential is two-thirds of our business and residential market feels stronger. The builders are more bullish this year and even our customers we’ve seen a tick up in projects that they’ve had there. So we think altogether, it balances and we will get a similar market in 2020, altogether than we had in 2019 and we're more advanced on our organic growth initiatives than we were last year. So that all brings us back to about the same place, which is that mid-single-digit growth. And that assumes a -- kind of a balancing year in 2020. We don’t know which season will be affected. We know probably one of them will -- if we have very, very terrible weather, could be lower than that and if we have great weather through the year, it could be higher than that.

That’s perfect. Thanks, Doug.

Thank you.

Our next question is from Ryan Merkel with William Blair. Please proceed.

Hey, good morning and nice quarter.

Good morning, Ryan.

Good morning.

Good morning.

Just want to follow-up on weather, if I could. We had pretty mild weather in the fourth quarter and even in January. And I just want to get a better understanding of how much this helps you, or is the impact more muted because we're in the off season, just in context there.

The impact is somewhat muted. I would say, in Q3, weather had a bigger impact on the business than in Q4. But it was a positive. It was a tailwind. I would say, in Q1, the weather has less of an impact until you really get to March when spring breaks. So I would say it was a nice tailwind this year, but and how all obviously relative to the beginning of the year we had we had a backlog of work that was out there that could -- that -- the weather allowed us to move forward with.

Okay. It's kind of what I thought. And then, secondly, you mentioned an increased ability to take market share in 2020. I know you listed a bunch of the initiatives, but can you just tell us how much do you aim to outgrow the market, or put some numbers or context to that comment, please?

Yes, we would hope to outperform the market kind of 1% to 2%, if you will. And we’ve probably been on the lower end of that range. And in 2020, we feel like we should have a stronger chance to be on the higher end of that range. But that would be roughly what we expect to get at this point in our development.

Okay. And then just lastly, if I can sneak this in. The outlook for moderating commercial construction, I don’t know if you hit on it, but what metrics are you looking at, or what conversations are you having that shapes that view?

Well, yes, our primary metrics we have two sources of, let's say, data on that. One is our customers themselves and what kind of backlogs they have. Our customers do have solid backlogs, but they’re not as long as they used to be. I mean, this time last year they had all of 2019 locked up. This year they just have a little less, right? So chances are they will pick more backlog up, but it just feels a little less strong than it going in the last year. The other lens we have is our project services group. We have a group that bids commercial jobs ourselves and assist our customers in doing takeoffs. And that group is looking out forward. And it's the same, they’re still seeing a steady flow of projects. But it seems to just be a tick lower than what they had seen in the past. So those are the reasons we would be a bit cautious there. We are not raising the red flags, but we’re just -- we are cautious, especially given the strength of commercial over the last several years that have some likelihood of slowing down and the -- particularly in the back half of 2020.

Makes sense, Doug. Thanks.

Thank you.

Our next question is from Stephen Volkmann with Jefferies. Please proceed.

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I’m sorry, Stephen, you are breaking up.

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Yes, we couldn’t catch that. Could you try to get a better connection?

Okay. Our next question will be from Mike Dahl with RBC Capital Markets. Please proceed.

Hi. It's actually Chris on for Mike. Thanks for taking my questions. So first, it looks like pricing in this quarter came in at a low end of your guidance, it's just up 1%, and your outlook hasn’t moderating through 2020. So I was wondering if you could just touch on, has anything changed in the market as far as your pricing power or your customers willingness to take on additional price increases? And then I’ve a follow-up.

I think it's more a reflection of what’s going on with our suppliers in the markets, in general. Going into this year and really in the back half of 2018, we had some impact from tariffs. In addition, there is strong pricing coming from our suppliers. And a lot of year-over-year, a lot of those price increases went into place in -- in Q4 of 2018. So we were comping against the price increases. What we're seeing with regards to 2020, we’re seeing some prices increase is coming from suppliers, better than much more modest compared to what we saw going into 2019. So I don't think necessarily it's a backlash relative to kind of where the market is at, but just kind of issues like tariffs etcetera are not on the board this year compared to last year.

Got it. Thanks for that. And then just my second question, can you just give an update on your M&A backlog currently? I know deal sizes were a little bit smaller this year -- or last year versus the average. So how does -- how do current average deal sizes look to you guys?

Yes, you’re right. Our 2019 deal size at $10 million was below our average over the last four years, which would be more around $17 million. But if I look at the backlog, we definitely have a significant number of medium and larger sized companies as well. So we would anticipate kind of reverting back to the norm somewhere probably between $15 million to $20 million average.

Got it. Appreciate the color.

Our next question is from Matthew Bouley with Barclays. Please proceed.

This is Christina Chiu on for Matt. I’m just wondering, in addition to what was already said in the prepared comments, how did organic growth breakout between your two products group in agronomics and landscaping?

Landscaping products grew 10% for the quarter and agronomics grew 5% for the quarter.

Got you. And then also can you help quantify some of the benefits that you’ve seen thus far from some of these operational investments in delivery and transportation, IT and marketing? And how customers kind of being receiving some of these upgrades?

Yes, what we -- going back, we made a lot of progress just in the overall customer experience in terms of being consistent with our customers, having the right product assortment, having the right pricing, having the associates, kind of trained and able to serve them. We've augmented with the siteone.com. So we've customers that are adopting our new online portal in order to not only do quotes and bids, but also order their products in advance so that when they come in it's already formed. And then recently we’ve rolled out the barcoding and associate mobility, in MobilePro, which allows our associates in our larger facilities and nursery and hardscape centers to check customers out in the yard to be able to scan and get pricing out in the yard and around the branch. And this dramatically improves the speed at which the customers can get in out of our facilities and therefore improve their customer experience. On the transportation side, we’re still early on in that. Most of our transportation work today has been on inbound freight coming into our branches. We are now running a pilot in the Coastal Carolina's to coordinate our outbound deliveries to customer, in that way we can coordinate across branches, we can have a centralized dispatching and we can get shipments there quicker and faster and at a lower cost. So that’s having a significant impact for those customers in those markets, and that's something that we plan to rollout across the country during 2020. So, all of these are aimed at the touch points of our customers, making things easier, making things faster. And when you do that, time is money for our landscapers. Their most precious resource is their labor. And their second most precious resource is their own time, because they’re all entrepreneurs and they’re busy. And so if you can save them time, give them a good competitive price and have it be an easy experience, they will come to us, right. And we’ve seen that in the early stages and that’s what gives us confidence we can outperform the market as we just provide a faster, more efficient superior customer experience than our competitors. So still in the middle innings there. We’ve seen good progress and we’ve seen the growth start to tick up, but lost more room there to improve as we roll all these out across the country and lock them in as the way we do business for the long-term. Does that answer your question?

Yes. I think that covers it. Thank you.

Okay. Perfect.

Our next question is from Keith Hughes with SunTrust. Please proceed.

Thanks. This is Judy Merrick in for Keith Hughes. Just a follow-up on the -- let's talk about the acquisitions kind of picking up -- maybe in more -- return to medium or large. Is there anything else you see that’s different, just the type of products or adjacencies or anything else that you're looking at for the acquisitions?

I would say nothing significantly changing. We are still seeing an overwhelming number of the deals are exclusively negotiated. I think you will still see us leaning more towards hardscapes and nursery type acquisitions, simply because of our filling out our map and our strategy to get our full product line offering across all of our target MSAs. So by and large, I think there's been very little change. The pipeline is strong. And again, still vast majority exclusively negotiated. When we talked about adjacencies like equipments and other facets of landscaping products that we can go into, but we have a robust pipeline in our traditional vertical and really until we get further down the road on that, we don’t think it's the time to start adding adjacencies and making our business more complex. So right now we'd like to keep -- we are working across nursery, hardscapes, agronomics and irrigation and that business has its own complexity. We like to stick to that in the near-term and keep those other adjacencies for down the road in our evolution to go after.

Okay, great. Thank you.

Thank you.

Our next question is from Seldon Clarke with Deutsche Bank. Please proceed.

Hey, guys. Thanks for the question. Could you just give a little bit more color around the cadence of your organic growth target for this year? And whether it implies any acceleration in any market, in particular, in the back half?

So I think in general from an organic growth, if we were to think next year is going to be a normal year, I think you would see probably -- we felt we had because of weather impacted the second quarter. We would expect to have probably the strongest quarter throughout the year and potentially the third quarter kind of moderate the opposite way, because second quarter is our most important quarter of the year. So it will be nice to hit there. In general, I think the growth geographically probably we're all across the country. So for instance, in the first half of this year, probably Southern California was somewhat negatively impacted, a lot of rain. You might see a recovery there. The south had a very good year. So I mean, we're somewhat -- one of the great things about being so geographically diverse is there's always one market where it's probably down a down year and in another it's offset. But generally, I would say in general, the south was pretty strong this year. Obviously, there's good economic trends there, also the west, at least the first half of last year faced some wet weather.

Okay. That's helpful. And then are you hearing anything from your suppliers in terms of disruption related to the coronavirus that we need to be thinking about?

We’ve heard some -- we get about 10%, 15% of our cost of goods from China either as input components or whole components. And it mostly affects our chemical business, some of our landscape accessories and lighting [ph]. And so we’ve obviously been in communication with those. The disruptions to date have not been major. There are potential reduction -- disruptions down the road, and so we've been doing some buying into our DCs and other things to mitigate that. We have secondary suppliers in the United States that we can use for these products and we can also buy forward into our DCs to -- as a shock absorber against any kind of disruption. So we feel good about our ability to kind of manage through any developments. And we're watching like everyone else. But to date, no major disruptions and we feel our plan is going to allow us to navigate any disruptions that we develop in the future.

Great. I appreciate the questions. Thanks.

Thank you.

[Operator Instructions] Our next question is from Alex Maroccia from Berenberg Capital Markets. Please proceed.

Hey. Good morning, guys. Thanks for taking the questions. So it's been a strong start to the year in the acquisition pipeline. I guess, why did people wait until the start of the year to sell? And what are you guys thinking you will add this year as a percentage of revenues?

I will take the second one first, I guess. We would still target our 7% to 13% TTM sales in terms of what we’re looking forward to add in terms of M&A. And then on the timing, I don’t think anyone is specifically waiting. I mean, there's a small psychological edge, so I guess for some people or benefit to finishing at the end of the year, but more or less it just comes down to when people are ready to sell in the due diligence process and how long that takes. So I don't think there's any particular force that’s pushing people towards the end of the year, which is sort of timing for us in this year.

And if you look at it, we did three deals in Q4. So they’re kind of -- they’re falling -- they just all fell towards the end of the year, some through the Q4, some flipped over to the -- at the end of the year. And there's a little bit of an effect to a seller's mind share that they’ve to be able to invest in an acquisition process if they're in season they have a look -- from March to June, they’ve a little bit harder time to focus on it. So it naturally pushes it sometimes to H2.

Got it. That’s helpful. And then second one is just seeing Shannon come in as CMO. She's got the big company background. Can you give us an understanding of how you are trying to change your marketing strategy, and if we can expect a significant uptick in marketing spend?

Great question. So we’re thrilled to have Shannon joining. Marketing has been one of our strategic initiatives for some time now. Yes, we're really still in the early stages of using marketing as a major lever to drive organic growth. We’ve made some solid progress over the last couple of years. What we love about Shannon is, she's got experience in all aspects of marketing. She was the VP with Lowe's and she has got kind of proven track record, especially as we move into the digital age and we started using all of our weapons, digital and otherwise in an integrated fashion to communicate with our customers, to improve the customer experience and to grow organically. We think, Shannon is uniquely prepared to take us through world-class, and that’s what we are very excited. In terms of marketing spend, we're not a big company and she understands that. And so we will be steady as you go going forward. We will obviously make investments in market. We've been making investments in marketing. So that won't end. I don’t see that being a huge tick up, but if we see levers to pull we will certainly make those investments and we will expect high returns from those investments. So we will have to see. I think invariably, as we get bigger, our spend will increase, but we're not looking for any kind of massive strategic pivot here. We are just really looking for Shannon to take the investments that we made already, perhaps smarter and better ones going forward to continue to drive organic growth. We are excited about her joining.

Got it. All right. Thanks a lot, guys.

Thank you.

We have reached the end of our question-and-answer session. I'd like to turn the conference back over to Doug for closing remarks.

Okay. Thank you and thank all of you for joining us today. We very much appreciate your interest in SiteOne. We are very excited about our long-term growth potential and profitability potential. And I'd like to once again just thank all the terrific SiteOne associates for helping us get to where we are today and for all their hard work and commitments in building a world-class company. Thank you very much and we will look forward to communicating with you again after the first quarter.

Thank you. This does conclude today's conference. You may disconnect your lines at this time and have a wonderful day.