Greetings, and welcome to the SiteOne Landscape Supply First Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. John Guthrie, Executive Vice President and Chief Financial Officer for SiteOne Landscape Supply. Thank you. You may begin.

Thank you and good morning, everyone. We issued our first quarter 2022 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 Selman, 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.

Thank you, John. Good morning and thank you for joining us today. Following an exceptional year in 2021 with record sales growth and profitability and considering the tremendous first quarter that we had last year with 32% organic daily sales growth. We were pleased to see our momentum continue as we build on these gains in 2022. With 17% organic daily sales growth, 24% overall sales growth and improved profitability during the first quarter, we are off to another excellent start this year. We are encouraged by the continued healthy underlying demand and with our strong teams, improved capabilities, and a robust pipeline of potential acquisitions, we are confident that 2022 will be another great year of performance and growth for SiteOne. I will start today's call with a brief overview of our unique market position and our strategy for long-term performance and growth, followed by some highlights from the quarter. John Guthrie will then walk you through our first quarter financial results in more detail and provide an update on our balance sheet and liquidity position. Scott Selman will discuss our acquisition strategy and then I will come back to address our latest outlook for 2022 before taking your questions. As shown on Slide 4 of the earnings presentation, we have grown our footprint to more than 600 branches and four distribution centers across 45 U.S. States and six Canadian provinces. We are the clear industry leader over five times the size of our nearest competitor. Yet we estimate that we only have about a 15% share of the very fragmented $23 billion wholesale landscaping products distribution market. Accordingly, our future growth opportunity is significant. We have a balanced mix of business with 64% focused on maintenance, repair and upgrade, 21% focused on new residential construction, and 15% on…

Thanks, Doug. I'll begin on Slide 10 with some highlights from our first quarter results. We reported a net sales increase of 24% to $805 million in the quarter. There were 65 selling days this quarter, which is consistent with the prior year period. Organic daily sales increased by 17% during the quarter, driven by continued demand for landscape supplies, and price inflation in response to rising product costs. Acquisitions continued to perform well contributing approximately $43 million or 7% to our first quarter net sales flow. Scott will provide more details regarding our acquisition strategy later in the call. We were pleased with our organic daily sales growth this quarter given the 32% comp from the prior year, and to the slow start to the spring due colder and wetter weather in northern markets. Organic daily sales growth for our three northern markets was 13% compared to 23% for six markets in the south and west. Organic daily sales for landscaping products, which includes irrigation, nursery, hardscape, outdoor lighting and landscape accessories, increased 20% for the quarter due to price inflation and strong demand from both the new construction and repair and remodel end markets. Organic daily sales for agronomic products which includes fertilizer, control products, ice-melt and equipment increased 10%, reflecting price inflation and solid demand due to the stay-at-home trend partially offset by the slow start to the spring selling season. In addition, agronomic sales were negatively impacted by lower sales through the retail home center channel, as we did not repeat initial stocking sales of our LESCO product at Lowe's that occurred in the first quarter of last year. This reduced organic sales for agronomic products by 8% and overall organic daily sales by 2%. As stated earlier, price inflation continues to play a major role…

Thanks, John. As shown on Slide 12, we acquired one company during the first quarter and two companies in April, bringing our total to three for 2022 with a combined trailing 12 months net sales of approximately $50 million. Since 2014 we have acquired 67 Companies with approximately $1.3 billion in trailing 12 months net sales added to SiteOne. Turning to Slide 13 through 15, you will find information on our most recent acquisitions. On March 18, we acquired JK Enterprise Landscape Supply, with seven locations focused on providing bulk and bagged landscape supplies and hardscape to the Northern Virginia and Maryland markets. This acquisition complements our prior acquisition of another regional hardscapes leader, Stone Center of Virginia. On April 22, we acquired BellStone Masonry Supply with a single location serving the Fort Worth, Texas market. BellStone distributes hardscape and bulk landscape supplies and builds upon our December 2020 acquisition of Alpine Materials, which also supplies hardscape products. On April 28, we acquired Preferred Seed, a leading supplier of agronomic products to landscape contractors in Upstate New York with one location in Buffalo. These acquisitions add terrific talent to SiteOne, and move us forward toward our goal of providing a full line of landscape products and services to our customers in all major U.S. and Canadian markets. Summarizing on Slide 16, our acquisition strategy continues to create significant value for SiteOne. Our robust pipeline is expanding across all lines of business and geographies, giving us confidence that we will add more outstanding companies to SiteOne throughout 2022. We have a very deep and experienced team in terms of bringing companies into SiteOne and an exceptional reputation for being a great home for landscape distribution entrepreneurs and their teams. We also have several advantages as the market leader 100% focused on landscape distribution with almost 60 former owners in leadership roles, our rich and down to earth culture, and tremendous functional and technological capabilities to support the growth of companies who join us. All these factors allow us to achieve a high percentage of negotiated sales and give us the edge in competitive acquisition situations. We believe these advantages are formidable and sustainable, and will enable us to continue successfully executing our acquisition strategy in the coming years. I want to thank the entire SiteOne team for their passion and commitment in welcoming the newly acquired teams when they join SiteOne. Their leadership and efforts are the key to our long-term success in building SiteOne. I will now turn the call back to Doug.

Thanks Scott. I'll wrap up on Slide 17. We have good momentum moving into our busy spring selling season. Underlying demand is healthy and we remain optimistic about the year despite the tough comparisons ahead. As we discussed, we now expect prices in the second half of the year to be higher than our prior forecast with continued supply chain challenges and solid demand. Overall the market should provide a reasonable environment for us to execute our commercial and operational initiatives and drive further growth in sales and profits in 2022. In terms of markets, we are currently seeing solid demand trends in all our end markets; maintenance, repair and upgrade, and both residential and commercial new construction. Our contractors remain busy and have strong backlogs for 2022, although as mentioned, the spring season is starting later this year, due to colder and wetter weather in northern markets. We also understand that there is a lot of economic uncertainty associated with inflation, but we have not yet seen this translate into meaningfully lower demand. Furthermore, we expect to gain market share as we deliver higher value to our customers, and further execute our customer and product growth strategies, including our marketing and digital initiatives. Taken altogether, we continue to expect to achieve high single digit organic daily sales growth for the full year 2022 mostly driven by price inflation. As mentioned, we also expect our gross margin to decline somewhat this year, with less benefit from price realization, partially offset by our gross margin improvement initiatives. While we will be able to achieve some SG&A leverage, we expect our adjusted EBITDA margin to decline modestly in 2022. In terms of acquisitions, as Scott mentioned, we currently have a strong pipeline of high quality companies, and look forward to adding more of these to the SiteOne family during the year. Our acquisitions are performing very well, and we continue to improve our ability to integrate them into our company. Accordingly, we expect acquisitions to contribute strongly to our performance and growth in 2022 and the years ahead. With all these factors in mind, we are maintaining our expectation for fiscal 2022 adjusted EBITDA guidance to be in the range of $430 million to $450 million, which represents year-over-year growth of 4% to 8%. This range does not factor any contribution from unannounced acquisitions. In closing, I would like to sincerely thank all our SiteOne associates who continue to amaze me with their passion, commitment, teamwork, and selfless service. We have a tremendous team, and it is an honor to be joined by them as we deliver increasing value for all our stakeholders. I would also like to thank our suppliers for supporting us so strongly, and our customers for allowing us to be their partner. Operator, please open the line for questions.

Thank you. Our first question comes from the line of David Manthey with Baird. Please proceed with your question.

Thank you. Good morning. I was wondering if you could break out price across agronomics versus landscape products? And then in terms of the cadence of growth through the months of the quarter, is it right to assume that obviously things were a little bit weaker in March or April, does that mean that they were negative year-over-year or just slower growth?

Yes, I'll take the second half of that and I'll let John take the first, David. As we mentioned, it's been a colder and wetter spring so far in especially in the northern markets. Last year was an especially mild spring, so and spring started a bit early, so we're comping against that. So April started out flat, but it has actually progressed through the month. So we've seen growth resume and strengthen as the month has developed. So we're encouraged in what we see, the trends we see, and it seems to be just your typical later spring. We'll see how it goes through the rest of the second quarter, but that's the time which we had seen in April has started out flattish, progressed to more strong growth in the recent weeks. And John, you want to pick up the first half of that?

Yes, they were both about, our agronomics was about 17% and our landscaping products would have been a little over 20%. From that standpoint, but there was even within that, it had quite a bit of variation. Like, for instance, like fertilizers were probably in the high 20s and PVC pipes and those were about 50%. So there is -- those commodity type products that kind of trade -- was still the primary drivers. If you look at a lot of products were in the in the, I would say, mid to low or high single digit inflation mark.

Got it, okay. And then second, I know gross margin is a moving target. Last quarter, you were signaling sort of a 40 to 80 basis point decline for the year. Just to be clear, is that to represent the -- as the inventory gains dissolve, when pricing stabilizes, is that what you were indicating was sort of the magnitude and or is that number related to inventory gains greater offset by some of the operational positives you're working on?

Yes it's really a factor of both. You know, the big -- we received a lot of benefit from price realization, especially in the third and fourth quarters of last year and we're comping against that and that pushed the decline in gross margin. We do have our gross margin initiatives private label small customer, which will work some of that back. You know, when we reported that, in February, we said that gross margin, which was 34.9% in 2021 was going to be more 34% to 34.5%, I think, seeing what we're seeing now with commodities kind of holding up, we'd probably be toward the higher end of that, that range if we had to forecast it today.

Yes, right, makes sense. Thank you very much.

Great, thanks, David.

Thank you. Our next question comes from line of Stephen Volkmann with Jefferies. Please proceed with your question.

Hi, good morning, guys. Thanks for taking the question. This is, maybe I apologize at the outset. It's a very big picture question, Doug. But obviously, the market has sort of taken a view on anything remotely sort of building products related. And I know you have a lot of experience in different markets in building products. So I'm curious how you think, if we were to get a slowdown in housing, for example, that seems to be what people are thinking, how do you think that impacts SiteOne? And then sort of related to that, obviously, interest rates are going up and maybe quite a bit, does that impact your business model going forward?

No, good question. And, you know, we obviously we've been through downturns and soft periods and strong periods. And so we, we have one of our goals at SiteOne, and what we're kind of proud of is we've built a very balanced business. So if you look at our business mix, being a little over about 37% maintenance, which is going to hold up well really regardless of the market, you've got a strong repair and remodel, kind of 27% repair and remodel. And repair and remodel, if you see a new housing slowdown, but jobs are still plentiful, and consumer confidence is there, that that will hold up quite nicely. And one of the trends we've seen is that the DIY part of repair and remodel had a big COVID bump, and has come back down. The professional side was constrained by labor, so you never had the big bump and so you're seeing stronger growth in that do it for me side, which we're benefiting from. And then you get the parts of our business that are tied to new construction, about 36% overall, 21% of that is housing, 15% of that is commercial and recreational. And if housing slows down a bit, but that will be the part that gets affected, we feel like we've got great initiatives in place that will allow us to swim upstream, if you will, and gain market share if we're in softer markets. So we feel like if the housing goes down, sure it will dampen our organic growth, but we've got a lot of levers to pull and a balanced business. So we'll be able to continue to march forward and be okay in terms of our strategy and our profitability going forward. So that's what we see. And then in housing today we don't see a slowdown yet. So, but certainly interest rates are going up, housing prices are up. We like everybody else we're watching. But for now the builders are building and our contractors are busy. So we'll see how it goes this year.

Great, that's helpful and do higher rates make Scott's job tougher, just a higher cost of capital and hurdle rates, et cetera?

No, I mean, Scott can comment, but owners are driven by a myriad of reasons when they sell their companies and we've got a strong balance sheet. And we're out there talking to all of them. So if they're ready to sell, we're going to buy. But interest rate movements, and those kinds of things don't tend to affect that.

I appreciate it.

Thank you.

Thank you. Our next question comes from line of Ryan Merkel with William Blair. Please proceed with your question.

Thanks. Good morning, and congrats on the quarter. I wanted to ask about the comment on customer backlogs remaining strong. So I'm just curious, how far are people booked out? And is this commentary tied to new construction or is it also to remodel?

You know, it's really tied to -- I'll start with commercial. The commercial backlogs are the longest. They tend to be 9 to 12 months out, and in bigger projects, et cetera. When it comes to new home or new home construction you're typically in more kind of three to six months of backlog. Customers that are tied to builders, they know what the builder schedule is and so they're tied to that. Repair, remodel can vary, right? You have some folks that would work up three-month backlog. Really, in today's market in the last couple of years a lot of repair and remodel folks are booked up for nine to 12 months, which isn't historically the case. But with the strong demand, and the lack of labor has been the case. So if you average that together, you're probably four months of backlog. And so what we're hearing from our customers is, hey, a lot of them seeing the rest of the year, and they have a backlog for the rest of the year. There's always some that don't. The commercial folks are booked up. And so net-net there seems to be work both for the spring season and the fall season for 2022. But we don't have a lot of visibility into is, is 2023. Right? Because most of the backlogs run out before you go into next year.

Got it? That's helpful, okay. And then I wanted to ask a question on price, what do you expect for price now in 2022? And just clarify, is the higher price included in guidance or not included in guidance?

We went into the year kind of, our forecast for the year was and we're maintaining that was high single digit organic growth with the majority of that being priced. So 8% or 9%, if you will, type of price for the full year. Obviously, we expected it to be very elevated in the first quarter, and then sequentially decrease as we go throughout the year. As we've talked about certain manufacturers or suppliers to us are putting in price increases now that a lot of what drove price increases really especially in the second half of the year, the prices rose at that time, and they're kind of being maintained at these elevated levels currently. So in general, we think this will probably be the high watermark, and this was built into our guidance for price for the year, and then sequentially go down as we go throughout the rest of the year being in single digits likely in the fourth quarter. Obviously a lot of great uncertainty with regards to that.

Right. Yes, I would just add, I think, we're obviously -- there's a lot of uncertainty. The pricing, if it stays elevated, if we're correct now versus our forecast would give us some upside. But we've not, if you will, kind of factored that in, just because we feel like there's a lot of uncertainty. And the weather, although we think the weather is manageable now, we can't forget that last year was a very good weather here actually both in the spring and the fall. So we've probably baked in a little downside on weather, on volume to balance that. It's early in the year and so we're shy to change any guidance just based on the smallest first quarter.

Makes sense. Thanks, I'll pass it on.

Thank you. Our next question comes from line of Keith Hughes with Truist Securities. Please proceed with your question.

Thank you. More longer-term question here. On Slide 8, you talk about all the MSAs that you're not in, hardscapes or nursery or both? I guess my question is for Scott. When you're looking to purchase or do acquisitions in hardscape and nursery, is it more difficult to buy those types of businesses than agronomics and sprinkler pipe suppliers and things like that? Is there anything different about acquisitions there?

I wouldn't say it's any more difficult. We have a very strong pipeline across all the lines of business. And there's certainly willing sellers, I think, in all of them. But I don't see any fundamental difference in terms of the difficulties or hurdles in acquiring across any of the lines of business.

The one thing I would add to that is that they're very fragmented, hardscapes and nursery are extremely fragmented, and more fragmented than agronomics and irrigation. So they are not more difficult, but you're going to have to do more deals. Would you agree, Scott, take the fill in when we acquire an irrigation company, they often have 15 to 20 locations, et cetera and hardscapes tend to be single or a couple locations, so which is good for us, right? We're used to doing lots of acquisitions. It's our strength in bringing on lots of small companies. But the hardscapes and nursery would be more fragmented, which just means it's -- there's more deals to be done in order to fill that in.

Absolutely, yes irrigation, agronomic are more mature in terms of their consolidation, yes.

Okay, great. Thank you.

Thank you. Our next question comes from line of Matthew Boulais with Barclays. Please proceed with your question.

Good morning, everyone. Thank you for taking the questions. I wanted to ask on demand and weather, you said that sort of slower start to the spring selling season attributed to weather. I just kind of wanted to unpack that a little bit, is any kind of detail or quantification on what you think the impact may have been, maybe trends in sort of the non-seasonal markets, or product lines into the spring might be the best way to explain that? You know obviously, what I'm trying to get at is your confidence that it's not some broader signal around that underlying demand. Thank you,

Yes, I think the best way to look at that is, if you would split the kind of the Northern markets versus the Southern markets. So we saw organic growth, I think of 23% in the South and Western markets, and only 13% in the Northern markets. So these are the markets that are slowing, that are really impacted that haven't really hit the spring. I would also add that up until kind of the March where the spring hit, we were actually doing even stronger performance on both sales and volume. March slowed down a little bit, as Doug mentioned, and it's been escalating since then, as spring has hit. So we seem -- we feel as if we have it isolated to those specific markets with regards to it and are optimistic about the next quarter.

Got you. That's really helpful John. Thank you for that. And secondly, on SG&A I guess just to the extent the makeup of your full year growth guidance has maybe shifted to a little more price inflation and a little less volume. If that's the case, would we expect to see some sort of greater leveraging of SG&A or maybe reduced SG&A dollar spending versus what we had previously thought? Thank you.

I think we're still we're expecting SG&A leverage this year. And so I think obviously price is a positive to that. I think that was -- that's kind of reflective in our in our original guidance. Obviously, we're still investing in the business and in our largest cost is our people. And obviously, we're seeing some pressure there as everybody in the market is with regard to labor costs. But so what we're still expecting SG&A leverage and that was kind of I think our outlook for the year is still kind of solid as we are managing it.

Great. Thanks, John, thanks, Doug.

Thank you.

Our next question comes from line of Mike Dahl with RBC Capital Markets. Please proceed with your question.

Good morning. Thanks for taking my questions. My first question is a followup on some of the comments around what you're seeing and watching. And I'm curious, is there anything that you're seeing in either average purchase size or product mix, that would give you any early indication of kind of shifts in the underlying customer environment, and whether you are -- and what are the other types of things that you'd be looking for as far as those early indicators?

Right. Well, we haven't seen any fundamental shifts in product lines. I mean again, you do have, you have product lines that are tied to new constructions, repair, remodel, maintenance, obviously, but the lines have been strong right across those, so no real trend there. Quite frankly, we watch, we talk to our customers, we talked to, you know, they are the best gauge. And again, we feel good in that. We also have our own Project Services Group, which does commercial bidding. And so we keep track of that, how with their bidding activity. It's kind of like an ABI index, if you will, for us and they've shown growth this year. So, our main ways, we don't have any tricks in forecasting better than anybody else. So our main ways of keeping our ear to ground is talking with customers, keeping track of what work they've got coming down and that seems good. Our product lines are moving, that seems good, and our project services bidding is growing. So all indications are that we'll have a good year this year and we'll see how it goes.

That helps, thanks. And my second question is back to kind of the cycle question and appreciating that in you know, in most normal times your business is going to be less cyclical than many other things, so would probably fall in this space. I'm curious, this cycle is a little unique in terms of the pricing dynamics. If you look by the end of this year, you'll probably have benefited from cumulative at least 20% pricing a lot of that being driven by some of the commodity products, you mentioned PVC, or John mentioned PVC up 50% this quarter. So does the -- do the dynamics around pricing over the last two years, potentially increase the sensitivity of growth in earnings if we were to see a slowdown compared to maybe prior times?

We're always building off of our last year, right? And last year if pricing was high, I think it was 11% and I believe we had 11% volume growth. Right? So we shouldn't forget that, the fundamentals of the business are very strong. And so, I think John might comment, but we don't think that the pricing as inflation comes back into where it normally would be for this industry, which is, 2% or 3%. We can continue to build and then move forward in that environment. Commodities if they come off more, you might have flattish inflation where you've got the other products going up at a normal rate and your commodities down, you might end up. But we've had years before where we had no inflation, and we're able to still improve our gross margins, good SG&A leverage and drive forward. So certainly, we feel like we can continue to grow and drive forward even as the inflation comes back to normal and we hope it does come back to normal so we can get into more kind of stable environment for the long-term. But John, anything to add to that?

Yeah, I think you hit on the key points. I guess the one point I would say is, there's about 80% of our businesses, I would call it considered wallets. There was a push-pull inflation component, there's only about 20% of our business that is highly, I would call that we reprice regularly from that component. And that's what we're constantly managing to, and operating and we get to kind of -- we build that into the business and we'll adapt accordingly.

Okay, thanks, Doug, thanks John.

Thank you. Our next question comes from line of Jeff Stevenson with Loop Capital Markets. Please proceed with your question.

Hey, thanks for taking my questions today and congrats on the strong quarter.

Thank you.

So, have you seen any improvement with material availability in any product categories since the start of the year? Any more color on which products are in short supply and which have improved would be helpful?

I think the environment is about the same as it's been over the last couple of years. We still have products in each product category that are in tight supply. And they have to do with specific raw materials, be it urea or for fertilizer, et cetera or that could be electronic components that make it difficult for our irrigation providers to provide controllers. So and it's here and there across product line. We have a terrific supply chain team. We have four major DCs, and we have over 600 locations. So we have a huge strength in terms of being able to anticipate those, make sure that we've got inventory, and smooth, and have products for sale. And to some extent those disruptions help us in that our competitors don’t have a product, and we've got the product and we can gain market share. So and that continues to be the case. As John has mentioned, our inventories are elevated and that's a strategic decision for us to make sure we're in stock of products that we're going to need to have that we think might be tight. So again, we're navigating through. There's no, you know, if you take one product line, it's not the whole product line, it's just select products here and there that are tied to kind of global markets, that that are in tight supply and it really hasn't changed. We think it's going to continue to be challenging through this year and then we'll see how it smooths out. Hopefully the world complex, we hope and pray that they may end and those risks go away, but certainly we can't count on that.

Yes, that's helpful. And just expanding on that, you mentioned the share gains you've seen against your smaller and regional competitors doling part of industry and material availability challenges. Are you expecting a similar pace of share gains that you saw last year or is there some moderation baked into your guidance?

No, we feel like we can continue to gain share. I think on the supply side, I think a lot of our competitors have adjusted as well, so we probably don't have the advantage now that we had few years ago on that. But we've got other capabilities that we've been building and working on in terms of the technologies we have for our teams, how we fortified our teams, more bilingual branches, our marketing prowess that we now have to go out and find the small customers. So we have other capabilities that are kicking in that we feel confident will allow us to continue to gain market share.

Great, thank you.

Thank you.

Thank you. It appears we have no additional questions. I'll pass the floor back to management for closing remarks.

Okay, great. Well, thank you all for joining us today. We certainly appreciate your interest in SiteOne and I look forward to speaking with you again in the next quarter. I'd like to once again thank our tremendous associates for all they do for us, our customers for allowing us to be their partner and our suppliers for supporting us so well. Again, we look forward to talking to you again in August. Thank you.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. We thank you for your participation.