. Greetings, and welcome to the SiteOne Landscape Supply Second Quarter 2016 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Pascal Convers, Executive Vice President of Strategy and Development. Thank you sir. You may begin.

Thank you. Good morning, everyone. We issued our earnings press release this morning and posted a slide presentation to the Investor Relations portion of our website at investors.siteone.com. We will be referencing the slides during this call. I'm joined today by: Doug Black, our Chief Executive Officer; and John Guthrie, our Chief Financial Officer. Before we begin, I would like to remind everyone that during this call, SiteOne management may make certain statements that constitute forward-looking statements within the meaning of the Private Securities and Litigation Reform Act of 1995. These include remarks about future expectations, anticipation, beliefs, estimates, forecasts, plans and prospects. Such statements are subject a variety of risks, uncertainties and other factors that could cause actual results to differ materially from those indicated or implied by such statements. Such risks and other factors are set forth in the company's earnings release posted on the website and provided in our final prospectus as filed with the Securities and Exchange Commission. The company does not undertake any duty to update such forward-looking statements. Additionally during today's call, the company will discuss non-GAAP measures which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation of adjusted EBITDA to net income calculated under GAAP can be found in our earnings release which is posted on the website and on Form 10-Q, which we filed with the SEC today. I would now like to turn the call over to our CEO, Doug Black.

Good morning, and thank you for taking the time to join us today. I would like to start today's call by briefly reviewing our strategy, followed by the highlights of our second quarter results. I will then pass the call on to John Guthrie, who will walk you through our financial results in more detail. Pascal Convers will cover the update on our acquisition activities. And finally, I will come back to provide comments on our outlook before opening up the line for your questions. I will start with Slide 4 of the earnings presentation. We continue to make progress executing our strategy, which we believe provides distinct opportunities to grow our business and create significant value for all stakeholders, both in the near term and over the longer term. As we explained during our last earnings call, our strategy combines the scale advantages and capabilities of a large company with the passion, deep knowledge and entrepreneurialism of our local teams, in order to deliver superior value to both our customers and our suppliers. This allows us to gain market share and achieve consistent superior organic growth and profitability. At the half point in the year, we have achieved 7% organic net sales growth, which is a reflection of our strategy. We complement our organic growth with acquisitive growth to achieve strong results for our stakeholders while extending our lead over the competition. And this was once again highlighted by our recent acquisition of Bissett earlier this month. In addition to organic and acquisition growth, we also have the opportunity to expand our EBITDA margin as we execute our commercial and operational excellence initiatives. We are still in the early innings of these initiatives covering pricing, category management, supply chain, sales force performance and marketing. In the second quarter, SiteOne…

Thanks, Doug. Now turning to Slide 6 and our second quarter 2016 results. We reported solid results for the quarter with net sales of $513 million, up 7% compared to $482 million in the second quarter of the prior year. We experienced the decline in organic sales of 2% for the quarter, but an increase of 7% for the first 6 months of 2016. Organic sales for the second quarter were negatively impacted by the pull forward of sales into the first quarter due to the early spring. As Doug mentioned, we reported 23% organic growth in the first quarter. Acquisitions in the second quarter contributed $42 million or an additional 9% to our growth rate. Looking at our organic growth in a little bit more detail, we saw the sale of our irrigation, lighting, nursery, landscape accessories and hardscapes grew 2% in the second quarter and 10% for the first 6 months of the year. These products continue to benefit from the economic recovery in residential and commercial construction and a strong repair and remodel market. Sales were, however, impacted by the Q1 pull forward and the wet weather in April and May. We saw good recovery in organic sales, however, in June. Our agronomic products, which include fertilizers, controlled products and other lawn care products, experienced a decrease of approximately 11% during the second quarter, following the 21% growth in the first quarter. These products, which account for approximately 1/3 of our annual sales, were more heavily impacted by the pull forward as contractors applied preemergent fertilizers and control products earlier in the season in response to the warmer temperatures. For the first 6 months of the year, organic growth of our agronomic products was 1%. Gross profit increased 14% to $168.5 million compared to $147.5 million during…

Thank you, John. As many of you know, acquisitions play a key role within our overall growth strategy. As shown on Slide 8, we have acquired 11 companies over the past 2 years and we continue to see a significant opportunity to create superior value for SiteOne through acquisitions, which allow us to move into new markets, expand our presence in existing ones, broaden our product offering and also very importantly, add market-leading talent to our team. As explained on our last earnings call, we acquired Blue Max Materials in April. Blue Max added 5 locations to our existing footprint of 26 stores in the Carolinas and makes us #1 in hardscapes there. The Blue Max team will also be instrumental in helping execute superior hardscape best practices across SiteOne. Now as we turn to Slide 9, earlier this month, we were very pleased to add another strong company to SiteOne. On August 1, we acquired Bissett nursery and Bissett equipment companies, which complement very well our existing business in the agronomic, irrigation and outdoor lighting product line we will believe make us the largest and only supplier of full landscaping product line to the green industry professionals in the Long Island, New York and New York City markets. These are large and attractive markets, and we're now the #1 professional landscape distributor in those markets. The acquisition of Bissett also brings good purchasing and fixed costs synergies. Our pipeline remains robust and is expanding as we continue to build a reputation as the buyer of choice in the industry. Year-to-date, we have completed 3 acquisitions which contribute $140 million in annualized sales to SiteOne. While the timing of acquisitions cannot be fully predicted, we anticipate closing more acquisitions in the remainder of the year that will contribute nicely to our 2017 growth. And with that, I'd like to turn the call back over to Doug to discuss our outlook.

Thanks, Pascal. Overall, we are very pleased with our results for the first half of 2016. We executed an IPO, reset our capital structure, added 3 very strategic acquisitions, strengthened our team with key functional and field new hires and demonstrated how our business can balance out significant swings in weather and still deliver market-leading organic sales growth, excellent margin expansion and good overall growth in sales and profits. In terms of the outlook shown here on Slide 10, the underlying trends in the market remain positive. Organic sales growth has recovered nicely for our construction and repair and remodel-oriented products. These include irrigation, lighting, nursery, landscape accessories and hardscapes. The hot and dry weather is good for irrigation products and also facilitates more construction days. That said, our agronomic products have seen a continued lull in the market, driving lower overall organic sales growth so far in the third quarter. Note that the summer months of June, July and August are typically slower months for agronomic product, along with the nursery product line, and the month-to-month organic growth rates during these months, for these products tend to be less meaningful in predicting the full year. Demand for these products will typically pick up in early September through October, during the fall application and planting season. So overall, we feel good about the positive drivers and demand, which support continued organic growth in the second half of 2016. We will have more visibility in September and early October as to how the year will finish up for our agronomic products, which are typically very consistent year-to-year with low single-digit organic growth. In addition to organic growth, we anticipate continued benefits from our commercial and operational initiatives, which will drive our gross margin and EBITDA margin improvements. We feel good about…

[Operator Instructions] Our first question comes from the line of David Manthey with Robert W. Baird.

So thanks for clarifying on the forecast and outlining it. It sounds like the end of June and into July and August were in line with your expectations, so the -- qualitatively at least, so that's fine. Could you give us an update on the, the -- mainly the pricing and category management margin enhancement efforts? Given the upside we saw in gross margin this quarter, should we assume that you're further along then you had initially planned? Or are you seeing more opportunity in those areas?

Yes, great question, David. No, I think we're where we thought we would be. Obviously we came in a bit stronger in the second quarter with those particular initiatives. But going into the second half, we feel good about those continuing. If you remember, we're kind of in the mid-stages of both pricing and category. We're in the early stages, obviously at supply chain, which we would look to start really kicking in, in 2017. And then sales force and marketing are also in the earlier stages. But in terms of pricing and category, we're happy with our progress. We've got strong momentum. We've got terrific teams in place that are working both sides of that equation. And one thing to remember is that, obviously we saw big improvements in 2015. So as we lap those improvements, the pace of improvement in our gross margins will moderate, but we still see positive improvement in the second half.

Okay, that's encouraging. And second, as it relates to acquisitions, are you seeing any increase in competition there? Does pricing remain in a constant band as you've seen historically? And is it just -- where you do see competition, is it just strategic players? Are there any PE buyers out there? Could you help us with that?

Yes, good morning, David. Well, the multiples remain the same. We don't see much changes. Most of the acquisitions we're doing are exclusive discussions. Here and there, we'll see you saw that [indiscernible], acquired one company, but they'll do that every 2 to 3 years. PE, not much activity from the PE, so. I would say so far, pretty much the same story, reasonable multiples.

Our next question comes from the line of Bob Wetenhall with RBC.

Yes, I was hoping you guys could step me through the drivers, kind of like the relative contribution on the 220 basis points of gross margin improvement. And I also wanted to understand how we should think about gross margin today, as you shift from hot weather to cold weather. How does gross margin track as you have a product mix shift going through the back part of the year?

Okay, good question, Bob, good morning. In terms of the mix, we don't disclose specific metrics around each component. As we stated, the main kind of drivers of margin growth right now are both our pricing and in our category. Pricing is, pricing the value for the various product lines. Obviously, we remain competitive with our customers, but we're pricing to those products that carry more value than others. And category's working with our suppliers to create win-wins. As we push more volume to our preferred suppliers, then they reward us with better deals. So those 2 efforts are ongoing and working well for us. Can you remind me of the second half of your question? No, it was -- I'm sorry. It was hot and cold. Yes, let me address the, the second question was hot and cold products. Our product lines have a fairly similar band of gross margin across. So effects of different weather and shift to different mix, tends not to dramatically affect our product lines. You can saw that the mix effect in Q2 was a slight negative, I think 20 basis points. John, you might have more comment on that. But mix, as it ranges from different cold or hot weather events, tend not to shift dramatically.

Well seasonally, you will see our gross profit margins really kind of peak in the second quarter and then go down from there. Just looking at prior year, you'll see a couple of basis points or percentages dropping quarter to quarter. I think it's important to remember though that the improvement in our initiatives kind of go across all product lines, though. And so while the mix changes the overall number, the improvement year-over-year, I think, our efforts are across all products.

That's a very helpful clarification. And for my second question, your revenues came in light of your initial forecast, but your profitability came in ahead. So if your second half results are consistent with your initial forecasts, as well as your profitability, is my math correct that, that puts you then in the high end of guidance, that you have $132 million to $140 million range, just based on the fact that your profitability on a lower sales number, your 1H, is ahead of your expectations. So if you make 2H in line with the guide, you should be at the high end of the EBITDA range.

Yes, thank you Bob. Just to address that, I think it's too early to call. And we feel confident about our guidance range, too early to call whether -- where we are in that range. Obviously, we craft that toward the midpoint at this stage. And in terms of market outlook, we are seeing good comeback in our construction-related products. As we mentioned, we do -- we are in a bit of a lull with our agronomics and nursery products. This is a slow time of the year, so it's kind of hard to call those growth rates. The big season for those products comes in the fall. So in terms of predicting the market going forward, we feel like the underlying drivers are there. We feel like it's going to be a good market, but it'd be too early to call within that range. We should be able to tighten that up or give more insight, obviously, when we do our third quarter earnings release.

Our next question comes from the line of Nishu Sood with Deutsche Bank.

I wanted to dig into the sales trends and just understand a little bit better about what you're seeing from 2Q into 3Q. Now on the call it more construction or discretionary sensitive portfolio, the irrigation, lighting, nursery, accessories, et cetera, hardscapes, I think you said up 2% in the second quarter and 10% for the first 6 months of the year. Now that's a business that can, with the positive construction trends, high single digits, sounds like it's pretty possible for that business. What -- are we back to that now? Because it sounded like your comments have so far, in the third quarter that, that business has been performing well. So it sounds like maybe the pull forward on that side of the business is past us. Is that the right way to think about it, based on your comments about the third quarter so far?

Yes, Nishu, that's a good way to think about it. We saw a good recovery in June. And so June would've been on the higher end of that average for Q2. And then in July, we've seen even more recovery kind of back toward normal levels for the construction related products. So we think that the pull forward effects, et cetera, have abated and we're back to kind of a normal trajectory in those products.

And on the agronomic side, that business longer term, the low single digits, more stable generally but probably more weather sensitive as you were pointing out. What do you think is causing that continued weakness of that into the third quarter? I mean, it was down quite a bit, I think you mentioned in the second quarter. So is it -- has it improved since what we've been seeing in the second quarter? And what do you think accounts for that? I mean, is it unusually hot? We've had some -- well, the rains have settled down a bit in the third quarter, it looks like, but is it the heat? Or what do you think is driving that? And then what's the trigger, as you mentioned in -- I think in the fall season, you mentioned the pre-applications for the winter. So what would be the trigger point to kind of get that back on track?

Right, well, a great question. So first of all, for our agronomic product, it's important to note that about almost 50% of that product goes into the 4 months of April, May and September, October, right? So those are very seasonal. And as you mentioned, they are weather affected, I mean there's all different types of effects. Sometime -- for some things, hot and dry weather is good. You have more fungus, and we sell more fungicides and control products. But the planting abates and you have less fertilizer. So the agronomic products do tend to move around month to month, quarter to quarter. Over a full course of a year, they do tend to average out to a very consistent level. And so -- and we're seeing that. We had a huge swing in Quarter 1 to the positive. We have that pull forward reflected in our Q2. We had certainly improved versus the negative 11 of Q2 growth rate, but we're in that summer lull. And I would say the nursery product line also is quite seasonal. You have your spring plantings, then you have a bit of a lull there in the summer, and then you have a big fall season. So those product lines can bounce around during the summer. It's hard to tell if it's softness or just lull or weather. But as we get into the fall, we do expect, given the nature of construction and the inherent stable nature of maintenance that those products will pop back, and you'll wind up with the same growth rates we expect for the full year. John, you have anything --

I would just say, it seems like, if you look at our associates, they go from the fall season where they're going 1,000 miles an hour. And there's a lull, I mean there's still some sales of fertilizer products. But even now they're starting to really, in their mind, they're really gearing up for the seed season in the fall, fertilizer season. And they're starting their planning, the programs and the design right now to do that. And that really kicks off end of August and September when they start going 1,000 miles an hour again. And that's kind of the flow of activity with our associates.

And that's contrasted with the construction product lines which go right through the summer. Hot and dry weather actually is good for irrigation. We sell more products there. And then construction days add up in the summer, and we do good business in those other product lines. So once again, given our breadth across the country, our full range and breadth of product line, it tends to -- we tend to be able to balance out those weather events, or various weather trends. And you end up, like we did at the half year, you end up with a full year of good organic growth rates that reflects the underlying strength in the market.

Our next question comes from the line of Shannon O'Callaghan with UBS.

Doug, maybe just on the forecasting issue, maybe just explain that a little further and just overall, how you're feeling about your forecasting methodology and your visibility, in terms of guidance?

Right. Yes, well, seed is a very specific and somewhat complicated product line within our maintenance product line that has less of our focus. And we had an issue, we caught it, we fixed it. We're constantly reviewing all of our processes. And as a company that's still building and developing, obviously we're improving processes, not just forecasting, but across the company. And we're excited about the team that we've built, and we're excited about the fine tuning that we're doing. And we have better forecasting capability today than we had, let's say 2 or 3 months ago. And I think that will continue as we go through this first year and tighten up our processes. So it was an issue. We caught it. We've obviously scanned all of our processes now. Or we feel good about them, and feel good about our ability to get good, accurate guidance going forward.

And then, on a, maybe just a little more help on the -- I mean, the second half, we have the agronomic pressure still in 3Q, but then we have a pretty tough comp, also in 4Q. I mean, could you help us a little bit more in terms of gauging what you're thinking for organic growth for 3Q and 4Q?

Yes, so we would probably see balanced, across Q3 and Q4. Again, it's hard to tell because the season really hits in September, October. And that's the split. It gets split between the 2 quarters. We do have a tougher comp in Q4. So we would be naturally forecasting a little bit lower Q4 organic growth than Q3, but it all depends on how the season hits in September and October.

Okay, so we're back to growth in 3Q and then a little softer in 4Q?

We would expect that at this point in time. One trend I'd like to just make sure you guys are aware of, we are -- we saw on the pricing side in the first half, our price -- normal inflation of about 100 to 150 basis points. We do see that some raw materials have dropped. And we'll see less price inflation in the second half, which could affect some of the organic growth rates, right? So we would expect we've seen some flattening in pricing. If it flattens 50 to 100 basis points, we still have the opportunity to make good gross margin gains, given our size and the way we've been pushing on those initiatives. But in terms of organic growth, that could clip a bit off of the back side of the year.

Our next question comes from the line of Ryan Merkel with William Blair.

So just a follow-up on the last point, the inflation point. Which raws are you referring that are lower? And then what percent of your products would you expect to see prices fall second half from first half?

Yes, we have seen inflation broadly across most of our product lines. It's been relatively equal. And it's not that we see prices falling, but we see prices flattening out. And I think probably, the -- most of the pressure would be in the agronomics category, but John, you want to add to that?

Yes, agronomics are going to be a little down relative to other products. But I mean, but in general, I would say we've seen a small -- I mean we're talking single digits here, when we look at the broad mix. But more what we're seeing will be flattening as we go to the second half of the year.

And that's a good point. We're not looking at huge swings here. We're talking half and 1% types of movements, so fairly small movements in the scheme of things.

Got it, okay. And then, a lot of puts and takes on sales, so maybe just coming at it a different way. Are you still expecting to see industry growth for the year up 5%? Is that still your target?

Well, I think that would be dampened a bit by that price deflation, right? But generally, we see that kind of underlying market. So if you take 3% to 4%, and you add some inflation in the second half. If you take that inflation away, that's what we would expect. We'll see how the year develops, but we still do see a strong underlying market in the end. That's an average of agronomics, which is very low single digits, and the constructions that's more, as you mentioned, the higher single digits.

Okay. And then, is there a typical seasonality that we can think of from 2Q to 3Q, to help us with modeling for the core business?

John, why don't you take that one?

Could you elaborate a little bit more on what you're specifically...

Yes, you talked a lot about your products being seasonal in nature. And I'm just wondering just as a rule of thumb, is there a decline, I guess, or the increase in 2Q to 3Q typical, normal seasonality that we can think about to help us with modeling?

I mean, so yes, I mean, Q2 is higher as far as -- our daily sales are greater in Q2 than they would be in Q3. So I would think, just from a modeling standpoint, if you looked at last year historical numbers, you would get a relatively good mix as far as the way the seasons will follow.

With the exception of Q4, last year was a bit stronger. So it might be a bit more movement there between Q3 and Q4.

All right. And then just lastly, could you discuss your list down price change? I know that really started in the first quarter. Did that build into the second quarter, in terms of its relevance and impact? And then can you quantify for us what percent of your year-over-year gross margin improvement was from this change to the list down? I'm just trying to get a sense for how meaningful it is as a part of the whole equation here.

Right. We'll just -- we did execute the list down in really Q1 and part of Q2. That's complete. It's settled in. Two reasons to do that: One is to make sure that our products are priced to value. And so we talked about pricing some of the tail SKUs and making sure our products are priced to value from the cost up approach, which tended to constrain our local market leaders of having the pricing that was appropriate for that market. It's also to make pricing more consistent for our customers, so we could add more value there. That's been fully implemented. As I mentioned before, we really combine that with category, as the 2 main contributors to that Q2, and they're both solid contributors to that, the Q2 improvement.

Our next question comes from the line of Keith Hughes with SunTrust.

You referred in a previous answer about second half of the year, 4%-ish organic growth, I guess that was the industry comment. I know for you, you have a very difficult comparison in the fourth quarter with the very advantageous weather in that quarter. Is that going to skew what we see from you to the second half of the year? Just any sort of comments you give us on the shape of the third and fourth the quarter, in terms of organic growth would helpful.

Well, yes. Well, like we said before, it's a bit hard to call, right, because you have that, you have 2 months that split the big season. And last year, our September was a little weaker, and our -- obviously December was stronger. So you would naturally think there would be some shift from the fourth quarter to the third quarter. But again, that's hard to tell, weather, seasonality, et cetera. So not to be -- it's hard to call at this point, but the natural inclination would be that we would have a slightly softer, on a percent basis, growth in the fourth quarter and a slightly stronger in the third quarter. John, do you have anything to add to that?

That's exactly right.

Yes.

And where do we -- where -- can you just tell us where we stand, quarter-to-date, in terms of same-store sales, organic growth?

We're not going to quote any specific metrics. As we said before, our construction products are headed nicely toward norm, and we're still in a lull with the agronomics. So -- on the agronomics side, as well as our nursery, the growth rates in the summer tend to be kind of less meaningful than the ones in the season. So we'd just leave it with that guidance. And as we get more into the third quarter, again, we'll have a lot more visibility as we head into the busier part of the season.

Our next question is from the line of Bob Wetenhall with RBC.

Doug, and -- or it's either for Doug or Pascal, jump ball. I just wanted to see if you guys are as confident in SiteOne's ability to continue gaining market share. And you've been doing a lot of acquisitions, but I was really trying to understand the organic growth prospects with a large local strategy, if you still feel as excited about that as you did as the time of the IPO. Any comments on that would be really helpful. Not really looking for anything quarterly. I want to move beyond that, and just talk really high level strategic. Is that theme still impact?

Yes, sure thanks, Bob. No, we were very excited about our ability to gain market share. And we will build. We're already gaining market share, and we're still in the early days of building kind of our great company. And the large local strategy is a very effective one. It takes time to go that. We've had to build the large side of that, which is capability here at the center. That capability, largely a year or 2 old, so it's in its infancy, if you will. Our field is extremely experienced, passionate, driven. They know the customers well. And as we sync those 2 up and combine those 2, it's a very powerful combination. So we have good confidence in it. We have our initiatives designed to support that. And as you see those unfold, they will not only help us expand our margin, but when we get into the sales force performance and the marketing, as well as the supply chain, now you'll see even more weapons for our local field to go out there and gain share by adding compelling value to our customer, better ideas, better tools, better products and better services. So we are just as excited, maybe more excited now, than we were a year ago or obviously, 3 or 4 months ago, during the IPO.

We have reached the end of the question-and-answer session. I would now like to turn the floor back over to management for closing comments.

Okay, thank you, all, for joining us today. We appreciate the questions and certainly appreciate your interest in SiteOne. We're very pleased with the strong start to the year that we've had. We're excited about the longer-term growth and profitability potential of our company. And we look forward to updating you again on our third quarter results in November. Thank you.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.