Greetings and welcome to SiteOne Landscape Supply, Inc. Fourth Quarter and Full Year 2020 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, John Guthrie, Executive Vice President and Chief Financial Officer.

Thank you and good morning, everyone. We issued our fourth quarter and full year 2020 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.

Thank you, John. Good morning and thank you for joining us today. We are very pleased to report our strong results for the fourth quarter, capping off an excellent year of performance and growth for SiteOne in 2020. The COVID-19 global pandemic brought on many challenges during 2020 in operating safely, serving our customers, taking care of our associates, working with our suppliers and managing our business. As the year develops, the stay at home trend associated with COVID-19 also brought about opportunities, as more emphasis was put on homeownership with increased investment and outdoor living spaces. With terrific passion, determination and teamwork, our SiteOne team worked hard to overcome every challenge and move quickly to capture opportunities during the year, while taking care of each other and serving and supporting our customers better than ever before. As a result, we delivered tremendous value to all of our stakeholders. On top of that, we made critical investments during the year and strengthened our business on all fronts, while continuing to add great companies and talent to SiteOne. Overall, I'm very proud of our team and excited to see our strong culture shine during these toughest times. Moving forward, we have a stronger team, stronger systems, a stronger balance sheet, and even more capability to execute our strategy, achieve excellence and deliver superior long-term performance and growth. 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 2020. John Guthrie, will then walk you through our fourth quarter and full year financial results in more detail and provide additional information on our balance sheet and liquidity position. Scott Salmon, we'll discuss our acquisition strategy. And then I will come back and review some of…

Thanks, Doug. I'll begin on slide nine, with some highlights from our fourth quarter results. We reported a net sales increase of 26% to $675 million for the fourth quarter. For the full year, net sales increased 15% to $2.7 billion. During the quarter we had 65 selling days compared to 61 selling days in the prior year period. Well, the extra days were a drag on our overall organic daily sales growth due to the timing of year end holidays. We finished the year strong with net sales growth coming in better than anticipated. For the full year, we had 256 selling days compared to 252 days in the prior year. In 2021 as detailed in the 2021 organic daily sales reconciliation schedule attached to the press release, we have 253 selling days. Organic daily sales increased 12% in the quarter and 8% for the full year, as the stay at home trend associated with COVID-19, combined with low interest rate, fueled demand for new home construction and increased investment in existing homes and outdoor living spaces. Organic daily sales for landscaping products, which includes irrigation, nursery, hardscapes, outdoor lighting and landscape accessories was strong again this quarter, increasing 16% compared to the prior year. For the full year, landscaping products grew 9%. Landscaping products are the products most closely tied to the repair and remodel and market, which is benefiting from homeowners upgrading their backyards and patio. Organic daily sales growth for agronomic products, which includes fertilizer, control products, ice melt and equipment remain steady with 3% organic daily sales growth for both the quarter and the year. Due to the continued strong demand resulting from the stay at home trend, as well as favorable weather, our fourth quarter sales exceeded expectations, despite the strong comps from the…

Thanks, John. In August, we began to close deals again after a five month pause. We were pleased to regain a momentum quickly and add seven outstanding companies over the remainder of the year, with five of those in the fourth quarter alone. As shown on slide 12 for the full year 2020 we acquired 11 companies with trailing 12 months net sales of approximately $191 million, or a little over 8% of 2019 net sales. Since 2014, we acquired 57 companies with more than $1 billion in acquired net sales. Turning to slide 13 through 18, you will find information on our most recent acquisitions. On October 1, we acquired BURNCO Landscape Centres with 12 locations across three Western Canadian provinces, establishing a leading hardscapes and landscape supply platform which complements our growing irrigation and agronomic business there. On October 5, we acquired Hedberg Supply with two locations in the greater Minneapolis metro area, which establishes yet another leading hardscapes and landscape supplies platform. On December 9, we acquired Alpine Materials with a single location serving the greater Dallas Fort Worth, Texas market through the distribution of mulches, soils hardscapes and landscape supply to landscape professionals. This is our first dedicated hardscape center in Dallas Fort Worth and gives us a full product line in that market. On December 30th, we acquired Dirt and Rock which serves the Lake Oconee, Georgia market just needs to be Atlanta metro area. Dirt and Rock is focused on the distribution of hardscapes, natural stone and landscape supplies to landscape professionals. This acquisition extends our leading hardscapes position in the greater Atlanta Metro, complements our existing branch network, strengthening our capability to provide the full line of products and services in Georgia. Finishing off 2020, we acquired Stone Center in Virginia on December…

Thanks, Scott. I'll wrap up on slide 20. Before I jump into the outlook, I would like to recognize the entire SiteOne team for their continued leadership and commitment to excellence during the COVID-19 pandemic. We are all excited to see the number of positive cases dropping and look forward to widespread vaccination. However, the daily battle against the spread of COVID-19 goes on and will likely continue during the next several months. Our thoughts and prayers go out to all of those who have been negatively impacted by COVID-19. And we at SiteOne will continue to do our part to help fight the spread of this terrible virus. In terms of demand outlook, we have seen the trend in the fourth quarter continue into January and February, with sales performing above seasonal expectations so far. Overall, we expect to achieve strong organic daily sales growth in the first half of the year, with strong demand and weaker comparable sales. We expect growth to moderate in the second half of the year against stronger comparable sales. As john mentioned, we expect price inflation to be in the 2% to 3% range in 2021, as compared to about 1% in 2020, which will support higher organic daily sales growth. In terms of end markets, we would expect maintenance which comprises 41% of our business to remain steady with low to mid single digit growth. We have terrific capability in maintenance with our market leading LESCO brand, and so we are very confident in our ability to perform in a steady market. Residential new construction which comprises 27% of our business should remain strong and builders work to create new home inventory to meet higher demand. Interest rates are forecast to remain low. And we believe that the new focus on home…

[Operator Instructions] Our first question is with David Manthey with Baird. Please proceed with your question.

Yeah. Good morning, guys.

Good morning.

So to start off here, there were a lot of positives clearly in 2020, and in fourth quarter, but fourth quarter trends not super representative, necessarily of anything going forward. As you look at 2021, and think about the key initiatives that you're undertaking, Doug, what are you most excited about? I mean, is there anything new? Are there any of these levers that you're leaning on a little harder into 2021 that we should focus on?

Well, I think one of the levers that we're going to lean harder on in ‘21 that we haven't in the past is, is marketing. As you know, we hired a new Chief Marketing Officer Shannon Versaggi, in February of last year. She's been able to build her team and create a plan. We did - we also did a study of our customer excellence to see what our customer experience look like and things that we need to work on there. And we also did some brand studies to see where SiteOne was with different you know, areas of the market. And so armed [ph] with that, we're going to go heavier on marketing in 2021. For example, we're less well-known with the Hispanic customer than with our regular customers. And so we're going to be aggressive there. In advertising, why SiteOne is a great place for Hispanic customers, our bilingual capability, et cetera. And so that's just one example. We're going to put a lot more marketing behind our product lines, like LESCO and Protrayed [ph] which we saw really good growth in ‘21, or in ‘20. But we expect more in ‘21. And so that's the new marketing team and our new capability there is one of the things that we're working on. In addition to that, we're putting in a new CRM for our salesforce. I think we've come a long way with our salesforce. We have an older homegrown CRM, we're going to replace that with the salesforce CRM. So that's becoming more advanced. And then just overall customer excellence, our operational excellence groups been in place for a while. We've been really working on our customer experience, you know, that involves MobilePro, it also involves TMS in terms of the, you know, dispatch track, which is our way of tracking deliveries in the local market, and informing customers when things are on their way. So, you know, I know, some of those we've been working on for a while, but it really, you know, we feel it coming together, and excited about. The last one I would say is, our digital product siteone.com. We've been working hard on that to get it to kind of a world-class level. We're very close. We're launching some pilots early this year, to really go after that aggressively with kind of a great new product and do some marketing behind it. And assuming that goes, well, you know, you'll see us roll that out more aggressively in the year. So I know that's a list of things, but those are the things that would have us excited that we can drive organic growth, despite with the market, you know, the market is likely to be in our favor in the first half. It might be tougher in the second half, but we want to be able to swim, downstream and upstream faster as a company.

Yeah. That all sounds great. I guess the final question here is, how concerned should we be with the labor shortage issue? Are you - is there any days out there as you look at business formation of landscapers or visa [ph] issuance or anything else that might help alleviate the tightness issue in 2021?

Yeah. So, you know, it's going to continue to be with us, but I would just keep in mind, tight Labor has been an issue for the last three or four years. And so it's no worse in 2021, we're all working on it, you know, our customers, ourselves, you know, our trade associations, I think we're making some headway there in terms of getting people into landscaping, and making it known that landscape is an attractive industry, but, you know, no magic bullet. And so, you know, we'll continue to be tight. I think our customers are getting more productive, we're helping with that. We're getting more productive, you know, things like MobilePro and siteone.com. So we'll be able to fight through and deliver a good year of growth, despite the tight market, but it will still be with us all year, for sure.

Okay, all right. Thanks, Doug.

Thanks, David.

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

Hi. Good morning, guys. I know you don't really have a big build out for the 2021 forecast. But I'm wondering just sort of broad brush. Can we talk a little bit about how you're feeling relative to puts and takes for gross profit and SG&A next year. You know, do you expect continued leverage on both, or maybe just on the SG&A side? And you know, just any kind of unusual items or rebates or things that we should sort of keep in mind as we tried to model out ‘21 would be great? Thanks.

We do we do expect, you know, continued growth in EBITDA margins, EBITDA margin expansion next year. There will be some combination of gross profit and SG&A with regards to gross profit. Just we think, you know, one of the things we saw was a customer mix, a benefit what we're seeing right now from that perspective, we're seeing more growth of the small residential focused customers and less growth in the large commercial jobs. That's a slight benefit. We think we really saw it in Q4. We think that will continue on, on certainly, next year, also. And then with SG&A, while obviously everybody's aware, there were certain things that will pick up next year. We're going to go back to travelling. We're going to have some sales and marketing, which are budgeted higher next year, but at the same time with regards to us, we won't have certain, you know, some of the incentives will probably normalize. And also, with regard to some of the costs, that just running in a COVID world probably won't reoccur either. So there will be puts in takes, we expect gross margin improvement. I don't think there was any major one time things, as we've alluded to before, it's kind of a grind forward on all fronts, and we expect to continue to make progress next year.

Okay, great. And just as a quick follow up on the SG&A, specifically in the fourth quarter. So kind of a nice bump up from the run rate earlier in the year. Is that where the incentive comp sort of showed up, John, is that sort of an unusual bump up there? Or is that just sort of taking advantage of strong markets to increase investment?

We did see an increase in incentive comp, plus we did have an extra week in the fourth quarter. So - and I would say then you also have the additional non-seasonal kind of sales that are trailing down. So those are the three items, but especially I would say the extra week is probably the largest component when you look year-over-year from that perspective, but then incentive comp was obviously accelerating as we had outperformed - exceed expectations in the fourth quarter also.

Understood, thanks. I'll pass it on.

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

Hey, everyone. Congrats on a nice finish to the year.

Thank you.

So my first question is on the outlook, mid single digit organic growth in ‘21 feels a little a little conservative to me. Just given the backdrop is pretty good. And you're going to have two to three points of price. So I guess a two part question where might there be upside to your market guide above mid single digit? And then secondly, are you including share gains in your outlook?

Yeah. When we talk about, you know, we talk about the market, we talk about our own sales, we would still classify that as a mid single digit. You know, upsides would be, you know, the first half could be stronger, maybe then we think. And the second half, it's really uncertain, as COVID, you know, as the virus tails-off, and as vaccines become more widely used, and people start spending again on entertainment, and travel, et cetera. What happens in our market, we still think there will be a strong outdoor living. We think new residential will still be strong. Commercial is a question mark. So, you know, when you put those puts and takes, there's just a lot of uncertainty in the second half. But, you know, upside, there could be that we, you know, we do better in the second half than we think we didn't think we were going to do as well, in the fourth quarter on strong comps from last year, in ‘201 and we did. All that said, there's downsides as well, weather can do anything during the year, as you know, so we have to be careful. Share gains, another one, we could do better than we think. We are always, I think prudent there in terms of what we budget. But we're hoping we would add - do that with all the initiatives and firepower [ph] that we're bringing to bear in 2021. And we're excited about it. So those would be the upsides. You have weather and you have market, which could provide downsides as well. We think at this point, mid single digits make sense is a reasonable assumption.

Yeah. All right, that makes sense. 2020 was a great weather year. So, certainly understand that. All right. And then as we think about modeling fourth quarter ‘21, how much do you think mild weather boosted 4Q? I know, that's hard to answer. But I'm just looking for any guideposts you can provide as we think about for 4Q ’21?

Its John, Yeah. It's always difficult bifurcating that. I would say, well, first off when you model ‘21, take out a week of sales from that standpoint. But you know, this is somewhat is it a couple of points of growth on top of that, I would potentially I would say from weather with regards to that. I think we saw of our 10 regions, eight out of the 10 were drier in Q4, especially out west which was really positive to sales growth. And then in general, it was warmer, from that perspective, which allowed people to work a little bit more. It's a one to one side thing, we did see about – of our agronomic sales would have actually been stronger. But we did see nobody was buying ice melt in the fourth quarter. So there was a little bit of a - we went backwards, $5 million or $6 million just because of that. So but in general, I guess I would probably say two to three points. But that is an estimate, very difficult to bifurcate it. Yeah. Understand that. Okay, thanks. Pass it on.

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

Hi. This is Ashley Kim on for Matt that this morning. So I just - I guess just digging more into the guide for moderation and growth in the back half. Are you talking about flatter trends? Are you actually anticipating the turn negative also off of the tough comp?

Yeah, I think you're going to see, like I said, strong Q1, Q2, Q3, moderate. You know, the fourth quarter as John mentioned, a lot of things going on in ’21, almost all of them positive in the fourth quarter. So there is a chance that our organic growth could be negative in the fourth quarter. So if you look at the second half overall, we would be somewhere around flat. You know, could be plus could be minus, it's really hard to call it at this point. But we wouldn't expect the third quarter to be negative, the fourth quarter could very well be a negative in terms of organic growth.

Okay, that's helpful color. And then I hear you on the inflationary pressures generally being less than what we've heard across building products. But can you just comment on what you've seen specifically in free inflation so far and maybe quantify some potential impacts to margins there?

We are - we've seen an increase really in the second half of this year and especially in the first quarter we expect it to be a mild headwind. With regards to our margin gross margin improvement, we think because of the initiatives we've done with the transportation management, and how we're managing it smarter, we think we're going to be able to mitigate that some. And then in the second half of the, I would say, when we start comping against the second half of this year, we would expect the second half of the year, some of that pressure relief, but minor, we would say minor headwind to gross margin improvement, but we're still overall hopeful that we will be able to still achieve a margin improvement this year.

Okay. Thanks so much. I'll leave it there.

Thank you.

Our next question is with Keith Hughes from Truist. Please proceed with your question.

Thank you. Question on the acquisitions, you talked about one of the slide - you talked about one of the slides on the acquisitions that there was 11 deals, 191 and trailing 12 months sales. Given the timing of the deals, how much of that spills over into ‘21? How much in acquisition revenue in rough numbers do you have kind of at the bag [ph] if you will for ‘21?

Well, I think if you actually look at our earnings announcements this year, the actually acquisitions we did in the first half the year are largely built into the numbers. So I would say the pre-COVID acquisitions, there's not a lot of revenue growth with regards to those, the post-COVID ones you probably have about half the year with regards to additional revenue with regards to those. So if you look at our acquisitions, going into next year, the 2020 acquisitions contributed $5 million in revenue this year. And so going into it, the balance would be still a contributor to overall revenue growth.

So - but I can't do 190 minus 75. That's, I think I'm missing…

150.

Is that where we're heading?

Yeah…

Is that kind of what you expect? Okay. I wasn't sure…

Yeah…

If that answers the - that answers the question. And I guess one final question on your commercial business. You talked in the guidance numbers, about a week commercial construction, understand that, you have some commercial maintenance and a little bit of remodeling any sort of, you know, what the trends are on that heading into early ’21?

Yeah, the maintenance is stable. I mean, you know, commercial properties continue to be maintained. So, you know, low single digit and then remodel is just not a - it's not a big - you know, there is some, it's very small, but we would also expect that, I mean, you know, that the maintenance of properties is the property needs to be remodeled, certainly in a tough market, that becomes almost essential, right to remodel a property, stay competitive, et cetera. So, yeah, those will continue to be steady and healthy.

Okay, great. Thank you.

Our next question is with Mike Dahl with RBC Capital Markets. Please proceed with your question.

Hey. This is actually Chris on from Mike. Thanks for taking my questions. My first question is just on the inflation outlook for this year. I know you guys picked up your pricing outlook to two to three. Are you embedding any cost inflation looking out at full year ‘21 from your supplier base?

That two to three is primarily cost inflation from our supplier base. So we – our marketplace, you generally see most of the cost inflation is passed on. And so we're seeing that from our supplier base and we're passing it on, or we would expect that to be reflected in higher prices to the market in general.

Got it. That makes sense. I guess just my second question, any color you could provide today on what impact the cold weather, the recent cold weather in the country and power outages in Texas has impacted you? And whether that's embedded at all in your guidance for ‘21?

Yeah, so obviously, we've had a tough time in Texas. That's affected everybody. But, you know, it's one week the weather's back. Their sales have come back. And event like that gets, you know, it doesn't become material. Because it was only a week, it was - you know, we had obviously, snow across the country, but that's normal. But it was only one state, although Texas is a big state, that's something that they can make up through the year, you know, assuming normal weather the rest of the year. And in fact, you know, repairs of nursery or even irrigation pipe and backflows that get frozen and damaged might be a little pick up to help that catch up. So, it was tough event. Our folks, our associates are all safe and well. Our branches are back open. They were closed for three or four days. But back up and running and you know, in the scheme of the year, it would make a material difference.

Got it. Appreciate the color.

Thank you.

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back over to Doug Black for closing remarks.

Okay, great. Well, thank you all for joining us today. We very much appreciate your interest in SiteOne, I’d like to once again, thank our terrific associates for all they're doing to make us a great company, our suppliers and our customers. And we look forward to updating you again when we report our first quarter results. Thank you.

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