Q4 2019 Earnings Call
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Hi, This is ray Smith era, calling so we're trying to school.
Foresight, one landscape for supply.
Hi, good morning, Okay.
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 that site one dot com.
I'm joined today by Doug Black, our chairman and Chief Executive Officer, It's got Saumen Executive Vice President strategy and development.
Before we again I would like to remind everyone that today's press release slide presentation and the statements made during the call include forward looking statement within the meaning of the private Securities Litigation Reform Act 1995.
These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations in projection.
Such risks and uncertainties include factors set forth in the earnings release and in our filings with the Securities and Exchange Commission.
Additionally, during today's call, who will discuss non-GAAP measure, which we believe it can be useful in evaluating our performance. A reconciliation of these majors can be found in our earnings release and in the slide presentation.
I would now like to turn the call over two dozen black.
Thanks, John.
Good morning, and thank you for joining us today.
I will start todays 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 got pretty will then walk you through our fourth quarter and for your financial results in more detail.
Scott Solomon will cover our acquisition strategy.
At the end of the call I will discuss some trends that we're seeing in our markets and address our outlook for 2020 before taking your questions.
As shown on slide four of the earnings presentation, we have grown our footprint to more than 550 branches and free major distribution centers across 45, U.S. state and six Canadian provinces.
At the end of 2019, we estimate that we had approximately 12% share of the wholesale landscaping products distribution market.
We are four times larger than our nearest competitor and larger than two 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 five our large and local strategy combines the scale resources and capabilities of a large world class company.
The passion deep knowledge and entrepreneurial ism of our local teams in order to deliver superior value to our customers and suppliers.
It is important to note. However that we are 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 reach our full potential.
Accordingly, we remain highly focused on our commercial and operational initiatives to build our capabilities and improve the value that we delivered to our customers and suppliers.
These initiatives are complemented by our acquisition strategy.
Which feels in our product portfolio moves us into new geographic markets and adds terrific new talent to site one.
Taken altogether, our strategy create superior value for our shareholders through organic growth EBITDA margin expansion.
And acquisition growth.
Slide six shows site ones history, and the results from our strategy over the past six years.
Over this period, we've been able to deliver consistent organic growth.
Strong acquisition growth.
And solid EBITDA margin expansion, while investing heavily in s. DNA to build our iced tea category management marketing supply chain finance operational excellence and acquisition teams as well as our underlying systems infrastructure, including E Commerce.
While we have not finished building our systems infrastructure our field support teams are firmly established.
And we will continue to leverage these teams to accelerate our performance going forward.
You'll also note that we completed almost 50 acquisitions across the irrigation agronomic nursery and Hardscapes product lines. During the last six years with 10 of these added in 2019.
Through these acquisitions, we have added significant capability and developed many lessons learned which now can be applied to feature acquisitions.
Our acquisition pipeline remains very robust and with only 12% marketshare, we have significant potential to continue growing through acquisition in the years to come.
Finally, you will note that we regained our EBITDA margin expansion momentum in 2019.
With fully staffed field support teams several new systems in place.
And significant muscle added through acquisition, we're more confident than ever and our ability to achieve 10% plus adjusted EBITDA margin in the medium term.
I will now discuss some performance highlights for our full year 2019 as shown on slide eight.
We delivered 12% sales growth in 2019, but a very healthy balance a 5% organic daily sales growth.
And 7% contribution from acquisitions.
Given the very unfavorable weather in the first half of 2019, yielding only 2% organic growth through June.
I was particularly proud of our team's performance and catching up during the second half and achieving the 5% organic daily sales growth.
This is also a good example, how the weather can move demand from quarter to quarter, but in most cases will even out during the full year.
Organic growth during the year benefited from strength across our product portfolio led by our Hearts case and landscape supplies product segments.
Adjusted EBITDA grew 14% in 2019.
201.1 million.
And adjusted EBITDA margin increased 20 basis points to 8.5% compared to the prior year.
Our gross margin improved by 70 basis points with 50 basis points of this improvement coming from acquisitions.
Our acquisitions, which were comprised largely of hardscapes in landscape supply businesses.
Also increased our SDMA as a percent of sales.
Overall, we were pleased to move our EBITDA margin forward in 2019.
Although we would expect a higher pace of improvement in the coming years toward our 10% milestone.
From a balance sheet perspective, we began to reap the benefits of our distribution centers and J.D.A. replenishment system as we reduced slow moving inventory and improved our inventory turns from 3.5 times. The 3.7 times based on the year end inventory.
We also did a great job managing our trade receivables during the year.
Accordingly, our cash provided by operating activities improved 67% to a record 131 million, allowing us to reduce our net debt to adjusted EBITDA ratio from 3.2 times at the end of 2018 to 2.6 times at the end of 2019.
We expect to make continued progress increasing our inventory turns over the next two to three years.
On the operations front, we made a lot of progress the site one dot com in 2019.
Based on our customers feedback, we have improved our product data and our search capability, while also adding the ability for customers to pay their accounts online.
Finally, we have created a Spanish version of site one dot com.
With these improvements and others in process, we expect to accelerate our customer adoption of site one dotcom in 2020.
We made significant investments in 2019 to improve our customer experience and get our customers in and out of our branches faster.
We now have barcoding encounter scanners and over 500 branches.
Additionally, we have rolled out our associate mobility platform mobile pro to over 100 branches, allowing our associates the input orders and checkout, our customers anywhere in the branch or in the material yard.
This is particularly helpful and our larger nursery and Hardscapes branches.
We plan to have mobile CRO and 250 branches by the spring selling season this year.
We expect mobile pro will help us increase our associate productivity, while also allowing us to gain market share with a superior customer experience.
We continue to make good progress with our new transportation management system Rtms during the second half of 2019.
We have already begun to achieve savings on our inbound freight to the branches and we expect Tms to contribute to our gross margin expansion in 2020.
Additionally, we are underway with a pilot of our new local customer delivery system, which will allow us to more effectively coordinate and manage customer deliveries across branches.
We're very excited about the potential cost savings and customer service benefits from Tms.
Which will give us yet another advantage over our competitors.
All together 2009 team was a great year progress in building the foundation for site one.
On the acquisition front, we continue to add terrific companies to site, one with 10 companies comprising approximately 100 million and trailing 12 month sales added in 2019.
And three more so far this year.
Our acquisitions are performing well and we continue to have a strong pipeline of potential deals as we move into 2020.
Finally in 2019, we were able to further strengthen our leadership team.
We brought on Scott Solomon to lead our acquisition team and then consolidated our pricing and category teams under Greg Weller, who also runs our supply chain.
As we announced on Friday, we are thrilled to welcome Shannon for Soggy.
Who is our new chief marketing officer.
Shannon comes to us with a terrific track record in all aspects of marketing from lows and as critical expertise and experience as we more fully leverage our digital capability and seek to further build out our brand and enhance our customer experience.
I'm personally very excited about the strength of our leadership as we move into 2020.
In summary, 2019 was a year in which we continued to execute our strategy and demonstrated the momentum of our long term growth story.
We improved our results strengthen our team and balance sheet and made meaningful progress on our systems infrastructure.
Accordingly, we are in great position to continue our momentum and increase the value that we deliver for all of our stakeholders in 2020.
Now John will walk you through the quarter and the full year in more detail.
John.
Thanks, Doug I'll begin on slide nine with the income statement for our fourth quarter result.
We reported a net sales increased 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 50, Threerd 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 their strongest sales growth occurring in the south.
Organic daily sales for landscaping products, which includes irrigation hardscapes nursery and landscape accessory finished strong growing 10% during the quarter in 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 were agronomic product, which includes fertilizer control product seed ISO 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 for pass through by the market.
A number of price increases were 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, a 1% to 2%.
Acquisition sales growth, which reflects the sales growth attributable to the acquisitions completed in 2018 in 2019 was 25 million for 5% of the overall fourth quarter growth rate.
For the full year acquisition sales growth was 152 million or 7% of the overall growth rate.
Gross profit increased 14% to 170 million in the fourth quarter and gross margin increased 50 basis points to 31.8%.
The improvement in gross margin for the quarter is primarily attributable to higher supplier incentives and product mix, which positively impacted margin by 20 basis point.
Both these areas benefited from our strong growth in landscaping products compared to the prior year period.
For the year gross profit increased 14% in gross margin increased 70 basis points to 32.8%.
The improvement in gross margin for the year reflects the contribution from acquisition strategic inventory purchases ahead of price increases.
Selling general and administrative expense or SDMA increased 11% to 167 million in the fourth quarter.
Sta as a percentage of sales decreased 40 basis points to 31.2%.
The reduction in SDMA as a percentage of sales reflects operating leverage and a reduced impact of acquisitions.
The full year has seen a increased 13% to 654 million and SDN as a percentage of sales increased 40 basis points to 27.8%.
The increase primarily reflects the impact of acquisitions, but higher SGN eight as a percentage of sales.
For the fourth quarter of 2019, we recorded an income tax benefit of 5.6 million, which was the same as the prior year period.
For the full year income tax expense was 13.8 million compared to 1.3 million put at 2018 fiscal year and our effective tax rate was 15.1% compared to 1.7% for the prior year.
The increase in effective tax rate was primarily due to a decrease in the amount of excess tax benefit from asking 2016 cash zero nine.
Excess tax benefits of 9.6 million were recognized for the 2019 fiscal year as compared to 16.3 million for the 2008 in fiscal year.
Net income for the fourth quarter was 2.5 million compared to a net loss of $2.1 million during the prior year period. Our net income improvement. This quarter was primarily attributable to our strong sales growth.
Our weighted average diluted share count was 42.8 million for the fiscal 2019 compared to 42.6 million for fiscal year 2018.
Adjusted EBITDA increased by 23% to 22.2 million for the fourth quarter compared to 18.1 million for the same period in the prior year.
For the full year, adjusted EBITDA increased 14% to 201.1 million compared to $176 million for the prior year.
The improvement reflects solid topline growth and improved margin.
Now I'd like to provide an update on our balance sheet and cash flow statement as shown on slide 10.
As a reminder, we adopted a new lease accounting standard during the first quarter of 2019.
Total operating lease liabilities at the ended the year were approximately 235 million with corresponding right abuse assets.
Of the total operating lease liabilities $49 million are reported as current liabilities and are reflected in networking capital.
Net working capital at the ended the year was 455 million compared to $483 million at the end of 2018.
Excluding the current lease liabilities working capital for the quarter would have been 504 million a 4% increase over 2018.
The increase is attributable to the working capital added with our 2019 acquisition.
Cash flow from operations increased 82% to 66 million for the quarter and 67% to 131 million for the full year 2019 and improvement of 53 million over 2018.
The increase was primarily attributable to improve turns of inventory and receivables, we were especially pleased with our teams accomplishment in reducing working capital tied up in our supply chain and in improving the asset efficiency of the company.
We made cash investments of 28 million for the quarter compared to 24 million for the same quarter last year and 92 million for the 2019 fiscal year compared to 164 million in 2018.
The decrease for the full fiscal year reflects less acquisition investment in 2019 compared to 2018 due in part to a reduction in the size of the completed deals.
Net debt the ended the year was 529 billion.
Which is down from 556 million at the end of last year debt debt decreased to 2.6 times, our trailing 12 month adjusted EBITDA compared to 3.2 times at the end of 2018.
The lower leverage reflects our increased profitability combined with a reduced year over year debt levels, driven by a strong cash flows and reduce investment in acquisitions.
We're pleased to be comfortably within our long term year end leverage target of two to three times net debt to adjusted EBITDA.
In summary, our capital structure continues to provide us with the flexibility to execute our growth strategy, including the funding of our acquisitions.
Ill now turn the call over to Scott for an update on site once acquisition strategy.
Thank you John as shown on Slide 11, 48 companies have joined the site one family since the beginning of 2014.
We added 230 branches to site, one 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 a fair valuation excellent opportunities for their associates and a long term partnership with the industry leader.
Now as we turn to slide 12 to 17, you'll be able to find information on our six most recent acquisitions.
On September Thirtyth, 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're very excited to add the design outdoor team as part of the site one family.
On December Twentyth, we acquired dirt doctors, a leading new England distributor of Hardscapes and landscaping products with three locations.
This acquisition expands upon our 2018 in 2019 acquisitions of landscape Express and landscape depot.
On December 27th 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 continued our momentum into 2020 by adding three more excellent companies with cost landscape supplies.
Empire supplies and the Garden Department.
These acquisitions have allowed us to extend our hardscapes product offerings into both the greater Spokane Valley area, and Washington, as well as the Newark Union Metro area at 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 have earned an outstanding reputation for helping newly acquired teams to successfully joined the site one 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 site one family.
Many of these leaders have stayed on to helped drive our success and act as terrific ambassadors for site one.
We would like to thank all of our site want 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 say one in 2020 and beyond.
Thanks Scott.
Ill wrap up on slide 19.
We are optimistic about 2020, as we see steady markets, providing another year for site one to continue to execute our strategy and achieve good performance and growth.
With a stronger team new system capabilities and good momentum on our initiatives, we expect to accelerate our market share gains and adjusted EBITDA margin expansion, while continuing to produce excellent cash flow in 2020.
We will also continue to add companies to site one through acquisition.
Before we get into our 2020 guidance I.
I would like to provide an update on the trends, we're 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 economics 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.
It's still benefiting from a strong economy low unemployment in 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 living space, particularly with Hardscapes enlightening.
Second there is the increased scrutiny on storm water management, which is driving double digit growth in our drainage and storm water categories.
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 current customer backlogs are solid we would expect growth in this market to moderate to low single digits during the full year 2020.
The new residential construction end market accounts for 26% of our business.
Right now builders are very bullish about 2020, and we have seen a tick up in new residential backlogs with our customers.
Overall, we expect this market to be solid with mid single digit growth in 2020.
Lastly, we would expect overall price inflation to be in the 1% to 2% range down from 3% in 2019.
Taken altogether, we would expect to achieve mid single digit growth.
Again in 2020 was slightly lower price inflation and slightly higher volume growth.
In terms of acquisition, Scott and his team along with our field leaders have done an excellent job and building and converting our pipeline of high quality companies.
As he mentioned, we currently have a strong backlog of deals and feel good about our ability to add more companies during the remainder of 2020.
Turning to our guidance for 2020, we expect adjusted EBITDA to be in the range of 213 million to 228 million.
Which represents year over year growth of 6% to 13%.
This range does not factor any contribution from unannounced acquisitions.
Furthermore, this range incorporates an extra week that we will have in 2020 versus 2019.
Unfortunately this extra week occurs in fiscal December during a very slow sales period and as a result will reduce our daily organic sales growth rate by approximately 100 basis points.
And we'll reduce our adjusted EBITDA by two to 3 million with the extra week of Best Tonight.
Overall, we feel very good about our momentum going into 2020, as we continue to realize the benefits from our initiatives and leverage our stronger company to deliver performance and growth.
In closing I would like to acknowledge all of the site weren't associates, who continue to create significant value for our customers and suppliers.
We have a tremendous team and is an honor to be joined with them as we build accompany of excellence for all of our stakeholders.
Operator, please open the lines for questions.
Thank you as you would like to ask your question. Please press star one I knew telephone keypad.
For me should tell indicate your line is in the question Q you May press star to if he would like to remove your question from the Q and for participants using speaker Clinton it may be necessary to pick up your handset before pressing the star. He is 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 the range for 2020, looking like maybe 10 basis points of improvement, which is in line or less than what we've seen since the IPO.
Can you talk about the major cost factors or or mix factors that are preventing you from getting more EBITDA margin expansion in 2020, specifically.
Yes, Thanks, David.
So we crafted range around.
You know 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.
In 2019, and we've got a bit of a headwind 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 to overcome that still achieve some margin improvement.
We've got the blocking and tackling tackling in category, we've got a privately we've got some excellent private label.
Initiatives that are that are well advanced we talked about the Tms and aren't we would expect freight logistics savings.
And then we're still growing faster with the small and medium customer than we are overall, so those all give us good avenues to improve.
Gross margin and then on the SDMA side, our teams more fully builds and with good organic growth and some of our initiatives.
And associate mobility, and some of our efficiency initiatives.
And lack of some onetime hits that hit us in 2019, we think we'll have good.
As DNA leverage as well so put those together we think we're in stronger position.
This year to achieve.
EBITDA margin expansion in 2020 than we were 19 and acquisitions will affect that but though they seem to be of coming in at the same EBITDA percent level as as we are.
Of course, we're getting some synergies there so.
So all told.
Range aside we expect.
To get some more EBITDA margin improvement in 20 than than in 19.
Okay. Thank you for that Thats helpful. Could you characterize 2019, just just a baseline us on weather.
Quickly I know second quarter was really tough for you, but third quarter same nearly perfect and I know, it's always a a combination of factors that leads you to the mid single digit growth but.
How would you characterize 2019 as a year I mean with the with those two quarters, just say was roughly normal and then as you mentioned you got non res, maybe coming off a bit price coming off a little bit maybe whether a little bit better ticket you back to the mid single digit is that how you're thinking about the the comparison with last year.
Yes, Thats you got it and 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 by weather was good we didnt have any major hurricanes.
Interest dose 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 than we had going into last year, but we feel better quite frankly, if you remember last year. The residential market was was a bit stall in there. Some question marks there residential is two thirds of our business and.
Residential market feel stronger.
The builders are more bullish this year in and even our customers we've seen a tickup in projects that they've had there. So we think all together it balances and we'll get a similar market in 2028 altogether than we had in.
In 2019 and were more advanced on our organic growth initiatives than we were last year. So.
So that all brings us back to about the same place which is that mid single digits.
Growth in.
That assumes a kind of a balancing year in 2020.
We don't know which season will be effective you know probably one of them will.
If we have very very terrible weather, you know could be lower than that if we have great weather through the year could be higher than that.
That's perfect. Thanks, Doug.
Thank you.
Our next question is from Ryan Merkel William Blair. Please proceed.
Hey, good morning, and nice quarter.
Morning rent learning.
So I just want to follow up on weather, if I could we had pretty mild weather in fourth quarter and even in January and I, just want to get better understanding of how much. This helps you or is the impact more muted because we're in the off season to some context there.
As impacted somewhat muted I would say.
In Q3 on whether headed bigger impact on the business.
Then in Q4.
But it was it was a positive it was a tailwind I.
I would say in Q1.
The weather has has less of an impact.
And tell you really get to March when spring breaks so I would say it was it was it was a nice tailwind of this year, but.
And how but.
Oh, obviously relative to the beginning of the year, we had we had a backlog of work.
That was out there.
That couldn't that.
The weather allowed us to move forward with.
Okay kind of what I thought.
And then secondly, you mentioned and increased ability to take market share in 2020, I know you've listed a bunch of the initiatives, but can you just tell us how much do you aim to outgrow the market or put some some numbers are context 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 to that range and.
In 2020, we feel like we should have a stronger chance to be on higher into that range, but that would be roughly what we.
What we expect to get at this point in our development.
Okay, and then just lastly, I can sneak this and the outlook from moderating from our construction I don't know if you hit on it but what what metrics are you looking at what conversations they having that shapes that view.
For the primary metrics, we we have two sources of analysts 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'll pick more backlog up but it just feels a little less strong than it did going in the in the last year. The other lens. We have is our project services group REO groups as that.
Bids commercial jobs ourselves and assist our customers in doing take off and that group is looking out forward and the same there's 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'd be a bit cautious there, we're not raising red flag.
But we're just we're cautious, especially given the strength of commercial over the last several years that that has some likelihood of of slowing down and particularly in the back half.
2020.
Makes sense stock thanks.
Thank you.
Our next question is from Stephen Volkmann with Jefferies. Please proceed.
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Okay. Our next question from Mike Dahl with RBC capital markets. Please proceed.
Hi is actually Chris on for Mike Thanks for taking my questions.
So first it looks like pricing and in this quarter came at the low end of your guidance at just up 1% and your outlook hasn't moderating through 2020.
So I was wondering if you just touch on it has anything change and the mark as far as your pricing power or your customers' willingness to take on additional price increases on the now follow up.
I think it's more a reflection of what's what's going on with our suppliers in the markets in general are going into this year and really in the back half for 2018, we had some some impact from tariffs.
In addition, there was there was strong pricing coming from our suppliers.
And a lot of allied a year over year a lot of those price increases went into place in 2000 in Q4 2018. So we were comping against the price increases.
What we're seeing on with regards to 2020 were seeing some prices increases coming from suppliers that are they're much more modest.
Compared to what we saw I'm going into 2019, so I don't say I don't think necessarily its a.
Backlash relative to kind of where the market is that but just kind of.
Issues like tariffs etcetera.
Our non are not on the board this year compared to last year.
Got it thanks Fat and just my second question can you just given an update on your M&A backlog currently I know deal sizes for or a little bit smaller this year or last year versus.
The average so how does how to current on average deal sizes look for you guys.
Yes, you're right. Our 2019 deal size at 10 million was was below our average over the last four years, which would be more around 70 million, but if I look at the backlog we definitely have a.
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 will they with Barclays. Please proceed.
This is Kristina <unk> on for Matt I'm. Just wondering in addition to oddity said in his prepared comments, how did organic growth break out between your two products group and economics and landscaping.
Landscaping products grew 10%.
For the quarter and agronomic screw, 5% for the quarter.
Okay. And then also can you help quantify some of the benefits that you've seen thus far from some of these operational investments and delivery and transportation IP in marketing and have customers kind of been receiving kind of Jefferies.
Yes, when we you know going back we made a.
So a lot of progress just in the overall customer experience and 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 up to serve them. We've augmented that with a site one dot com. So we have customers that are adopting our.
New online.
Portal in order to not only do close and bids, but but also order their product in advance so that when they come in its already form and then recently, we've rolled out the Barcoding associate mobility and mobile pro which allows our associates in our in our larger facilities and nurturing horse gauge centers.
To check customers out in the yard.
To be able to scan and get pricing out into yard and around the branch and this dramatically improves the speed at which the customers can get in and out of our facilities.
And therefore improved 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 were now running a pilots.
And the coast coastal Carolinas to coordinate our outbound deliveries to customers and that way, we can coordinate across branches. We can have a centralized dispatching.
And we can get a shipments there quicker and faster and at a lower cost. So that's having a significant impacts for those customers in those markets and thats 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 Megan.
Things faster and when you do that time as money for our landscapers their most precious resources or labor and the second most presses resources their own time, because they're all entrepreneurs and they're busy and so do you can save them time give them a good competitive price and had to be an easy experience.
They'll they'll 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 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 loss loss more room, there to improve as we as we roll all these out across the country and and lock them in as the way, we do business for the long term.
Our next advantage requested.
Yeah, I think that's that covers it thank you.
Okay terrific.
Our next question is from Keith Hughes Suntrust. Please proceed.
Thanks. This is Gd American for Keith Hughes, just a follow up on the let's talk about acquisitions kind of picking up so maybe it's more we're trying to medium or large is there anything else you see that's different just the type of products are adjacent sees or.
Anything else that you're looking at for the acquisitions.
I would say nothing significantly changing that we're still seeing an overwhelming.
Number of the deals are exclusively negotiated I think you'll still see us.
Leaning more towards Hardscapes and nursery type acquisitions simply because of our.
Filling out our map in our strategy to get our full product line offering across all of our target am essays so.
By and large I think it there's been very little change the pipeline strong and again still you know.
Vast majority exclusively negotiated right we've talked about adjacent seems like a like equipment and other.
Facets Atlantic in products that we can go into but we have a robust pipeline in our traditional verticals.
And really into a we don't get further down the road on that.
I think it's the time to start adding adjacent season, making our business more complex. So right now we'd like to keep you know we we are working across nursery hardscapes, our genomics in irrigation and that that business has its own complexities, we'd like to stick to that in the near term and keep those those other.
Currency is for down the road in our evolution to a to go after.
Okay, great. Thank you.
Thank you.
Our next question is from Seldon Clarke would tell you ship Blaine Bank. Please proceed.
Hey, guys. Thanks, a question could you just give a little bit more color on the cadence of your organic growth target for this year in weather 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 for second quarter is our most important quarter of the year. So it will be nice to own.
Hit there in general I I think you know the growth.
Geographically.
Probably were all across the country. So for instance, you know and the first half of this year, probably southern California on was somewhat negatively impacted a lot of rain.
I'd see recovery there.
The south had a very good year, so I mean, where someone of that breakdowns about being so geographically diverse is there's always that there is always one market, where it words or is probably down a down year in another it's offset but generally I would say in general the south was was pretty strong. This year, obviously I'll do good economic trends that are also.
So.
The less on the at least the first half of last year. They some some wet weather.
Okay. That's helpful. And then are you hearing anything from your suppliers in terms of disruption related to the krona virus that we need to be thinking about.
You know we've heard some.
We get about 10 or 15% of our cost of goods from China, either his input components or or mobile components in it mostly affects our our chemical business.
Some of our landscape accessories and I'm lighting.
And so we've obviously been and communication with those.
The the disruptions to date has not been a major there are potential reduction.
Disruptions down the road and so we've 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 for these products and we can also buy forward into our Dcs to a two as a shock absorber again.
Any kind of disruption so we feel good about our ability to kind of managed through any any developments.
And we're watching like everybody else, but today.
No major disruptions and we feel like our plans can allow us to navigate any disruptions that would develop in the future.
Okay. Appreciate the questions. Thanks.
Thank you.
As a reminder to star one on your telephone keypad, if he would like to ask a question. Our next question is from Alex Rosia Westonbirt capital markets. Please proceed.
Hey, good morning, guys. Thanks for taking the questions. So it's been a strong start to the year and 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'll I'll 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 there's a small psychological edge. So I guess for some people are Ben.
If it to finishing at the end of a year, but more or less it just comes down to.
When people are ready to sell on the due diligence process and how long that takes so I don't think theres any any particular a 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 and.
In Q4, so is it kind of the falling.
You know they just all sales for the end of the year someone in Q4, some some flipped over to the beginning the year.
And there's a little bit of an effect to the sellers mindshare that they have to be able to.
Invest in an acquisition process, if they're in season, they have a lift.
From March to June to have a little bit harder time to focus on it so it naturally pushes it sometimes to h. too.
Got it that's helpful. And then second one is I'm just seeing Shannon come in a CMO just got the Big company background can you give us an understanding of how you're trying to change or marketing strategy and if we can expect a significant uptick in marketing spend.
Oh, Great question. So we're thrilled to have Shannon joining marketing has been one of our.
Strategic initiatives forward for sometime now yet we're really still in the early stages.
Using marketing as a major lever to drive organic growth. We've made some some solid progress over the last couple of years.
What we love about Shannon is she's got experience in all aspects of marketing seems to be bemis lows.
Since you guys 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 to communicate with our customers to improve the customer experience and to grow organically. We think Shannon is uniquely.
You know prepared to take us to World class and that's what we're very excited in terms of marketing spend we're not a big company and she understands that and so you know will be steady as you go going forward, we'll obviously make investments in marketing, we've been making investments in marketing so that won't end I don't see that being a huge tick.
But if we see levers to pull we'll certainly make those investments and we'll expect to you know high returns from those investments. So we'll have to see I.
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're just really looking for Shannon to take the investment that we made already.
Perhaps smarter and better ones going forward to continue to drive organic growth.
We're very excited about her join him.
Got it fair Thanks, a lot guys.
Thank you.
We have reached the end of our question and answer session I would like to turn the conference back over to that for closing remarks.
Okay. Thank you and thank all of you for joining US today, we very much appreciate your interest and site one.
We're very excited about our long term growth potential and profitability potential and I'd like to once again, just thank all of a terrific site weren't associates for helping us get to where we are today and for all their hard work and commitment in in building a world class company. Thank you very much and we'll 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.
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