Q3 2020 SiteOne Landscape Supply Inc Earnings Call
Greetings and welcome to cite one landscape supply Inc. third quarter 2020 earnings call at.
At this time all participants are in a listen only mode.
Question and answer session will follow the formal presentation.
Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
Now I'd like to turn the conference over to your host Mr., John Guthrie, Executive Vice President and Chief Financial Officer.
Please go ahead Sir.
Thank you and good morning, everyone. We issued our third quarter 2020 earnings press release. This morning, we posted a slide presentation to the Investor Relations portion of our website at investors, It's got site <unk> Dot com.
I'm joined today by Doug Black, our chairman and Chief Executive Officer, and Scott Ellman Executive Vice President strategy and development.
Before we begin I would like to remind everyone that today's press release like recommendation and the statements made during the call include forward looking statements within the meaning of the private Securities Litigation Reform Act 90 95.
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, including 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 maker, 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're very pleased with our results for the border and year to date.
I'm so proud of our tremendous team at site one they have continued to deliver outstanding results for all our stakeholders in the base of extraordinary challenges related to covered 90 <unk>.
Our strong culture of teamwork service and commitment to excellence shiny during this time of crisis.
And we are gaining strength versus our competition as we build our capabilities and execute our strategy.
Additionally, we are benefiting from the consumers renewed focus on the home beauty COVID-19 restrictions couple.
Coupled with homeowners continued desire to enjoy their outdoor living spaces, which has been a trend over the last decade.
Right, one is well positioned to take advantage of these trends in the medium term or building our company of excellence for all stakeholders and delivering outstanding performance and growth for the long term.
I will start by revisiting our industry position and our strategy for long term performance and growth.
Followed by a brief update on recent developments.
From the third quarter and actions, we have taken since our last call.
John Guthrie will then walk you through our third quarter financial results in more detail.
About additional information on our balance sheet and liquidity position.
Got Saumen will discuss our acquisition strategy and then I will come back and review some of the trends that we're seeing in our end markets and address our outlook before taking your questions.
As we continue to navigate through the operating challenges associated with COVID-19.
We feel very fortunate to be here at site work.
As you can see from slide four and five in our Investor presentation.
A financially strong industry leader and primary consolidator in a very fragmented and attractive market.
The landscaping products distribution market has a very nice balance between maintenance, new construction and repair and upgrade within attractive construction sector mix of approximately two thirds residential.
And the remainder divided between commercial and recreational facilities.
As you turn to slide six our strategy is to combine the financial strength talent resources and technology capabilities of a large company.
With the fast flexible and entrepreneurial capabilities of our local businesses to deliver superior value to our customers and our suppliers as well.
While providing better growth opportunities for our associates.
We are building the capability to provide a full line of landscaping products in all our markets, which makes us very unique in our industry and gives us more ways to help our customers win.
We complement our strategy were six commercial and operational initiatives, which we believe will allow us to steadily improve our performance for all stakeholders.
Finally, given the fragmented nature of our industry with over 1000. Other distributors. We are building site worn by adding the best local and regional companies through our team through acquisition.
Filling in our product line, expanding our reach and adding terrific talent along the way.
Overall, our strategy is designed to deliver strong organic growth.
Expanded EBITDA margin and grow through acquisition.
Well, we have made great progress over the past five years I would remind you that we are only in the third or fourth any ability in our company and developing our goal capability to achieve excellent for our stakeholders.
For example, slide seven shows that we have a full product line offerings and only 21% of our markets.
That is why you see us continuing to invest in the good times and the challenging times both in building our internal capabilities.
And then adding terrific companies the site one to expand and strengthen our full product line position.
I would also like to emphasize that although we are seeing strong end market demand.
COVID-19, it's still spreading in our communities.
So we must continue to keep the safety and welfare of our associates customers and suppliers as our top priority.
Our execution of the CDC guidelines wearing a base covering and daily associate screening are now well group.
We also continue to take care of our associates by allowing them to stay home, if they're sick without using their paid time off or P.T.
In August we took this a step further and provided a one time special bonus.
For all front line associates as a way of thanking them for the extra burden that they have carried while providing exceptional service and support to our customers during the spring and summer.
This was a 1.8 million investment in them.
Finally, we continue to have a field support associates work from home.
And limit nonessential air travel in order to keep our exposure to cope with 19 as low as possible.
I would like to thank every one of our site when associates for their tremendous commitment to our customers and our company this year and for producing terrific results.
Slide eight summarizes the highlights from the third quarter.
The market recovery that we reported during the second quarter continued into the third quarter and through October so far.
The increase in the number of families who are working and or attending school from home do the COVID-19 has spurred additional investments and outdoor living.
Currently the new residential construction market has fully recovered with low interest rates and a renewed focus on home ownership.
These factors along with our internal growth initiatives helped us to achieve our first double digit organic daily sales growth quarter since going public.
On top of the 7% organic daily sales growth that we had in the third quarter of 2019.
Additionally, the growth in the third quarter was very broad based both geographically and across product categories.
At this point the market is now being constrained by the lack of labor availability for our customers and.
By select supplier product shortages, so our product supply situation has improved significantly in October.
We also continued to drive good improvements in gross margin during the third quarter with contributions from our supply chain category management and pricing initiatives.
We were able to continue lowering freight costs through our new transportation management system and.
We benefited from excellent private label product growth.
Additionally, our recent acquisition of Hardscape, a nursery company, which operate at a higher gross margin than the base business also contributed to our gross margin improvement.
On the M&A side, we once again achieved excellent operating leverage as we tightly managed our business.
Boarded discretionary travel and expenses and benefited from Kobe 19 related trends, such as lower health care costs.
We achieved this leverage even as we continue to invest in mobile Crow tribe.
Right, one dot com and Tms all of which are increasing our capabilities to serve customers better grow organically and achieve better operating leverage in the future.
I would like to highlight that we have achieved an increase in our net promoter score. This year from 71 in December of 2019 to 74 currently.
Our NPS was in the low sixtys three years ago.
The increase reflects our continuous improvement and providing consistent excellent service to our customers of all sizes and segments.
The combination of strong organic daily sales growth.
Good gross margin improvement and solid as DNA leverage allowed us to deliver 25% adjusted EBITDA growth.
Expand our adjusted EBITDA margin by 90 basis points.
Year to date, we have also expanded EBITDA margin by 90 basis points and are making great progress toward our mid term milestone of 10%.
I'm very pleased that we were able to restart our M&A program during the third quarter picking up but deals that we had put on hold back in April.
Over the last three months, we were able to add four market, leading companies focused on Hardscapes and boat landscape supply.
Like site. One these companies are benefiting from the powerful short and long term trends in outdoor living.
As we mentioned during our last call. Our acquisition pipeline is very active and we expect to continue closing deals in 2020, while carrying a healthy backlog of potential deals in the 2021.
Very importantly, the companies that we added last year and earlier this year are performing well and contributing to our strong results.
We're also pleased to execute our equity offering during the third quarter in order to strategically reduce our net debt to adjusted EBITDA ratio.
From the two to three times range down.
Down through the one to two times right.
The uncertainty brought on by COVID-19, along with the continued robust pipeline of acquisitions spurred us to make this move in order to ensure that we could continue to invest in acquisitions.
Without leverage constraints during an economic downturn.
This equity offering along with our outstanding year to date operating cash flow has reduced our net debt to adjusted EBITDA ratio to 0.8 times at the end of the third quarter from 2.9 times at the end of the prior year period.
We are now set up with maximum flexibility to execute our strategy in good times and tougher time.
Lastly, we were very pleased to recently published our first site. One responsibility report on site, one dotcom, which outlines all of the terrific work that our teams do to ensure that site. One is a great place to work for all associates.
And the good neighbor in our communities.
Environmental social and governance best practices are already a part of our DNA and we are happy to introduce our program practices and metrics to communicate and benchmark our actions and results going forward.
To summarize I'm very proud of how our team has performed in this extraordinary environment.
Keep everyone safe serve and support our customers deliver outstanding financial results and take care of each other along the way.
We still have a long way to go and building the full set of capabilities that say, one and achieving consistent excellence for our stakeholders.
However, we are having a great year and have made significant progress in building our company in 2020, even as we have battled the short term operating challenges associated with cope at 19.
We remain excited about both the short and long term opportunities to drive excellent performance and growth with our strong team and win strategy.
Now John will walk you through the quarter in more detail.
Uh huh.
Thanks, Doug I'll begin with some highlights from our third quarter results on slide nine.
We reported a net sales increase of 15% to 752 million in the third quarter.
During the quarter, we had 63 selling days, which were unchanged compared to the prior year period.
Organic daily sales increased 11% in the third quarter compared with the 7% we experienced in the third quarter of last year.
We saw solid demand across product line as consumers continue to invest in their home and outdoor living spaces.
Your graphically we saw strong sales across the country, but seven out of 10 regions achieving double digit growth.
Organic daily sales for landscaping products, which include irrigation nursery hardscapes outdoor lighting and landscape accessories grew a 11% during the quarter.
Hardscapes again experienced very strong growth as consumers continue to upgrade their backyards and patios.
Organic daily sales per agronomic products, which includes fertilizer control products I smell and equipment also increased 11%, reflecting strong demand for lawn maintenance projects and we believe also some solid market share gains.
As Doug mentioned the positive trend for organic daily sales, it's continued into October.
So sales have moderated somewhat the last two weeks.
In addition, we face a strong organic daily sales comp of 8% in the fourth quarter, including double digit growth in November of last year.
We also have an additional four days this year in the month of December and because of the seasonally low sales projected for that week, we expected to negatively impact organic daily sales growth for the quarter by three to four percentage points.
Provide further context.
Our 8% organic daily sales growth in the fourth quarter of 2019 would have been reduced to approximately 4%. If we had the additional four days in December with the same impacted this year.
Prices increased 2% in the quarter and 1% year to date compared to the prior year period for the full year 2020, we expect price inflation between one and 2%.
Acquisition sales, which reflect the sales attributable to acquisitions completed in both 2019, and 2020 contributed approximately 32 million or 5% of the overall third quarter growth rate.
We are pleased with the performance of our acquisitions, which are collectively ahead of plan year to date.
Scott will provide more details regarding our acquisition strategy later in the call.
Gross profit increased 16% to $250 million in the third quarter and gross margin expanded 30 basis points to 33.3%.
Similar to Q2, the increase in gross margin for the quarter was driven by lower freight costs and the contribution from acquisitions, which carry higher gross margin.
Selling general and administrative expense or S., DNA increased 11% to 183 million in the third quarter.
That's DNA as a percentage of net sales decreased 90 basis points to 24.4%.
The reduction and that's been a as a percentage of net sales reflects operating leverage resulting from our excellent organic sales growth combined with solid cost management.
For the third quarter, we reported an income tax expense of approximately $14 million compared to approximately $10 million in the prior year period.
The effective tax rate for the quarter was 22.3% compared to 21.9% for the prior year period.
We recorded net income for the third quarter of 48 million compared to $35 million during the prior year period.
The improvement was primarily driven by strong sales growth.
Seeing a leverage in gross margin improvement.
Our weighted average diluted share count was $44.6 million for the third quarter compared to 42.8 million for the same period last year.
The increase was due primarily to our equity offering completed in August.
Adjusted EBITDA for the third quarter improved by 25% to 80 million compared to $71 million for the same period in the prior year.
Adjusted EBITDA margin increased 90 basis points to 11.7%, reflecting our operating leverage and gross margin improvement.
Now I'd like to provide a brief update on our balance sheet and cash flow statement as shown on slide 10.
Net working capital at the end of the quarter was 710 million compared to 516 million at the end of the third quarter of 2019.
The increase is primarily attributable to our decision to increase our cash on hand to enhance our financial flexibility and risk.
Thanks to the market uncertainty, resulting from the COVID-19 pandemic.
As the markets have stabilized we started the process of reducing our cash on hand, and paying down our outstanding debt, including a 138 million dollar reduction in the outstanding principal under our term loan facility on September Thirtyth.
Excluding the available cash on hand, net working capital decreased 10% to $435 million compared to the prior year period.
Receivable collections have held up well in this challenging environment and we have maintained flat inventory level with the prior year period.
Last quarter, we mentioned how interruptions in our supply chain, resulting from COVID-19 were causing some product shortages.
Over the course of the quarter, we saw fewer products shortages. So we still expect some to last through the end of the year.
Cash provided by operations was $62 million for the quarter compared to 76 million in the prior year period due to increases in working capital to support our strong sales growth.
The first nine months cash flow from operations was still a very strong $181 million compared to $64 million for the same period of 2019.
The increase is primarily due to higher net income and improved working capital management.
We made cash investments of $31 million during the third quarter compared to 60 million for the same quarter last year. The increase in cash investments reflect increased acquisition activity compared to the prior year.
On August Threerd, we raised 261.7 million of net proceeds in an equity offering of 2.15 million shares of our common stock.
We intend to use the proceeds from the offering to reduce leverage increase liquidity and fund future acquisitions.
By reducing our leverage we believe we have increased our operational flexibility, which will enable us to be more opportunistic and execute our acquisition growth strategy. It all macroeconomic environment.
Net debt at the ended the quarter with $195 million compared to 566 million at the end of the third quarter of 2019.
As a reminder, we have no debt maturities until 2024.
Leverage decreased to <unk> 0.8 times, our trailing 12 month adjusted EBIT, Yes, compared to 2.9 times at the end of the third quarter of 2019.
Lower leverage reflects our increased profitability and the debt reduction due to our equity raise and strong operating cash flow.
We have reduced our year end target net debt to adjusted EBITDA leverage range to one to two times from our previous range of two to three times.
The reduction reflects our strategic decision to lower leverage and increase our financial strength and operational flexibility.
We expect to be at or slightly below that range at year end, depending upon acquisition activity in the fourth quarter.
As a result of these changes Moody's upgraded our corporate family credit debt rating to be Athree from B one.
But the ended the third quarter, we had liquidity of $641 million, which consisted of approximately 275 million cash on hand, and 366 million in available capacity under our ABL facility.
As I mentioned earlier on September Thirtyth, we used $138 million of the cash on hand to reduce the principal under our term loan facility to 300 million.
In summary, our priority from a balance sheet perspective is to maximize our financial strength and flexibility. During this uncertain time without sacrificing long term growth our market opportunity.
I will now turn the call over to Scott for an update on our acquisition strategy.
Thanks, John.
In August we resumed our acquisition strategy. After a four month pause as we saw more stability in our end markets and gain confidence in our ability to serve our customers, while keeping everyone safe.
The work conducted by our strategy and development teams during the pause pay dividends as we were able to seamlessly pick up where we left off and add four excellent companies.
With trailing 12 month net sales of approximately 111 million.
As shown on slide 11 year to date, we have acquired eight companies with trailing 12 month net sales of approximately 154 million and since 2014, we have acquired more than 50 companies and surpassed $1 billion in acquired net sales.
Turning to slides 12 through 15, you will find information on our foremost recent acquisitions.
On August 17th we acquired a lion stone, expanding our leading hardscapes and landscape supply position in the greater Atlanta Metropolitan area.
On August 18th we acquired modern builders with few locations in the greater San Diego market significantly enhancing our leading hardscapes and landscaping products position in southern California.
In the fourth quarter on October Onest, we acquired Barton co landscape centers with 12 locations across three Western Canadian Province.
Establishing a leading hardscapes and landscaping product platform, which complements our growing irrigation and agronomic business there.
And finally on October 5th we acquired Hedberg supply with two locations in the greater Minneapolis Metro area, which establishes yet another leading hardscapes and landscaping products platform.
Our pipeline continues to be deep an ever expanding and more importantly, the quality of our target companies is very high as evidenced by the tremendous new partners, who have joined our family since we restarted our M&A activities.
Summarizing on slide 16, we remain confident in our strategy our team our acquisition pipeline and our approach I.
I want to thank the entire site one team.
From the many entrepreneurs, who have joined us over the years and continue promoting on executing our strategy to the dozens of field and field support leaders, who built unbreakable relationship in our communities every day together you make us the acquirer of choice and a truly great place to work.
We look forward to continuing to attract new dynamic leaders and their companies, who will make the site one team stronger expand our product capability.
Help us to better serve our customers and support further performance and growth.
I will now turn the call back to Doug.
Thanks, Scott I'll wrap up on slide 17.
First and foremost we will continue to ensure the safety of our associates customers suppliers and communities as we operate and the Corona virus environment.
As a country works to overcome this pandemic, our ability and the ability of our customers and suppliers to operate safely remains a critical priority.
In terms of demand outlook as previously mentioned, we are seeing the trend in the third quarter continue into October so sales have moderated somewhat throughout the month.
October typically represents approximately 50% of our fourth quarter sales.
That said the month of November and December are more impacted by weather and as John mentioned November organic daily sales last year was particularly strong.
So taken altogether, we would expect organic daily sales growth in the fourth quarter to be in the mid to high single digits, excluding the extra week.
In terms of end markets, assuming significant stay at home restrictions are not reinstated in the fourth quarter.
We would expect maintenance, which comprises 42% of our business to remain steady with low single digit growth.
Residential new construction, which comprises 26% of our business.
Looks to remain strong and builders work to create new home inventories to meet higher demand.
Repair and upgrade which is 17% of our business is very strong with significant backlogs to carrier customers through the end of the year.
And on into 2021.
Finally, we expect the commercial end market to be steady in the near term with some weakness going into 2021 as businesses and commercial builders pare back projects to adjust to the impacts in the restaurant entertainment retail and hospitality sectors.
Taking all these factors together, we would expect the market to support solid organic growth as we finish up the year and move into 2021.
Against this backdrop, we will continue to operate safely and efficiently with tight management of our discretionary expenses, yet higher payouts of bonus and commission.
As our teams finish up a very good year.
We will also continue to drive our commercial and operational initiatives in supply chain category management pricing Salesforce performance marketing and operational excellence.
We expect these initiatives to allow us to gain market share in support of our organic growth and improve our gross margin, while setting us up for strong performance in 2021.
We will also continue to make investments in key capabilities for the future to include site, one dot com and Tms.
Considering all these factors we expect to achieve good progress in our adjusted EBITDA margin this year and have raised our guidance.
In terms of acquisitions as Scott mentioned, we expect to add additional companies decide one before year end finish.
Finishing what has turned out to be a very solid acquisition year. Despite the four month pause.
We have a strong pipeline and numerous active deals which make us optimistic.
The 2021 could be another very good year in welcoming new companies decide one.
Keep in mind that acquisitions added in the third and fourth quarters will not contribute meaningfully to our adjusted EBITDA growth this year, but.
But we believe will set us up for strong growth in 2021 and beyond.
With the strong third quarter performance and increased visibility that we have on our end markets. We are pleased to be raising our adjusted EBITDA guidance range for 2020.
We now expect adjusted EBITDA for 2020 to be in the range of 230 million to 236 million.
Exceeding the high end of our prior range of 205 million to 225 million.
Keep in mind that this range includes the extra loss, making week in December as John mentioned as compared to 2019, which reduces our adjusted EBITDA by approximately 2 million to three men.
And reduces our full year organic daily sales growth by approximately one percentage point.
Additionally, while our range includes economic uncertainty does not include any broad reinstatement of stay at home restrictions that would limit landscaping services.
In closing I would like to sincerely. Thank all our site one associates, who continue to amaze me with their passion commitment teamwork and selfless service.
We have a tremendous team and as non or to be joining with them as we overcome adversity and deliver value for all of our stakeholders.
I would also like to thank our suppliers for supporting us so strongly and our customers for allowing us to be their partner.
Operator, please open the line for questions.
Thank you at this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the Q3.
Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key one moment, please while we pull for questions.
Your first question comes from the line of David.
Manthey with Baird. Please proceed with your question.
Thank you good morning, everyone.
First question is related to operating expenses.
During the initial stage of the pandemic and through the summer.
Many companies pull back on items that they could pull back on.
Four one k. matching executive comp in a number of other things not just the you know the t. any in the normal stop that would that would be a lower in this environment, but sort of actively polling expense levers and now as we get into the fourth quarter and 2021, they're starting to fab.
It goes back into.
The expense line given the strong sales that you've seen so far this year can you just tell us are there any unused.
Unusual SG may.
Reductions in the second or third quarter that will need to be added back in the fourth quarter and into 2021.
Hi, Thanks, David I don't think there are any one time items. There is in Q4 on some projects. Some investments we've made specifically with regard to some of our digital strategy.
That were light in Q2 and Q3.
And and those those will be hitting in Q4.
But there weren't any major items like like specifically with regard to two two operating expenses I guess the only other item I would say is I mean I think this is something that is common across the industry.
People haven't been taking a vacation or Peter Ho Hum.
In the first half of the year and we've actually extended our policy.
Increasing the accrual there and that's kind of a onetime item that will be hitting this year also especially in Q4.
But but does it those are the two primary items I would highlight yes, David I would just add those are some some additional costs that we carry.
As we we we have associates that go on foreign team, we're taking care of our associates without them having to.
Take Pico so that they have no incentive to not stay home when they're sick. We also made a special bonus.
Our which was a one time kind of thank you to our associates. So we haven't pulled back any any items.
Items, we've obviously been very prudent about travel and insurance costs are naturally down just given given the trends, but other than that.
What you're seeing in the fourth quarter, just continued investment in our folks and and setting ourselves up for for 2021.
Makes sense, thank you and second.
The big question.
For all distributors that are playing an outdoor sports today is will we see a hangover in 2021 as the we come up against these difficult 2020 comparisons than you've got shifting markets and Bill you talked about the trends that you're seeing currently into October.
Water customer discussions telling you about the durability of the current strong level of demand you're seeing as we move into 2021 into the prime selling season in the second and third quarters.
Yes so.
The demand is robust and that continued our customers are busy they have a they have backlogs, especially in the repair remodel market outdoor living market Theres, a theres a big backlog there and as you know go bid 19, Unfortunately is still with us.
And probably will be with us in the next year.
And so we anticipate that there will be some good carryover demand we're.
Were really were constrained in that part of the market and.
So at least going into first half year.
There are some good backlogs and repair a model new home construction as you know is robust and together those drive about two thirds of our business. So we feel good about our customers.
Our having good years this year they feel good about next year at least going into the first half.
Commercial is the one area, where there's a weakness and we've we've seen some of that weakness. This year. Our activity has flattened out we would expect that to be down.
Somewhat next year.
But given our our strong bias toward residential and the strength of those markets, we actually feel pretty solid going into the year and.
To the first half and remember we had the big covert drop obviously in a.
In April that will be a be a favorable comp, but seems like the momentum in the residential markets, both new construction and repair and remodel but.
Repair and remodel are pretty durable.
I would just add to that that the outdoor living trend has been with us for a while and so while that may taper down it certainly is an underlying.
Engine and we've got some self help ways to drive organic.
Organic growth with our digital strategy, we expect to gain higher share of wallet.
We're really focusing now on the small customer on.
And gaining share there, which we're seeing some success and then weve.
We've got a Hispanic customer strategy as well that we're launching with our new.
Marketing offer officer coming onboard that we're excited about to to gain some share in those markets. So we're certainly thinking about how do we sustain our growth.
Beyond any any kind of coated wave, if you will or bump in.
In activity and we feel good about those initiatives.
[noise] it all sounds great Doug Thank you.
Thanks, David.
Your next question comes from the line of Ryan Merkel with William Blair. Please proceed with your question.
Hi, Thanks, good morning, and congrats on nice quarter.
Thanks Roland.
First off can you sort of answered. This today's question, but on the Fourq guide if I add back the three or 4% from the extra week organic sales would be up call. It five 6%.
Matching the last two weeks slowed somewhat and I know November December are hard to predict but should we be reading that the demand environment is moderating off a rapid pace or is this more about the fourth quarter being off season and hard to predict.
Yes, I think it's more of the latter.
Weather is a big impact or when you get into November December and again, a large part of the country.
From the Mason Dixon on up starts to starts to close down so the numbers get smaller and they get more volatile.
And we had very good weather, we had a very good.
Kind of double digit November last year as a comp. So so just reading into it were being.
Cautiously optimistic about the underlying demand seems to still be strong, but you just said that the winter shutdowns that start to take effect and weather can throw so those numbers.
Favorable or negative.
Pretty quickly so we take all that into consideration when we we set our guidance.
Okay.
That's what I thought and then.
Then I just wanted to ask about digital tools I know some of them that it's early days, but can you just expand upon E Commerce mobile pro Barcoding, how that impacted this year and you see acceleration in 2021.
Right well I mean, let me talk with mobile pro Barcoding because that's the one that's the most advance we we push that across the company really this year.
And accelerated the usage of that obviously with COVID-19 that became a a very good tool.
Allowing us to.
Literally check people out while they stay in the truck.
And be able to check folks out in the art and et cetera. So.
So thats across.
The majority of our branches, it's being used is helping us to get customers in and out faster and its helping our associates to be more efficient. So we feel like part of our SNA leverage is being aided by mobile per home. So we're quite excited about that.
If you look at and so thats going to continue to benefit us we we rolled that out this year next.
Next year, we'll be well grooved in it and we think it's going to give us additional benefit.
If you take a slight one dot com site, one dot com is a solid too.
But we're upgrading in many ways.
We're adding kind of bottomline guest check out making it more easy for more customers that might not have an account yet to test outside one if you will and we are really focusing on that you know the small to mid sized customer and upgrading site one dot com to make sure. It's a great tool for those customers to use.
And we expect to gain track.
Traction there as we as we go through next year and gain wallet share quite frankly.
Brian target for us so that we see is a is a good way to help us afforded by inorganic growth sustained organic growth. If we can continue we have the lowest share of all of our segments in that small customer segment.
We were about 12 or 13% market share overall, and we're only about five 6% with the small customers. So we know it's an area that we that we can gain share and kind of level up and we see Simon dot com as a way of doing that Additionally, we have a transportation management system that we put in on the inbound freight.
And that's you see our freight cost our margin mid benefited from that now we're working on the outbound piece, where we can notify customers when their loads underway when their delivery is going to be scheduled we can give them update just a terrific customer service tool and that.
But that doesnt exist in our industry.
We're finishing up two pilots as we speak the results are good and then we're going to move that across the country. So that's just another tool for those kind of small and mid size customers that are counting on deliveries.
And have to call and tracking down today that there will be a.
We'll be fully automated they're keeping them update and making sure that they're on time. So we're excited about all those put together that we're going to be a much more advanced digital company in 2021, and that will help us gain share and lower our cost of service and at the same time.
Right. Thanks, Doug that's it up.
Thanks Ryan.
Your next question comes from line of Keith Hughes with Truest. Please proceed with your question.
Hi, Thanks. This is Judy Merrick for Keith Hughes, just a follow up on your comments on the commercial markets.
So they're pairing back is there anything you can add just is that more on projects getting delayed or has there been a change in the bidding or is it kind of vary by what the end market sector as thanks.
Yes.
It's hard to tell exactly what's going on but there were on the word project delays.
As cobot hit and we continue to see those as.
And commercial users are trying to figure out the future if you will.
But the metric that we really watch is just overall bidding activity, we have a project services group.
That.
It provides bids for our contractor customers.
And while we were starting the year with growth we've seen that flatten out now did dip down as koby. It hit initially in April and May and then it came back to flat and it's been let's call it flattish.
So that's the main.
And in addition to the talking to our customers, but I think it's a combination.
Of.
Delayed projects and in.
And some cancellations most what mostly project delays.
And lack of new projects coming on.
Got it okay. Thanks.
And when you talk about the new residential construction being very strong.
Is there anything you're seeing there are you anticipating any lags or any shifts from being so strong maybe.
Maybe like labor constraints or anything else.
Well, there's always a labor constraints and we lag starts.
I'm, probably six months or so.
Given that where the the last.
In.
But we we while there was a little bit of a dip in 2020, when the builders halted work and pause to assess the environment they've come back strongly.
We took a little bit of a pause in some areas of the country, where we had less activity, but we've kind of ramp back up full speed if you will.
And when I say ramp back up there is a limit at which you can ramp back up because of the labor constraints. So I'd say we're back at.
At full capacity in terms of servicing that residential market.
In our view is that that would sustain.
True through 2021 at least the first half, but we would think.
Probably for most of the year next year, because there has been a real swing in attitude toward homeownership and importance of homeownership.
And and everybody's trying to figure out how that trends going to manifest itself, but.
It's logical to think that that trend would not just shut down.
Once there is a vaccine that there'll be a an overhang of.
Oh attitude toward Hey, we want to be in Uh huh.
Prepared for the next pandemic. So we think residential is going to be strong in 2021.
Okay, great. Thank you.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad one moment. Please while we poll for more questions.
Your next question comes from line of Ryan Frank with RBC Capital markets. Please proceed with your question.
Hi, guys. Good morning, Thanks for taking my question. So just last quarter you guys had been expecting to have organic sales kind of be inline or slightly below one inch but.
But obviously you did significantly better than that this quarter.
So just trying to figure out what the main differences, where there was it just stronger new riser or was there something else.
I think what what we saw this quarter was it was just a much stronger.
Repair and remodel and a homeowner than we expected.
You know we were coming out with the sales are strong.
But but that the demand out in the marketplace.
Especially in repair and remodel was probably greater than than we had.
Anticipated at the on the second quarter call.
Got it thank you.
And then the next one I had is I. Appreciate that you just kind of worked to lower your leverage would be offering.
But now with you guys being below one times or are there any larger acquisitions that are attractive or maybe should we see the pace material. Please pick up next year.
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I I think we exited our paws feeling very good about our pipeline. It is balanced across lines of business and size as it has been since I've been here. So.
Pause is probably the wrong word actually I mean, we were hard at work, improving our sourcing maintaining and building relationships and.
Just improving our processes. So we were able to exit when the economy and improved.
I think in a much better position from a pipeline in terms of any particular large deal that that wasn't a motivator for us in terms of our equity offering, but we're certainly well positioned to take advantage of anything that does arise.
Okay and quickly just follow up on that is the one to two range kind of likely the new range going forward as opposed to have two to three times.
Yeah, you should consider that that's where we're going to operate and from our our offer our perspective. What we're really doing is is that allows us in both up markets and down markets to continue to execute that strategy that acquisition strategy and and especially even.
In down markets that really to be opportunistic and not have to necessarily put our put our strategy on hold.
If there is a market downturn, which obviously there will be sometime in the future. So Ryan just to just to be specific so in the good times, we expect to operate and wanted to do and then in a recessionary period, we expect to continue to do acquisitions, because they're going to be available and we don't want to miss out on.
And we would anticipate our ratio would migrate up in that two to three range.
And but it wouldn't get you know up in that in the a.
In the risky ranges above that and that that was the strategic decision. We made to have lower that so that we could continue to.
We don't want to Miss out on acquisitions, just because there's a downturn and so.
We're quite comfortable.
Now, where we are to be able to navigate your downturn and continue to do deals when they become available.
Got it yeah that makes thanks that makes sense. That's all from me congrats on the quarter and thanks for taking the questions.
Thanks Roger.
Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to Mr., Doug Black for closing remarks.
Okay, well. Thank you all for joining us today, we very much appreciate your interest in say one yes.
Awesome prayers go out to all of those impacted by COVID-19 and I'd like to once again, thank all of our terrific associates or suppliers and our customers for helping us to be a great company and.
We look forward to sharing our year end results with you.
As we go into 2021.
Thank you very much.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
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