Q4 2020 SiteOne Landscape Supply Inc Earnings Call
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Greetings and welcome to the site one landscape supply, Inc, fourth quarter and full year 'twenty 'twenty conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
For anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder of 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.
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Thank you and good morning, everyone, we issued our fourth quarter and full year of 2020 earnings press release. This morning, and posted a slide presentation to the Investor Relations portion of our website at investors that's like one dot com.
I'm joined today by Doug Black, our chairman and Chief Executive Officer, and Scott Sullivan Executive Vice President of strategy and development.
Before we begin I would like to remind everyone that today's press release.
Presentation and the <unk>.
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 of <unk>.
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 to report our strong results for the fourth quarter capping off an excellent year of performance and growth for site, one and 2020.
The COVID-19 global pandemic brought on many challenges during 2020 and 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.
More emphasis was put on homeownership with increased investment and outdoor living spaces.
With terrific passion determination and teamwork.
One 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.
We delivered tremendous value for all of our stakeholders.
On top of that.
Made critical investments during the year and strengthened our business on all fronts, while continuing to add great companies and talent because type one.
Overall, I'm very proud of our team and excited to see our strong culture shine during these tough times.
Moving forward, we have a stronger team stronger systems the straw.
Longer balance sheet, and even more capability to execute our strategy of <unk>.
Excellent 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 Solomon, who will discuss our acquisition strategy and then I'll come back and review some of the trends that we're seeing in our end markets and address our outlook for 2021 before taking your questions.
As shown on slide four of the earnings presentation, we have grown our footprint to more than 570 branches and three major distribution centers across 45 U S States and fix the Canadian provinces.
We are the clear industry leader more than five times larger than our nearest competitor and larger than two through 10 combined.
At the same time, we estimate that at the end of 2020, we had only 13% share of the very fragmented 20 billion wholesale landscape in products distribution market.
Accordingly, our remaining growth opportunity is significant.
We have a very balanced mix of business with 59% focused on maintenance repair and upgrade.
27% focused on new residential construction and 14% on new commercial construction.
We are also the only national full product line wholesale distributor in the market.
Our balanced end market net broad product portfolio and geographic spread gives us multiple avenues to grow and more.
More ways to add value to our customers and suppliers, while providing important resiliency in softer markets.
Turning to slide five our large and local strategy combines the scale resources and capabilities of the large world class company.
With the passion deep knowledge and entrepreneurial and as some of our local team in order to deliver superior value and differentiate ourselves from the competition.
It is important to note. However that we are still in the early to middle innings of building our company and our capability.
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 deliver to customers and suppliers.
These initiatives are complemented by our acquisition strategy.
Which fills in our product portfolio moves us into new geographic markets and adds terrific new talent the site one.
Taken altogether, our strategy creates superior value for our shareholders through organic growth EBITDA margin expansion and acquisition growth.
Slide six shows <unk> history, and the results for executing our strategy over the past five years.
Over this period, we have been able to deliver consistent organic growth strong acquisition growth.
And solid EBITDA margin expansion, while investing heavily in SG&A to build our I T category management.
Fly chain for now.
In.
Marketing operational excellence and acquisition teams as well as our underlying systems infrastructure, including our digital capabilities.
While we have not finished building our systems infrastructure our field support teams are firmly established.
And you can see in our 2020 results the operating leverage that we are beginning to achieve with the strong team.
We will continue the leverage and build on our capabilities to accelerate our performance going forward.
You'll also note that we now have completed 57 acquisitions across the irrigation agronomics nursery and Hardscape product line. During the last seven years with 11 of these added in 2020.
And one so far in 2021.
We only acquire well run company and so all of these acquisitions were already high performing companies before joining site one.
With them, we have added significant capability and tremendous talent and we have learned many lessons that can be acquired the future acquisitions.
I would like to highlight that we still have over 50 former owners from these companies with us.
As well as many of their sons and daughters and longtime leaders helping.
Helping us to stay agile and building, our entrepreneurial spirit and local ownership.
Our acquisition pipeline remains very robust and with only 13% market share we have significant potential to continue growing through acquisition for many years to come.
In summary, our strategy is working we are still early in our execution and you will see us get stronger every year as our key initiatives gain more traction.
Slide seven shows the long runway that we have ahead and filling in our product portfolio, which we aim to do primarily through acquisition, especially in the nursery and Hardscape category.
Nursery and Hardscape the operations require larger sites insignificant local expertise and so these product lines cannot just be added to most of our existing branch location.
We are well network with the best companies in our industry and expect to continue filling in these markets systematically over the next decade.
I will now discuss some of the 2020 of performance highlights as shown on slide eight.
We delivered 15% net sales growth in 2020 with a nice balance between 9% organic sales growth.
Which includes an extra week in December and 6% net sales growth through acquisition.
Organic daily sales growth was 8%.
The market recovery that began during the second quarter has continued through year end and into the new year. So far.
The increase in the number of families who are working and are attending school from home due to COVID-19 as for an additional investment in 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 contributed to our strong organic net sales growth.
Geographically, we saw the highest full year sales growth in the south and West where COVID-19 restrictions had less impact on landscape.
All regions finished strongly in the fourth quarter and currently have good momentum.
At this point the market is being constrained by labor availability for our customers.
We achieved a 50 basis point improvement in gross margin during the year with contributions from our supply chain and category management initiatives.
During the late spring through fall of several of our supplier of suffered from production interruptions due to COVID-19, which limited their ability to fulfill surging market demand.
With our three distribution centers and talented supply chain team.
We're able to keep our branches supply, which resulted in good market share gains during the year.
Additionally, through our new transportation management system for Tms initiative, we were able to continue reducing our inbound freight costs relative to the market.
We also benefited from excellent private label product growth.
Lastly, our recent acquisition of Hardscape and nursery companies.
Which operate at a higher gross margin than the base business also contributed to our gross margin improvement.
On the SG&A side, we achieved excellent operating leverage in 2020, as we tightly managed our business through the use of associate furloughs of.
For the discretionary travel and expenses and benefited from COVID-19 related trends, such as lower health care costs.
We achieved this leverage even as we continued to invest in mobile pro our digital capabilities, Tms and our marketing and operational excellence team.
All of which are increasing our capability to better serve our customers grow organically and achieve higher operating leverage in the future.
One indicator of our progress is the fact that our customer net promoter score continues to improve in 2020 moving from 71 to 75 during the year.
We also invested in our associates.
And then to stay at home when they were sick of exposed without using their paid time off for P. T O.
Creating a PTO bank to support associates, the need and paying the special Thank you bonuses to our frontline associates.
These are in addition to the record annual performance bonuses earned by our associates as they achieve the truly exceptional year.
We expect to continue making investments in 2021 the serve our.
Customers better while leveraging our prior investments to drive organic growth and achieve further SG&A leverage.
The combination of strong organic sales gross margin improvement good SG&A leverage and excellent acquisition performance allowed us to deliver 29% adjusted EBITDA growth.
And expand our adjusted EBITDA margin by 110 basis points for the year to nine 6%.
We're excited about the great progress that we made in 2020 toward our mid term milestone of 10% adjusted EBITDA margin.
On the acquisition front, our team did a great job of getting us off to a strong start with for deals in the first quarter.
Im pausing our acquisitions for March to July, but keeping our prospects one while we assess the impact of COVID-19.
And then picking back up in the second half of the year by closing seven additional deal.
Our acquisitions performed well and we added 8% of trailing 12 month sales the site one through acquisitions in 2020.
Setting us up for a strong growth through acquisition in 2021.
The year of 2020 was also an important year for site one from a balance sheet perspective.
We maintained strong liquidity throughout the COVID-19 crisis.
And then sees the opportunity to reduce our net debt leverage by executing a $262 million equity offering in August.
For this offering we reinforced and expanded our strong base of shareholders.
And provided them an excellent return on their new investment insight one.
At the same time, when coupled with our very strong free cash flow.
We reduced our net debt leverage by over one turn and ended the year with the net debt to adjusted EBITDA ratio of one point of time compared to two six times at the end of 2019.
We are now in a great position with maximum flexibility to execute our strategy, including continued acquisition in good times and tougher times.
Lastly, I'll remind you that we published our first site one responsibility report onsite one dot com.
Which outlines all of the terrific work that our teams do to ensure the site. One is of great place to work for our associates.
And the good neighbor and our communities.
Environmental social and governance best practices are already part of our DNA.
And we are happy to introduce our programmed practices and metrics the communicate and benchmark our actions and results going forward.
I would also note that 2020 was our safest year ever as we reduced our recordable and days of way incident rates by 40% and 58% respectively.
The prior year.
Based on our benchmarking right one is among the safest industrial distributors in the world.
To summarize I am very proud of the power team performs and the extraordinary environment.
To keep everyone safe serve and support our customers deliver outstanding financial results and take care of each other all along the way.
In the N 2020 was the strong year for them, which we continued to execute our strategy and demonstrated the momentum of our long term growth story.
Despite the challenges of COVID-19, we made significant progress in building our company and strengthening our team.
We remain excited about both the short term and the long term opportunity.
Liver exceptional value for all stakeholders.
Now John will walk you through the quarter in more detail John.
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.
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.
For 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 'twenty to 'twenty, one organic daily sales reconciliation schedule cash to the press release, we have 253 selling day.
Organic daily sales increased 12% in the quarter and 8% for the full year as the stay at home trends associated with COVID-19, combined with low interest rates 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 <unk> outdoor lighting and landscape accessories was strong again this quarter, increasing 16% compared to the prior year.
For the full year landscaping products.
9%.
Landscaping products of the products most closely tied to the repair and remodel end market, which is benefiting from home Miller upgrading their backyards and patio.
Organic daily sales growth for agronomic products, which includes fertilizer control product ice melt and equipment remained 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 for the prior year period.
Geographically all regions achieved positive organic daily sales growth during the quarter with six out of 10 regions, achieving double digit organic daily sales growth.
As Doug mentioned, we are seeing the strong demand continue into the first quarter and while weather like we saw last week can negatively impact sales.
Fair to say that when they can where our customers are busy.
Prices increased 2% for the fourth quarter and 1% for the year compared to 2019.
For the full year 2021, we expect price to contribute between 2% and 3% two of our overall sales growth.
We are not currently seeing the strong inflationary pressure and landscaping products that you may be seeing in other building product categories.
Acquisition sales.
Which reflect the sales attributable to acquisitions completed in both 2019 and 2020 contributed approximately 41 million for 8% to the overall fourth quarter growth rate.
For the full year acquisition sales contributed $136 million or 6% to the overall growth rate.
We are pleased with the performance of our acquisitions and our overall deal pipeline as we saw healthy re acceleration in deals closed in the fourth quarter.
Scott will provide more details regarding our acquisition strategy later in the call.
Gross profit increased 31% the $222 million in the fourth quarter and gross margin expanded 110 basis points to 32 nine per se.
The improvement in gross margin for the quarter was primarily due the higher supplier instead of attributable to our increased sales volume.
Along with a favorable customer mix and lower freight costs.
For the year gross profit increased 17% and gross margin increased 50 basis points.
Selling general and administrative expense or SG&A increased 22% the $203 million in the fourth quarter SG&A as a percentage of net sales decreased 120 basis points to 30%.
Reduction in SG&A as a percentage of net sales reflects operating leverage resulting from our excellent organic sales growth combined with solid cost management for.
For the full year SG&A increased 11% the $728 million in SG&A as a percentage of sales decreased 90 basis points.
For the fourth quarter, we reported income tax expense of $1 6 million compared to an income tax benefit of $5 6 million in the prior year period.
For the full year income tax expense was $27 5 million compared to $13 8 million in the prior year and.
And our effective tax rate was $18 five per cent compared to 15, 1% for the prior year.
The increase in the effective tax rate was primarily due to a decrease in the excess tax.
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Excess tax benefits of $10 9 million were recognized for the 2020 fiscal year as compared to $9 6 million for the 2019 fiscal year.
In 2021, we expect the effective tax rate will be between 25, 5% and 26.
Per cent, excluding discrete items, such as excess tax benefit.
We recorded net income for the fourth quarter of $11 5 million compared to $2 5 million for the prior year period.
The improvement was primarily driven by our strong sales growth SG&A leverage and gross margin improvement.
Net income for fiscal 2020 was $121 3 million compared to $77 7 million for fiscal 2019.
Our weighted average diluted share count was $44 1 million for fiscal year 2020, compared to $42 8 million for fiscal year 2019 the.
The increase was primarily attributable to our equity offering completed in August.
Adjusted EBITDA increased by 98% to $43 9 million for the fourth quarter compared to $22 2 million for the same period in the prior year.
For the full year, adjusted EBITDA increased 29% to $260 2 million compared to $201 1 million for 2019, adjusted EBITDA margin, reflecting our SG&A leverage and gross margin improvement increased of 110 basis points to nine 6% compared to the fiscal 19.
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Now I would like to provide a brief update on our balance sheet and cash flow statement as shown on slide 11.
Net working capital at the end of the year was $483 million compared to $455 million at the end of 2019.
The increase was primarily due to a $36 million increase in our cash on hand.
In response to the market uncertainty, resulting from the COVID-19 pandemic, we increased our cash on hand to enhance our financial flexibility as.
As market stabilized we started the process of deploying our cash on hand of paying down our outstanding debt and investing in the business.
During the fourth quarter, we lowered our cash on hand by $219 million to $55 million reduced our outstanding debt, including finance leases by 164 million to approximately $305 million and invested $97 million in new acquisitions and capital expenditures.
Excluding available cash on hand networking capital at the end of fiscal 2020 decreased $8 million compared to the end of fiscal 2019.
The increased asset efficiency, resulting from our improvement in both inventory and receivables turns.
Cash flow from operations decreased 27% to $49 million for the quarter by the increased 75 per cent to $229 million for the full year 2020, an improvement of 99 million of over 2019.
The increase was primarily attributable to higher net income and improved working capital management.
We made cash investments of $97 million for the quarter compared to $28 million for the same quarter last year and $184 million for 2020 fiscal year compared to $92 million in 2019.
The increase in cash investment reflects our increased acquisition activity compared to the prior year period.
Net debt at the end of the year was approximately $250 million compared to $529 million at the end of 2019 leverage decreased to one times, our trailing 12 month adjusted EBITDA compared to two six times at the end of 2019 the law.
Lower leverage reflects repayment of debt repayment of our debt with proceeds from our August equity offering and our strong operating cash flow as well as our improved profitability.
Our target net debt to adjusted EBITDA range is one to two times at year end.
As a reminder, we reduced our target net debt to adjusted EBITDA range to 1% to two times from two to three times.
This allows us to increase our financial flexibility, allowing us to execute our acquisition strategy in all market environments.
At the year, we had liquidity of approximately $418 million, which consisted of approximately $55 million cash on hand in the past $362 million available for the under our ABL facility.
Finally, as a reminder, we have no debt maturities until 2024.
In summary, our priority from the balance sheet perspective is to maximize our financial strength and flexibility. During this uncertain time without sacrificing long term growth for market opportunities.
Now I'll turn the call over to Scott for an update on our acquisition strategy.
Thanks, John in August we began to close deals again after a five month pause we were pleased to regain of momentum quickly and seven outstanding companies over the remainder of the year with five of those in the fourth quarter alone.
As shown on slide 12, but the full year 2020, we acquired 11 companies with trailing 12 month net sales of approximately $191 million for a little over 8% of 2019 net sales.
Since 2014, we acquired 57 companies with more than $1 billion and acquired net sales.
Turning to slide 13 for 18, you will find information on our most recent acquisition.
On October <unk>, we acquired burn until the landscape centers with 12 locations across three of Western Canadian provinces, establishing a leading hardscape and landscape supply platform, which complements our growing irrigation and agronomic business there.
On October 5th we acquired Hedberg supply with two locations in the greater Minneapolis Metro area, which establishes yet another leading hardscape and landscape supply platform.
On December nine we acquired alpine materials with the single location of serving the greater Dallas Fort worth, Texas market through the distribution of mulch soil hardscape 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 30, we acquired dirt and rock, which serve the Lake County, Georgia market, just east of the Atlanta Metro area.
Iraq is focused on the distribution of Hardscape natural stone and landscape supply to landscape professionals.
This acquisition extends our leading hardscape position in the greater Atlanta Metro.
Our existing branch network strengthening of our capability to provide the full line of products and services in Georgia.
Finishing off 2020, we acquired stone centre of Virginia on December 31, 2000, with two locations focused on the distribution of Hardscape natural stone and landscape supplies to landscape professionals in the Richmond and Fredericksburg market.
This addition, strategically builds upon our 2018 acquisition of the Stone center of Virginia's foundational site in Manassas, Virginia.
And for our first acquisition of 2021, we acquired Lucky landscape on February 17.
Lucky landscape as a wholesale distributor of nursery products the landscape contractors, serving the greater Houston market from a single location.
This is our fourth dedicated nursery branch in Houston and expand our full line capabilities in this important market.
Summarizing on slide 19, our acquisition strategy continues to create significant value for <unk> and our pipeline is strong and continually expanding across all geographies and lines of business.
More importantly, the quality of the companies that are joining the site. One is very high bringing terrific expertise and exciting new talent to our fast growing company.
But building relationships and joining with excellent companies, it's only one element of our success.
The other key element comes from our outstanding and experienced teams in the field and functional support areas. The warmly welcome our new associates for the site one family and are just as eager to learn from them as they are to share the winning culture. We have built here at site one.
As Doug mentioned, we have over 50, former owners, who are now part of the <unk> team and I want to thank all of these highly successful entrepreneurs and the whole site, one team, who together build unbreakable relationships with our customers our suppliers and our communities every day.
Together, we will continue to bring on new dynamic leaders and the best companies in the grain industry to expand our product capability helps us to better serve our customers and achieve further performance and growth.
I'll now turn the call back to Doug.
Thanks Scott.
I'll wrap up on slide 20.
Before I jump into the outlook.
I would like to recognize the entire site team for their continued leadership and commitment to excellence during the COVID-19 pandemic.
We're all excited to see the number of positive cases, dropping and look forward to widespread vaccination. However.
However, the daily battle against the spread of COVID-19 goes on.
And we 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 of type one will continue to do our part to help fight the spread of this terrible virus.
In terms of demand outlook, we are seeing the trend in the fourth quarter continue into January and February with sales performing above the seasonal expectation so far.
Overall, we expect the achieved 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 market, we would expect maintenance, which comprises 41% of our business to remain steady with low to mid single digit growth.
We have terrific capability of maintenance with our market, leading lessor brand and so we are very confident in our ability to perform in a steady market.
The residential new construction, which comprises 27% of our business should remain strong as builders work to create new home inventory to meet higher demand.
Interest rates are forecasted to remain low and we believe that the new focus on home ownership will continue post COVID-19.
So we would anticipate mid to high single digit growth in new residential demand.
By contrast of the new commercial construction market, which represents 14% of our business is expected to be weak in 2021.
Our commercial customers remain busy for our also wary of declining demand during the second half of the year.
So we would expect low to mid single digit drop in commercial with demand for the full year.
Lastly, the repair and upgrade market, which is 18% of our business.
Very strong driven by the stay at home trend and increased investment in outdoor living.
We expect this trend of moderate through the year.
As widespread vaccination reduces the spreading of COVID-19, and is spending on travel and entertainment rebound.
That said, we do expect the positive outdoor living trend to continue as it has for the last 10 to 15 years.
Taken together, we would expect mid to high single digit growth in repair and upgrade.
In summary, we expect mid single digit overall growth in our markets for 2021, which will provide a solid platform for us to continue executing our strategy growing our business and expanding our adjusted EBITDA margin.
In terms of acquisition as Scott mentioned, we currently have the very strong pipeline of high quality companies and believe that 2021 will be a good year for acquisition growth.
Additionally, our ability to integrate acquisitions and achieve synergies improves each year and so we expect our acquisitions to perform well in the coming year.
Taken altogether, we expect fiscal 2021, adjusted EBITDA to be in the range of $275 million, the $292 million, which represents year over year growth of 6% to 12%.
This range does not factor any contribution from unannounced acquisitions.
In closing I would like the sincerely. Thank all of our site one associates, who continue to amaze me with their passion commitment teamwork and surplus service.
We have a tremendous team and it is a true honor to be joined with them as we overcome adversity and deliver value for all 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.
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, a confirmation tone will indicate that your line is in the question queue. You May Press Star two if you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Please limit yourself to one question and one follow up question and then re queue for additional questions. One moment. Please while we poll for questions.
Our first question is with the David Manthey with Barclays. Please proceed with your question.
Yeah, Hi, good morning, guys.
Good morning.
To start off here.
There were a lot of positives clearly in 2020 and ended the fourth quarter, but fourth quarter trends not Super Representatives.
Necessarily of.
Anything going forward.
As you look at 'twenty, 'twenty, one and think about the.
The key initiatives that Youre undertaking Doug what are you. Most excited about in the is there anything new or there are any of these levers that you are leaning out 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 'twenty, one that we haven't in the past is marketing.
As you know, we hired a new chief marketing officer of Shannon Versace.
In February of last year, she has been able to build her team and create a plan. We did we also did a study of our 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 site one was with different.
Areas of the market and so armed with that we're going to go heavier on marketing in 2021.
For example, where we're less well known with the with the Hispanic customer there and with our regular customers and so we're going to be aggressive there.
And advertising Wi type one is of great place.
For Hispanic.
Customers are bilingual capability.
And so that's just one example, we're going to put a lot more marketing behind our product lines like <unk> and <unk>, which we saw really good growth in 'twenty, one 'twenty, but we expect more in 'twenty, one and so so that's.
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 the new CRM for our sales force I think we've come a long way with our sales force we have an older homegrown CRM, we're going to replace that with the.
For the Salesforce CRM, so thats, becoming more advanced.
And then just the overall customer excellence, our operational excellence group has been in place for a while we've been really working on a customer experience that involve mobile pro. It also involves Tms in terms of the.
Dispatched track, which is our which is our way of tracking deliveries in the local market.
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 we feel that coming together and excited about the last one I would say is our digital <unk>.
<unk> Dot com, we've been working hard on that to get it to kind of a world class.
Level.
Very close we're launching some pilots early this year to really go after that.
<unk> with the kind of a great new products and do some marketing behind it and assuming that goes well.
You'll see us roll that out more aggressively.
In the year. So I know that's a list of things, but those of the things that would have us excited that we can drive organic growth. Despite what the market the market is likely to be in our favor in the first half of it might be tougher in the second half, but we wanted to be able to swim downstream and upstream faster as the company.
Yeah that all sounds great.
I guess the the final question here is how concerned should we be with the labor shortage issue.
Is there any data out there as you look at our business formation of landscapers or visa issuance or anything else that might help alleviate the tightness issue in 2021.
Yeah. So 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 than 2021.
We're all working on it our customers ourselves.
Our trade associations, I think where we're making some headway there in terms of.
Getting people willing to landscaping in the.
Making making it known the landscape is an attractive industry.
No magic bullet and so we'll continue to be tight I think our customers are getting more productive we're helping with that we're getting more productive with things like mobile pro and <unk> dot com, So we'll be able to fight through and deliver.
Good year of growth.
Despite the tight market, but it will still be with us all here for.
Sure.
Okay, Alright, thanks, Doug.
Thanks, David.
Our next question is with the 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 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 do you expect continued leverage on bolt.
Or maybe just on the SG&A side, and just any kind of.
Unusual items of rebates or things that we should sort of keep in mind as we try to model out 'twenty one would be great. Thanks.
We do we do expect.
Continued growth in EBITDA margins EBITDA margin expansion next year.
There will be some combination of of.
Gross profit and SG&A with regards to gross profit.
We think one of them.
Of the things we saw was a key.
Customer mix.
Our benefit what we're seeing right now.
From the from that perspective, we.
We're seeing more growth of the small residential focused customers and less growth in the large commercial jobs that the.
A slight benefit we think we really saw it in Q4, we think that will continue on on <unk>.
Certainly next year also.
And then with SG&A.
Well, obviously everybody is aware of there are certain things that will pick up next year. You know, we're going to we're going to go back the traveling we're going to.
Sales and marketing, which are budgeted higher next year, but at the same time with regards to us.
We won't have.
Certainly some of the incentives will probably normalize and Ed also.
With regards to some of the costs that just running in the Covid world probably won't reoccur, either so there'll be puts and takes we expect our gross margin improvement I don't think there was any major one time things.
Over the two before it's kind of a grind forward on all fronts.
And what we expect to continue to make progress next year.
Okay, all right, 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 Jon is that sort of an unusual bump up there or is that just sort of taking advantage of strong markets to increase the 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 than the you also have the additional non seasonal kind of.
The sale as sales start trailing down.
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 the incentive comp was up a slew of accelerating as we had.
Will perform well.
The expectations in the fourth quarter also.
Understood. Thanks, I'll pass it on.
Yeah.
Our next question is with Ryan Merkel with William Blair. Please proceed with your question.
Hey, everyone. Congrats on a nice finish for the year.
Thank you Ed.
So my first question is on the outlook of mid single digit organic growth in 'twenty, one sales a little little Conservative for me just given the backdrop is pretty good and youre going to have two to three points of price. So I guess, the two part question where might or might there be upside to your market guide of up mid single digits and then secondly are you including share gains.
And your outlook.
Yes.
Talk about we've talked about the market, we talked about our own sales, we would still classify that as of mid single digit.
The upsides would be the first half could be stronger maybe than we think.
And the second half of it's really uncertain as COVID-19.
As the virus tails off in the vaccines to become more widely used in and people start spending again on entertainment and travel et cetera.
What happens in our market, we still think there'll be a strong outdoor living with Inc.
Residential will still be strong.
Commercial.
Here's the question Mark So when you put those puts and takes there's just a lot of uncertainty in the second half.
But other.
Side, there could be that we do better in the second half then we think we didn't we didn't think we're going to do as well in the in the fourth quarter on strong comps from last year in 'twenty than we did.
All of that said Theres downside as well whether.
Can do anything during the year as you know so we have to be we have to be careful share gains in other one we could do better than we than we think.
We're always.
I think prudent there in terms of what we budget.
But we're hoping we would not do that with the <unk>.
With all of the initiatives and firepower of 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 downside as well.
We think at this point you know.
Mid single digits makes.
Makes sense as a reasonable assumption.
Alright that makes sense 2021 of the great weather year, So certainly understand that.
Alright, and then as we think about modeling fourth quarter of 'twenty. One how much do you think mild weather boosted <unk> I know that's hard to answer but I'm just looking for any guidepost you can provide as we think about for Q2.
Yeah, John Yeah.
So all of these difficult bifurcated that.
I would say well first off when you model of 21.
Take out take out a week of sales of.
From that standpoint.
But 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 of the.
The 10 were dry here in Q4, especially out west, which was which was really positive to sales growth of <unk>.
Generally it was warmer.
From that perspective, which allowed people to work a little bit more of what the one side of thing we did see about of.
Our agronomic sales would have actually been stronger but.
But we did see nobody was buying ice melt in the fourth quarter. So.
So there was a little bit of a we went backwards five or $6 million just because of that so but in general I guess I would probably say two to three points, but that as debt.
That is an estimate of it very difficult the bifurcated.
Yes, I understand that okay. Thanks pass it on.
Our next question is with the Matthew Bouley with Barclays. Please proceed with your question.
Yeah.
Hi, This is actually Ken on for Matt This morning.
So I just I guess, just sticking with the guide for moderation in growth in the back half are you talking about flatter trend or are you actually anticipating the negative losses of the telecom.
Yes, I think youre going to see like I said strong Q1 and Q2.
Q3 moderates.
The fourth quarter is as.
As John mentioned, a lot of things going on in 'twenty one.
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.
It would be somewhere around flat.
It could be plus could be the minus it's really hard to call at this point, but.
We wouldn't expect the.
Third quarter to be of negative.
The fourth quarter could could very well be a negative in terms of organic growth.
Okay. That's helpful color and then I guess I hear you on the inflationary pressures generally being less than what we've heard across building products, but can you just comment of what you've seen specifically in freight inflation. So far of maybe quantify the potential impact to margins there.
We are we have seen an increase really in the second half of this year.
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 tea up 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 of this.
This year, we would expect the second half of the year of some of the pressure.
Relief, but minor I would say minor headwind to gross margin improvement but.
So we're still the overall hopeful that we will be able to still achieve.
Margin improvement this year.
Okay. Thanks, so much I'll leave it there.
Thank you.
Our next question is with Keith Hughes from choice. Please proceed with your question.
Thank you question on the acquisition you talked about one of the slide.
And you talked about one of the slides in the acquisitions debt.
There is 11 deals of 191 and trailing 12 month sales.
Given the timing of the deal how much of that spills over into 'twenty, one how much of an acquisition revenue in rough numbers do you have.
None of it in the bag, if you will for 'twenty one.
Yeah.
Well I think if you actually look at.
Earnings announcements.
This year.
The acquisitions, we did in the first.
First the after you are largely built into the into the into the numbers. So I would say the pre COVID-19 acquisitions, there's not a lot of revenue growth.
With regards to those the the post COVID-19 ones.
You would probably have.
About half of half.
Half of the year with regards to.
Additional revenue with regards to those so so if you look at our acquisitions.
Going into next year.
The 2020 acquisitions.
<unk> contributed $75 million in revenue of.
This year and so so going into it the balance would be would be.
It would be still.
Still still a contributor to overall revenue growth.
So, but I can't do 190 of minus 75.
I think I'm missing one.
150, because that where we're adding weighted.
Kind of what's the what's your expect Okay. I'll, let you all of the ticket with that answers the that answers the the.
The question and.
And I guess.
One final question on your commercial business you had you had talked in the in the guidance numbers.
Weak commercial construction of understand that.
You have some commercial maintenance and a little bit of re modeling any sort of view of what the trends are on that heading into early 'twenty one.
Yeah, the maintenance is stable.
The commercial properties continued to be maintained so low single digit then.
And then remodel is just not a it's not a big.
There is some of it's very small.
We would also expect that.
The debt the maintenance of properties is the property that needs to be remodeled certainly in a tougher market debt.
Becomes almost essential Greg to the remodel of property stay competitive et cetera. So those will continue to be.
The steady and healthy.
Okay, great. Thank you.
Okay.
Our next question is with the Mike Dahl of RBC capital markets. Please proceed with your question.
Okay.
Hi, This is actually Chris on for Mike Thanks for taking my questions.
My first question is just on the inflation outlook for this year I know you guys ticked up your pricing outlook to two to three.
Are you embedding any.
Cost inflation.
Looking at the full year 'twenty, one for my supplier base.
That's two to three is primarily cost inflation from our supplier base.
So our marketplace.
You generally see most of the cost inflation is passed on.
And so 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 to the market in general.
Got it that makes sense and I guess just for 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 in one.
That's embedded at all on your in your guidance for 'twenty one.
Yeah. So obviously, we've had a tough time in Texas.
That's affected everybody.
But it's one week the weather's back.
Their sales of come back.
Event like that.
It doesn't become material.
Because it was only a week.
It was we had obviously snow across the country, but thats normal.
But it was it was only one state although Texas is a big state that's something that they can make up for.
Through the year.
The normal weather the.
The rest of the year and in fact, the repairs of.
Nursery here or even irrigation pipe in backflow as that gets frozen and damaged might give you a little pick up the help that catch up so you know.
It was a tough event, our folks our associates are safe and well our branches are back up and they were closed for for three or four days.
But the backup and running and in the scheme of the year It would make.
The material difference.
Okay.
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 site won like the once again, thank our terrific associates for all of their 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.
Yeah.