Q1 2023 SiteOne Landscape Supply Inc. Earnings Call
Speaker 2: Greetings and welcome to the Site 1 Landscape Supply Earnings Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please do so.
Speaker 2: please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Joan Yetry, Executive Vice President and Chief Financial Officer. Please go ahead.
Speaker 3: Thank you and good morning everyone. We issued our first quarter 2023 for an express release this morning and posted a slide presentation to the investor relations portion of our website at investors.psych1.com.
Speaker 3: I'm joined today by Doug Black, our Chairman and Chief Executive Officer, and Scott Salmon, Executive Vice President, Strategy and Development.
Speaker 3: Before we begin, I would like to remind everyone that today's press release, slide presentation, and the statements made during the call include forward-looking statements within the meeting of the Private Security's litigation reform act of 1995.
Speaker 3: These treatments are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections.
Speaker 3: Such risks and uncertainties include factored, the factors set forth in the earnings press release and in our violence 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.
Speaker 3: A reconciliation of these measures can be found in our earnings release and in the slide presentation.
Speaker 3: We now like to turn the callover to the left.
Speaker 3: Good morning and thank you for joining us today.
Speaker 3: Against the headmen of a very strong prior period.
Speaker 3: We were also very pleased to add two new high-performing companies to Site 1 during the first quarter. These companies have talented teams and strong customer relationships and they expand our product lines and market presence in their respective markets. In the execution of our commercial and operational initiatives and our acquisition strategy, we continue to build Site 1 as a world-class market leader for the long term while delivering consistent performance and growth in the near term.
Speaker 3: As we face off-the-market, we remain confident that our well-balanced business, strong balance sheet, exceptional teams, improved capabilities, and robust acquisition pipeline positioned us well to navigate the current environment and achieve continued success.
Speaker 3: I'll start today's call with a brief review of our unique market position and our strategy for long-term performance of growth, followed by some highlights from the quarters.
Speaker 3: The on-go three will then walk you through our first quarter financial results in more detail and provide an update on our balance sheet and liquidity position. Scott Salman will discuss our acquisition strategy, and then I will come back to address our latest outlook for 2023 before taking your questions. I show it on slide four of the earnings presentation. We have grown our footprint to more than 640 branches and four distribution centers across 45 US states.
Speaker 3: and six Canadian provinces. We are the clear industry leader over four times the size of our nearest competitor.
Speaker 3: Yet we estimate that we only have about a 16% share of the very fragmented, $25 billion wholesale landscaping products distribution market. Accordingly, our future growth opportunities remain significant. We have a balanced mix of business with 65% focused on maintenance, repair, and upgrade. 21% focused on new residential construction and 14% on new commercial and recreational construction.
Speaker 3: offer us multiple avenues to grow and create value for our customers and suppliers while providing important resiliency in software markets. Turning to slide five, our strategy is to leverage the scale resources, functional talent, and capabilities that we have at the largest company in our industry, all on support of our talented, experienced, and entrepreneurial level teams to consistently deliver superior value to our customers and suppliers. From a long way in building site one and executing our strategy.
Speaker 3: But we were relatively early in our development as a true world-class company. Accordingly, we were aimed highly focused on our commercial and operational initiatives.
Speaker 3: 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 to site one. Taking all together, our strategy creates superior value for our shareholders through organic growth, acquisition growth, and EBDA marketing expansion. In terms of slide six, you can see our strong track record of performance and growth over the last seven years with consistent organic and acquisition growth and EBDA marketing expansion.
Speaker 3: We've done this while investing heavily in our teams and new systems and technologies to build the foundation for Site 1 and to create superior capabilities for our customers and suppliers.
Speaker 3: Still building and investing and we remain confident in our ability to game market share and continue driving all three of our value creation levers going forward.
Speaker 3: We leverage our expanded development team to increase acquisition activity this past year, and our pipeline and potential deals remain robust. All of these companies are high performers, and so they strengthen our company with excellent talent and new ideas from performance and growth. Given the fragmented nature of our industry and our modest market year, we have significant opportunity to continue growing to requisition for many years to come. Why seven shows the long runway that we have ahead in filling in our product portfolio.
Speaker 3: And through 17% in the first quarter of 2022 largely driven by price inflation. So in terms of sales, Q1 is our toughest comparable for 2023. Accordingly, we were pleased that the organic data sales decline was only 2%. Given by 6% price inflation, which was offset by an 8% volume decline. We experienced the most significant volume decline in our Western markets that had record rainfall. And in our Northern markets, we're springing again later than in 2022.
Speaker 3: For the weather was more favorable in the Southeast, Mid-Atlantic, and Florida. We saw high single digits to low-village digit organic basic sales growth during the first quarter.
Speaker 3: which has increased our year-to-date organic daily sales growth to approximately 1% through the first four weeks in April . Gross profit increased 7% and our gross margin increased 90 basis points for very healthy 34.3%. Even as inflation continued to moderate through the quarter. The loss of the extraordinary price realization benefit achieved during the first quarter of 2022 was more than on set by our hardscapes and landscape supply acquisitions.
Speaker 3: which carry a higher gross margin and by lower fuel cost and some price cost benefit.
Speaker 3: Our SGNA is a percentage of net sales increased by 620 basis points year over year to 34.8%, which is a 60 basis point increase compared to the fourth quarter of 2022. Acquisitions have the largest effect on SGNA as a percentage of net sales. At the same risk age and landscape supply as acquisitions that increased our gross margin, also increased our SGNA.
Speaker 3: Additionally, several of the acquisitions for in the West and North were poor weather and a late spring time call us further to be leveraging in the court.
Speaker 3: Lower volume and continued labor inflation were also factors contributing to the higher SGA as a percent of men's sales.
Speaker 3: Adjust an EVDA for the quarter to climb 41% to 39.8 million, and adjust an EVDA margin to climb by 360 basis points to 4.8%. That's the combination of lower volume and higher SGNA yielded a more typical first quarter adjusted EVDA outcome. Note that adjusted EVDA to the first quarter
Speaker 3: We're driving organic growth through our enhanced partners program, our Hispanic marketing initiatives, and as we leverage our recently installed Salesforce CRM to drive stronger sales and better productivity from our team of more than 900 inside and outside sellers. Senior rollout of mobile pro and dispatch track allowed us to offer better customer service while also increasing the productivity of our branch staff and deliveries fleet.
Speaker 3: Continue to ramp up our digital sales and other customer activities through site1.com, which makes our customers and associates more productive and helps us to gain market and share.
Speaker 3: Finally, our operational excellence teams are systematically spreading best practices in each line of business across site one to drive value for our customers, suppliers, and new company.
Speaker 4: There were 64 selling days in the first quarter, which is one last day that we had in the first quarter of 2022. Organic daily sales decreased by 2% in the first quarter as sales volume was negatively impacted by weather and moderating economic conditions. Price inflation contributed approximately 6% to organic daily sales growth for the quarter. As we discussed last quarter, we are seeing less price inflation as we count the large price increases of last year and the cost for product like fertilizer and PVC pipe decrease. For the full year, we continue to expect price inflation in the low-sagil digits.
Speaker 4: with the majority of it realized in the first half of the year. Volume declined 8% for the first quarter as cold and rainy weather in our western and northern markets reduced demand. Wester markets in especially California were negatively impacted by unprecedented precipitation during the quarter. Organic daily sales for California.
Speaker 4: one of the largest landscaping markets in the US for down 21%.
Speaker 4: Fortunately, we have a geographically diverse customer base and the negative sales growth in Western and Northern markets was partially offset by solid growth in our southern markets. As Doug mentioned, we have seen a sales take up in April with drier conditions in the West and the start of spring in the North. Organic daily sales for landscaping products, which includes irrigation, nursery, hard skate, outdoor lighting, and landscape accessories, who 1% for the first quarter, as price inflation and strong sales in southern markets were then offset the reduced volume resulting from the unviable weather and moderating economic conditions.
Speaker 4: Organic daily sale quote for agronomic products, which includes fertilizer, control products, ice melt, and equipment. Geek reads 9% for the quarter, and get the slow start to spring.
Speaker 4: moderating economic conditions and reduce sales of ice melt products. We're pleased with the performance of our acquisitions in the first quarter, acquisition sales, which we put the sales that treated both to acquisitions completed in about 2022 and 2023.
Speaker 4: Contruded approximately 57 million or 7% to net sales growth.
Speaker 4: Scott will provide more details regarding our acquisition strategy later in the call. Roseprofit increased 7% to $287 million for the first quarter compared to $269 million for the prior year period.
Speaker 4: Growth market increased 90 basis points to 34.3 percent as lower freight costs and contributions from acquisitions with higher growth markets offset the absence of the large price realization benefit we realized in the first quarter of 2022.
Speaker 4: SGNA is a percentage of net sales increased 620 basis points in the quarter to 34.8%. The increase in SGNA as a percentage in net sales, primarily reflects increased SGNA investment combined with the low sales and the seasonally slow first quarter. For the first quarter we reported an income tax benefit of 2.7 million compared to income tax expense of 4.6 million in the prior year period. The effective tax rate was 37.5% for the first quarter of 2023 compared to 12.5% for the prior year period. The change in the effective tax rate.
Speaker 4: was primarily due to a decrease in that income before taxes to a net loss before taxes, and a decrease in the amount of excess tax benefits from stock-based compensation. Excess tax benefits of 0.8 million were recognized for the first quarter of 2023 compared to 5 million for the prior year period.
Speaker 4: We expect the 2023 fiscal year effective tax rate will be between 25 and 26% excluding these agreed items such as excess tax benefits.
Speaker 4: We recorded a net loss of 4.5 million for the first quarter of 2023 compared to net income of 32.3 million for the prior year period. The entire net sales and most margin were offset by the increased net-chain aid expense.
Speaker 4: Our weighted average deluded share account was 45 million compared to 45.9 million for the prior year period. The shares used in the calculation of deluded EPS this quarter do not give a benefit to any deluded securities as the inclusion would decrease the net loss for common share.
Speaker 4: Just an evid dot decreased by 41% to 39.8 million for the first quarter compared to 67.8 million for the same period in the prior year.
Speaker 4: Adjust the EBITDA margin in decreased 360 basis points to 4.8%. Now as I extend to provide a brief update on our balance sheet and cash flow statement I'm showing on site then.
Speaker 4: Networking capital at the end of the first quarter, which 960 million, compared to 788 million at the end of the prior year period.
Speaker 4: The increase in networking capital is primarily attributable to our seasonal build-in inventory in preparation for the spring selling season, new acquisitions, and the impact of a place.
Speaker 4: Pass used in operation increased to approximately 153 million in the first quarter compared to approximately 118 million in the prior period.
Speaker 4: The increase in cash use in operations was primarily due to our decline in met income and a higher seasonal investment in working capital.
Speaker 4: We may catch investment of approximately 40 million in for the first quarter compared to approximately 41 million for the same quarter of 2022.
Speaker 4: The decrease reflects a small decline in acquisition investment in the first three months of 2023 compared to the same period of 2022. Net debt at the end of the quarter was approximately 586 million compared to approximately 417 million at the end of the first quarter of 2022. Leverage increased to 1.3 times are trailing 12 months to just
Speaker 4: one to two times.
Speaker 4: At the end of the quarter, we had available liquidity of approximately 330 million, which consisted of approximately 40 million of cash on hand and approximately 273 million in available capacity under AABO facility.
Speaker 3: I will now turn the call over to Scott for an update on our acquisition strategy. Thanks, John . As shown on Slide 11, we have fired two companies in the first quarter with a combined Trailing 12-month net sales of approximately 40 million.
Speaker 3: Since 2014, we have acquired 82 companies with approximately 1.5 billion in trailing 12-month sales at a design one.
Speaker 3: Turning to slides 12 and 13, you will find information on our most reach and acquisitions. On March 14th, we acquired J&J materials with five locations focused on providing heart escapes and bulk landstakes supplies to the Rhode Island and Southeastern Massachusetts markets.
Speaker 3: This acquisition compliments our prior acquisition of another regional heart skates leader, Kate Carter stone.
Speaker 3: On March 28th, we acquired Triangle Landscape Supplies with four locations providing bulk Landscape Supplies and hardskids to landscape contractors in the Raleigh Durham Market.
Speaker 3: These acquisitions act terrific talent to site one and move us forward toward our goal of providing a full line of landscape products and services to our customers in all major US and Canadian markets.
Speaker 3: Summarizing on slide 14, our acquisition strategy continues to create significant value for site 1. With this strong balance sheet and a robust pipeline across all lines of business and geographies, we are confident that we will be able to add many more outstanding companies to site 1 during the year.
Speaker 3: I want to thank the entire Site 1 team for their passion and commitment to making Site 1 a great place to work, and for welcoming the newly acquired teams when they join the Site 1 family. I am confident in our ability to keep adding more outstanding companies through acquisition as we move through 2023, creating terrific value for all of our stakeholders. I will now turn the call back to Doug.
Speaker 3: Thanks, Scott. A wrap-up on slide 15.
Speaker 3: Our outlook for 2023 remains largely the same as it was during our last earnings call in February .
Speaker 3: As John mentioned, we've seen inflation continue to moderate, and we expect that to continue with flat prices in the second half, yielding low single-digit inflation for the four-year.
Speaker 3: In terms of end-markets, we continue to expect that it will be a new residential construction, which comprises 21% of our sales.
Speaker 3: That is offset by flat to modest growth in the more resilient maintenance, preparing upgrades, and new commercial construction and markets. Note that we have not yet seen any negative effects on commercial construction driven by the recent banking crisis.
Speaker 3: We've been back logs and healthy bidding. We believe this market represents 14% of ourselves. It grows slightly versus the prior year.
Speaker 3: In total, we expect industry sales to decline in 2023, and with our ability to gain market share, we would continue to expect our organic daily sales to be flat to down mid-single digits with modest price inflation being offset by reduced volume. We expect our gross margin to normalize this year without the...
Speaker 3: substantial benefits that we saw from strategic inventory purchases ahead of rapid inflation in 2021 and 2022. Additionally, with flat declining sales, we expect S-GNA as a percentage of sales for our base business to increase modestly.
Speaker 3: Respect acquisition is to benefit gross margin, but also increase SGNA as a percent of that sales.
Speaker 3: Increasing gross margin and increased S-GNA as a percent of net sales, we expect adjusted EVDA margin to normalize in 2023.
Speaker 3: providing the foundation for further improvement over the longer term.
Speaker 3: In terms of acquisitions, as Scott mentioned, we have strong pipeline of high quality companies and look forward to adding more of these to the Sao1 family in 2023.
Speaker 3: Our acquisitions are performing well and we continue to improve our ability to integrate them into our company.
Speaker 3: Historically, we respect acquisitions to contribute strong weight to our performance and growth during the year.
Speaker 3: With all these factors in mind, we are maintaining our full year guidance and anticipate our fiscal 2023 adjusted EVDA to be in the range of $395 million to $425 million.
Speaker 3: This range does not factor any contribution from unannounced acquisition.
Speaker 3: In closing, I would like to sincerely thank all our SIT One Associates to continue to amaze the weather passion, commitment, teamwork, and selfless service.
Speaker 3: We have a tremendous team and it's an honor to be joined with them as we deliver increasing value for all our stakeholders. I would also like to thank our suppliers for supporting us so strongly.
Speaker 3: and our customers for allowing us to be their partner. Operator, please open the line for questions.
Speaker 2: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press the Star 1 on your telephone keypad. As confirmation thought, we'll indicate that your line is in the question.
Speaker 2: You may press a start-chill if you would like to remove your questions from the queue. For participants using the speaker equipment, it may be necessary to pick up your headset before pressing the start-tease.
Speaker 2: Please, link yourself to one main question and one follow-up. One moment please, why are we moving for questions?
Speaker 2: And our first question comes from David Manday with Bird Day.
Speaker 3: Yeah, thank you. First off, a clarifying question. You said that average daily sales were down 2% in the first quarter, but then I think you said that year to date through April , they were plus one. I just wanted to be clear on that.
Speaker 3: Yes, that's correct. Okay, so April sales volumes would be higher than January , February , March, but that's still an encouraging sign. I guess that leads to the question here that sometimes in clean of weather leads to sales that are completely missed, and then other times these sales are just...
Speaker 3: simply delayed push to the right. Could you characterize the first quarter weather affected geographies and the nature of those sales? Yeah, so you're correct. And the first and second quarter kind of spring starts at the end of the first quarter and rolls into the second. And so often.
Speaker 3: you can get more sales into the first or less and more into the second. And we would characterize that weather dynamic is mostly that in our northern markets.
Speaker 3: For instance, we're spring came later than in 2022. We're seeing the robust sales come in. The fertilizer applications get done. We don't think we missed anything. As we mentioned, as a company in a whole, we've kind of largely made that up. One area where we might not make it up is California and the West. It's been very wet. That's an oil weather market. There's been several months of just really record rainfall. We probably won't make all of that back up. In the scheme of things,
Speaker 3: You know, the weather has moved sales around, but we think it's still all to play for this year.
Speaker 5: Okay, that's helpful, thank you. And then second on the gross margin guidance, back in February of this year you said 34 to 34 and a half, now you're saying higher than previously thought. Given that you're not changing your EBITDA guidance, I guess that naturally assumes higher SG&A, could you talk about the sources of upside to operating expenses? Yeah, with regards to SG&A.
Speaker 4: sales obviously because of the low sales value. But also most of the hiring that we're seeing in the comp is was really done last spring in 2022. So as we as we start comping year over year that the difference goes down.
Speaker 4: We've also taken in certain markets. We've already taken actions to address some of the challenges that we're having with sales. And then also I would say in general we're not doing any hiring.
Speaker 4: in much hiring across the board at all, given the uncertainty in the marketplace. So certainly areas where we can take actions, please with the sales growth that we're seeing in April , but monitoring it closely.
Speaker 5: Okay, thanks very much. Thank you.
Speaker 5: Our next question comes from Ryan Marko with William Blair. Hey guys, two questions from me, one on sales and then one on Gross Margin. So first on sales, can you just tell us what April organic growth was? And then I'm curious when you talk to contractors, the REZI contractors, what are they telling you in terms of backlog and bookings? Because it feels to me like things are tracking pretty well and maybe there's a bit of upside to guidance for sales.
Speaker 3: three to six months ago. And we'll see how it plays out. But it seems like that market could be a little more resilient than we thought it was going to be. And the builders, you know, they're still, again, we still calling that market down. But, say, net net, there probably is a little more confidence. Then, again, we were just seeing, or we would have heard from them, three to six months ago.
Speaker 5: And as it relates to the maintenance part of the business for RESI, I think last year you said inflation was sort of impacting budgets a bit. Have you seen that sort of normalized? I wouldn't say we've really seen that yet. We are seeing, obviously, that's been one of the growth areas here in April . The weather paid a...
Speaker 4: major role in Q1 with regards to kind of our agronomic sales, monitoring it closely. And we have seen, obviously, recovery in April , but whether a year over a year we're going to be up or down watching that right now.
Speaker 5: Got it. Okay. And then I'm going to go to some margins. Can you just unpack the freight upside? Is that lower fuel? Is it supply chains normalizing? So that's helping costs? And then how much do you think freight will end up helping you for the year relative to what you saw? Three months ago. So in general...
Speaker 4: 40 basis point positive pickup year over year in our Q1 results. We're optimistic that going into the year without being that afraid will be a positive. Still going into the year before this goal of destination, our chance to be seen.
Speaker 4: We had some of that built into kind of our existing numbers, but we would have defect for the whole year. I think the market has even gotten better since we gave original guidance.
Speaker 2: Got it, helpful. Thank you. Our next question comes from Matta Bole with Barclays.
Speaker 6: Hey, good morning guys, thanks for taking the question. Just on the gross margin, again, I guess we want a clarifying point. I think you said that acquisitions contributed 100 basis points to the gross margin in the quarter. I'm just curious if you could unpack that a little bit, just given it, I think you had something like $55 to $60 million.
Speaker 4: with regards to some of the acquisitions that's really kind of a product mix issue. These acquisitions say, for instance, bring in and hire gross margins and IRSGNA, I think on an adjusted EVA.basis on not too much of us.
Speaker 4: too much of an issue, but for certain products,
Speaker 6: Got it. Okay, thank you for that. And then, so I guess on that point following to the SG&A side, so it sounds like you are kind of shifting 50 basis points towards gross margin and away from SG&A. I think on a dollar basis SG&A was up something like $60 million in the quarter. You said acquisitions were more than half of that. How should we think about kind of the dollar spend on SG&A as we run through the year? Is that kind of $60 million per quarter the right run rate? Or presumably you are expecting that to decelerate meaningfully. So a little more color on what you are doing to kind of decelerate that SG&A spending increase. Thank you. Yeah, so the ink and…
Speaker 4: All this is predicated on us, not the future acquisitions that will obviously contribute to this.
Speaker 4: But all things considered, we would expect, you know, that $60 million as we start to come on some of the acquisitions we did last year, that would probably be, you know, potentially, you know, 50% of the increase for the foliar. And that would go down quarter by quarter with regards to-
Speaker 4: And we're forecasting a similar number, relatively flat after this quarter. And John , when we're talking about acquisitions, we're talking about acquisitions that were completed in 2022.
Speaker 3: and through 2023, right? Right. Right. You get the whole set there, which brings that higher SGA work into the company. All right. Thanks, Doug. Thanks, John .
Speaker 5: Excuse me, ladies and gentlemen. Please remind you of one main question and one follow-up. Thank you. And our first question comes from Mike Dow with RBC Capital Markets. Hi, this is Chris Clawton from Mike. Thanks for taking our questions. Just moving over to the pricing side. How much of a headwind was lower PVC and fertilizer pricing for you this quarter? And how are you guys thinking about the magnitude of that headwind on the year-over-year basis evolving through the rest of the year?
Speaker 4: Well, it will be a headwind for the rest of the year. I mean, both of those items contributed were negative. Euroyear and Q1 and March was a greater. There's still Euroyear on a percentage basis. There's still end.
Speaker 4: On a year-over-year basis, there's still, I would say, a mid to low single digits down contribution. So from that standpoint, but I think if you look sequentially, it would be greater than that because prices rose throughout the year last year.
Speaker 4: So, so far this year, negative growth, but you know, on a year over your basis in Q1, they were they were, they were, um, um, um, low to mid single digit style.
Speaker 5: Got it. Thanks for that. And just going back to the organic daily sales comments in April , how much of the high single digit growth was priced versus volume? And is there a way to think about how much of the volume contribution of that high single digit was just kind of whether delayed projects versus non-weather impacted?
Speaker 5: And then just lastly on that is 15% of sales still kind of a good number to use in terms of April's contribution to to full your sales. Yeah, well, on the first question, I think the way to think about it is, you know, April has been built into that.
Speaker 3: You know, high single digit growth is some catch up from the first quarter. So if you look at the 1% year to date, you know, that's probably a better number to
Speaker 3: single digit growth is some catch up from the first quarter so if you look at 1% year to date, you know that's probably a better number to index on.
Speaker 3: And there's some inflation on that balanced with net negative volume growth. And so by nature, the April number would be less inflation, more volume.
Speaker 3: to get to that 1%, which is a combination of the two.
Speaker 4: And what's the point if you take the question? What was the second question?
Speaker 5: Yeah, just it's, I think in the past you said April monthly contribution to the foliar sales is around 15%. Is that still kind of a good number to use or is it going to?
Speaker 5: Okay, appreciate all the color. Our next question comes from Keith Hodis with Trust Securities. Thank you. We've talked a lot about SG&A in this call. Some of the statements I'm trying to hard time to reconcile. Let me just ask it this way. As a percentage of sales under your guidance, what do you think SG&A will look like by the end of the year? What do you think SG&A will look like by the end of the year?
Speaker 4: What do we think SG&A will look like? How could you clarify that? As a percentage of sales in the guidance range you've given, what roughly do you think we're looking at? We're not going to f-
Speaker 4: Okay, let me switch over to the previous question about fertilizer. What are you hearing from suppliers in terms of do we have a lot more deflation coming than we've already seen? What's the market thinking on that? Well, we've seen a lot of deflation. I don't know if people are thinking that there will be additional, but obviously if you look at raw material prices right now, they're down significantly. I think they were even pre-COVID levels.
Speaker 4: So their fertilizer prices have come down a lot from that standpoint. I think kind of we feel as if kind of where they're at now is kind of where we would carry them forward, but we'll have to see. Obviously that's a commodity and highly volatile.
Speaker 2: Okay, thank you. Our next question comes from Jack Stif
Speaker 6: All right, thanks for taking my questions today. So at a high level, can you talk about the residential R&R bidding environment and what you've been hearing from professional customers about demand expectations through the back half of the year? Does the distilled water 16 result in a market buying thing to supplement????
Speaker 3: So, you know, our customers are busy. We mentioned the commercial market.
Speaker 3: is holding up well as our repair and remodel and maintenance markets. And so our customers are busy. They're, I'd say the extraordinary backlogs that we saw during COVID have normalized. And I'd say net net customers are...
Speaker 3: cautiously optimistic about the second half. They don't have the second half already loaded up in their backlogs, which they would have had in the last couple of years.
Speaker 3: But I'd say they're cautiously optimistic about what they're seeing in terms of...
Speaker 3: Many jobs today and what's coming down the pike. We have a project services group that we do, put together bids for our customers in the commercial space.
Speaker 3: And that bidding has been that positive this year versus prior year, you know, up a couple percent, you know, so that gives us good. Another, you know, kind of read into the commercial market.
Speaker 3: The repair and remodel market is not as backlog driven. It's more kind of you get the jobs as you go. So it's harder to get some visibility in the second half in that market.
Speaker 7: Well, obviously it's impossible to predict that exactly, but last year at this time we were sitting at three acquisitions and 50 million in trailing 12 months acquired this year. We're at 2 and 40. Last year we had a very strong pipeline and this year I would say our pipeline is as good or better, so we feel a good level of confidence that we can...
Speaker 7: contribute a strong amount to overall for Site 1. You can't predict it precisely, though. Great, thank you.
Speaker 5: Our next question comes from Joey Ellesmayer with Deutsche Bank. Yeah, good morning. Thanks for taking my question. So my first question is on the gross margin and then we've talked about it a bit, but if I'm thinking about it correctly, your expectations last quarter would have already assumed that
Speaker 4: to 2, Q to 3, and 4, you're not going to really see a sequential tick down in margins. We should probably just be sort of steady through the remainder of the year to get to that full year expectation. I don't know if that's exactly the case. We're going to have a roll off of...
Speaker 4: of the inventory profits in Q2 also from that standpoint. So that will be somewhat of a, that will be a headwind in Q2 as we've talked about. In addition, you know, if we were to talk about our gross margin, I think acquisitions, I'd be gonna say festival margin off, more or less. Lecture options. The new market analogy. And I think that's probably, a very interceptive intuition, and certainly a new bree prohibition
Speaker 4: fleet played the largest component of our outperformance this quarter and drove the company as it told on a consolidated basis higher. We did see negative growth margins in the base business because of that roll off of the of the of the inventory profits if you will or that price realization benefit we see.
Speaker 4: not obviously enough to overcome the
Speaker 4: the price realization benefit in the base business. But in Q2, some of that may, as we get into the season, some of that outperformance kind of on the positive side, I think we're seeing a little of that kind of
Speaker 4: go back to where we thought it was going to be. So that'll be not a headwind, but kind of falling more into expectations. So I think Q2 could still be a very challenging quarter for us on a year-over-year basis and a gross margin. I would say in general, the second half of the year will be in a better position, as we've talked about previously. OK, great. Thanks so much for that additional detail.
Speaker 8: My second question, if we go back to the organic sales commentary, I imagine you didn't give April necessarily for us to extrapolate, but maybe just to contextualize the first quarter weather impact. Is a better way to get there to think about the second quarter as roughly being 30% or so.
Speaker 8: of your full year dollar sales. Is that sort of in the range of your expectations for 2Q?
Speaker 3: Yeah, I think it's a year. The second and third quarters are typically at 30 a piece, 60 and then you get 20 and 20 roughly in the first and second or the first and fourth roughly plus or minus.
Speaker 5: Okay, thanks a lot guys. Our next question comes from the Stephen Goldman with Jeffery. Hi, good morning guys. John I think you mentioned a little bit more seasonal inventory build this year. Surprised me a little bit. Can you just comment on that a little bit more?
Speaker 4: increase year over year in our base business is due to price. And then the other thing from, and I'm primarily thinking this from a cash flow perspective, the other thing that's playing into there, obviously we brought it in, those sales in the north were delayed from that perspective. So
Speaker 4: So our spring load, those weather and result didn't slightly higher than I think our original plan was because of those sales were delayed. But in general, I think our goals to be have our stores fully stocked, this is kind of a game time, if you will.
Speaker 9: our inventory turns in and our working capital. Great, thank you for that. And then Doug, you mentioned in your prepared remarks some comments around credit availability and you're not really seeing any issues. I was hoping I could pull on that a little bit as I could imagine.
Speaker 9: that some of your contractor customers might have some issues with credit possibly in this type of environment. And then, secondarily, I can imagine maybe that some of your M&A targets could potentially have some issues. So maybe both of those topics, you know, I wonder if those are...
Speaker 3: are continuing to do work. You know, they've got backlogs and projects seem to be coming in. In terms of acquisitions, we court and target strong companies that are high performers. And so they aren't the ones that end up with issues. The companies out there that have issues are probably not on our target list because they're the...
Speaker 3: the weaker performers in the market and so we haven't seen that as well. And as Scott mentioned, the deal flow has been steady and consistent. We haven't seen any rush to us and we haven't seen any fall off having to do with higher interest rates or credit. Super. Thanks. I'll pass it on. Appreciate it.
Speaker 2: We are closing our question and answer session. Now I would like to turn the floor back over to Dov Black for closing comments. Please go ahead. The poll was closed.
Speaker 3: Okay, well thank you again for joining us today. We very much appreciate your interest.
Speaker 3: in Site 1 and look forward to speaking to you again in our next quarterly earnings call. I would like to give another special thanks to our terrific associates for the great job that they do, our customers for allowing us to be their partner and our suppliers for supporting us so well. Thank you and have a nice day.
Speaker 2: This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation and have a great day.
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