Greetings, and welcome to the SiteOne Landscape Supply First Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr.

John Guthrie, Executive Vice President and Chief Financial Officer for SiteOne Landscape Supply. Thank you. You may begin..

Thank you and good morning, everyone. We issued our first quarter 2022 earnings press release this morning and posted a slide presentation to the Investor Relations portion of our website at investors.siteone.com.

I am joined today by Doug Black, our Chairman and Chief Executive Officer, and Scott Selman, Executive Vice President Strategy and Development.

Before we begin, I would like to remind everyone that today's press release, slide presentation, and the statements made during the call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Such risks and uncertainties include the factors set forth in the earnings release and in our filings with the Securities and Exchange Commission.

Additionally, during today's call, we will discuss non-GAAP measures which we believe can be useful in evaluating our performance. A reconciliation of these measures can be found in our earnings release and in the slide presentation. I would now like to turn the call over to Doug Black..

Thank you, John. Good morning and thank you for joining us today. Following an exceptional year in 2021 with record sales growth and profitability and considering the tremendous first quarter that we had last year with 32% organic daily sales growth. We were pleased to see our momentum continue as we build on these gains in 2022.

With 17% organic daily sales growth, 24% overall sales growth and improved profitability during the first quarter, we are off to another excellent start this year.

We are encouraged by the continued healthy underlying demand and with our strong teams, improved capabilities, and a robust pipeline of potential acquisitions, we are confident that 2022 will be another great year of performance and growth for SiteOne.

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 the quarter. John Guthrie 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 Selman will discuss our acquisition strategy and then I will come back to address our latest outlook for 2022 before taking your questions. As shown on Slide 4 of the earnings presentation, we have grown our footprint to more than 600 branches and four distribution centers across 45 U.S. States and six Canadian provinces.

We are the clear industry leader over five times the size of our nearest competitor. Yet we estimate that we only have about a 15% share of the very fragmented $23 billion wholesale landscaping products distribution market. Accordingly, our future growth opportunity is significant.

We have a balanced mix of business with 64% focused on maintenance, repair and upgrade, 21% focused on new residential construction, and 15% on new commercial and recreational construction. As the only national full product line wholesale distributor in the market, we also have an excellent spread across our product lines and geographically.

Our strategy to fill in our product lines across the U.S. and Canada both organically and through acquisitions strengthens and reinforces this balance over time.

Overall our balanced end market mix, broad product portfolio, and good geographic coverage give us multiple avenues to grow and more ways to create value for our customers and suppliers, while providing important resiliency and softer markets.

Turning to Slide 5, it is important to understand that since becoming an independent company in 2014, our vision at SiteOne has been to build a true company of excellence, one that creates tremendous value for our five key stakeholders; our associates, customers, suppliers, shareholders, and our communities.

We have made tremendous progress so far, but feel that we still have a long way to go in achieving this vision.

As we continue our quest for excellence, we take a long-term view, staying very focused on our five key vision objectives, which are to create a great place to work for all our associates, deliver superior value to our customers, causing them to be successful, be the distributor of choice for our suppliers, achieve excellent performance and growth for our shareholders, and be a good neighbor in our communities by helping the less fortunate around us, and having a positive impact on our environment.

These objectives drive the culture that we are creating at SiteOne, a culture of teamwork and excellence, truly being stronger together with our key stakeholders. These objectives also keep us grounded and focused on what is important through the ups and downs of the market and in the world.

We are very proud of the tremendous company that we are building and our progress on these objectives are detailed in our 2021 ESG report, which is available on our website.

As shown on Slide 6, our strategy is to leverage the scale, resources, functional talent, and capabilities that we have as the largest company in our industry, all in support of our talented, experienced, and entrepreneurial local teams to consistently deliver more value than our competitors, to our customers and suppliers.

We have come a long way in building SiteOne and executing our strategy over the last six years, but we're still in the third or fourth inning of our overall development as a truly world class company.

Accordingly, we remain highly focused on our commercial and operational initiatives to further build our capabilities and improve the value that we deliver to customers and suppliers.

These initiatives are complemented by our acquisition strategy which builds in our product portfolio, moves us into new geographic markets, and adds terrific new talent to SiteOne. Taken all together our strategy creates superior value for our shareholders through organic growth, acquisition growth, and EBITDA margin expansion.

If you turn to Slide 7, you can see that our strategy is working as we have delivered consistent organic growth, strong acquisition growth and excellent EBITDA margin expansion over the last six years.

Note that we have done this while investing heavily in our teams, and the new systems and technologies to build the foundation for SiteOne, and to create superior capabilities for our customers and suppliers. We remain confident in our ability to gain market share, and continue driving all three of our value creation levers going forward.

You will also note that we have now completed 67 acquisitions across the irrigation, agronomic, nursery, hardscapes and landscape supplies product lines during the last eight years, with three completed so far in 2022. We only acquire well run companies and so all these acquisitions were already high performing companies before joining SiteOne.

After they join us, we together enjoy the benefits of our combined commercial and operational capability. Acquisitions are also a key source of new talent and ideas and therefore they enhance our competitive advantage as we grow.

Our acquisition pipeline remains very robust, and we have significant potential to continue growing through acquisitions for many years to come.

Slide 8 shows the long runway that we have ahead in filling in our product portfolio, which we aim to do primarily through acquisitions, especially in the nursery, hardscapes and landscape supplies categories.

We are well networked 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 our first quarter performance highlights as shown on Slide 9.

We achieved 24% net sales growth in the first quarter with 17% organic daily sales growth and 7% net sales growth added through acquisitions. The organic daily sales growth was driven by 20% price realization, partially offset by a 3% volume decline.

We were particularly pleased with the sales growth achieved this quarter as it came against a difficult comparison of 32% organic daily sales growth during the first quarter of 2021, which was primarily volume growth.

We were also pleased that the growth was broadly based across product lines, geographic markets, and customer segments, reflecting the healthy underlying end markets. Finally, we believe that we are continuing to gain market share across all product lines.

Gross Margin improved 240 basis points to 33.4% for the first quarter, as we continue to benefit from proactive inventory management during this high inflation period. As a reminder, we expect the full year gross margin to be lower in 2022, than in 2021, due to the difficult prior year comparisons in the third and fourth quarter.

We now believe that inflation might be more persistent in the second half, which could lessen the full year drop in gross margin. We will also continue to execute our initiatives with private label products and small customers to fortify our gross margin performance for 2022.

On the SG&A side, our operational initiatives and disciplined cost management offset our increased investments in marketing and digital to yield good operating leverage for the quarter. Accordingly, SG&A as a percent of net sales decreased by 100 basis points to 28.6%.

We continue to benefit from the deployment of our new technologies like mobile Pro, which allows mobile branch transactions and from our Transportation Management System or TMS, which helps reduce freight costs while improving delivery timeliness, and accuracy.

Going forward, we will continue to leverage new technologies to improve the customer experience and increase our operating leverage.

The combination of strong organic sales, excellent gross margin improvement and good contribution from acquisitions allowed us to deliver adjusted EBITDA growth of 97% for the quarter, and expand adjusted EBITDA margin by 310 basis points to 8.4%, a terrific start to 2022.

On the acquisition front, we added three high performing companies to our family so far this year, all of which provide us with excellent new talent and capability for growth in their respective markets, while adding approximately $50 million in trailing 12-month sales to SiteOne.

Our development teams remain very active in 2022 and we expect to continue adding strong companies to SiteOne in the coming months.

With an experienced and recently expanded team, broad and deep relationships with the best companies, a strong balance sheet, and an exceptional reputation, we remain well positioned to grow consistently through acquisition this year and for many years to come.

In summary, we're off to a terrific start and have significant momentum across SiteOne in building our teams, executing our initiatives, delivering value to our customers and suppliers, adding new companies and achieving excellent performance and growth.

With solid underlying markets, we remain confident in our ability to deliver a winning year in 2022. Now John will walk you through the quarter in more detail.

John?.

Thanks, Doug. I'll begin on Slide 10 with some highlights from our first quarter results. We reported a net sales increase of 24% to $805 million in the quarter. There were 65 selling days this quarter, which is consistent with the prior year period.

Organic daily sales increased by 17% during the quarter, driven by continued demand for landscape supplies, and price inflation in response to rising product costs. Acquisitions continued to perform well contributing approximately $43 million or 7% to our first quarter net sales flow.

Scott will provide more details regarding our acquisition strategy later in the call. We were pleased with our organic daily sales growth this quarter given the 32% comp from the prior year, and to the slow start to the spring due colder and wetter weather in northern markets.

Organic daily sales growth for our three northern markets was 13% compared to 23% for six markets in the south and west.

Organic daily sales for landscaping products, which includes irrigation, nursery, hardscape, outdoor lighting and landscape accessories, increased 20% for the quarter due to price inflation and strong demand from both the new construction and repair and remodel end markets.

Organic daily sales for agronomic products which includes fertilizer, control products, ice-melt and equipment increased 10%, reflecting price inflation and solid demand due to the stay-at-home trend partially offset by the slow start to the spring selling season.

In addition, agronomic sales were negatively impacted by lower sales through the retail home center channel, as we did not repeat initial stocking sales of our LESCO product at Lowe's that occurred in the first quarter of last year. This reduced organic sales for agronomic products by 8% and overall organic daily sales by 2%.

As stated earlier, price inflation continues to play a major role in the organic daily sales growth for both landscaping products and agronomic products, as prices for products like fertilizer, grass seed and PVC pipes remained at record levels. Price inflation contributed approximately 20% to organic daily sales growth this quarter.

We expect prices to be elevated throughout 2022 and price inflation to be the primary contributor of organic daily sales growth during the year. However, we expect price inflation's impact on organic daily sales growth to decrease as we move through the year and start comping some of the last year's price increases.

In addition, to going into the year, we felt we might see price reductions in the second half for some of the most volatile products like fertilizer and PVC pipes. Given the increased supply chain uncertainty, due in part to the war in Ukraine, we are less optimistic we will see that price relief this year.

Gross Profit increased 34% to $269 million for the first quarter and gross margin increased 240 basis points to 33.4%. Similar to recent quarters, our gross margin was positively impacted by price realization and supply chain initiatives, including strategic price of inventory and our supplier cost increases.

As disclosed on our Q4 2021 earnings call, we expect a modest gross margin reduction in 2022 as our gross margin improvement initiatives, such as private label and small customer growth are more than offset by the loss of the price realization benefit that we experienced in the second half of last year.

Selling, general and administrative expense or SG&A increased 20% to $231 million for the first quarter due to additional operating expenses supporting our sales growth, as well as contributions from acquisitions. SG&A as a percentage of net sales decreased by 100 basis points to 28.6%.

The reduction in SG&A as a percentage of net sales reflects operating leverage resulting from our strong organic sales growth, combined with effective cost management. For the first quarter, we recorded an income tax expense of $4.6 million compared to an income tax benefit of $2.5 million in the prior year period.

The effective tax rates increased to 12.5%. primarily due to an increase in net income before taxes, partially offset by an increase in the amount of excess tax benefits from stock based compensation.

We recognized $5 million of excess tax benefits for the three months ended April 3, 2022, compared to $3.7 million for the three months ended April 4, 2021. We reported net income for the first quarter of $32.3 million compared to $7.4 million for the prior year period.

The improvement was primarily driven by our strong sales growth, gross margin improvement and SG&A leverage. Our weighted average diluted share count was $45.9 million compared to $45.7 million for the prior year period.

Adjusted EBITDA increased by 97% to $67.8 million for the first quarter compared to $34.5 million for the same period in the prior year. Adjusted EBITDA margin, reflecting our SG&A leverage and gross margin improvement, increased 310 basis points to 8.4%.

Now I'd 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 first quarter was $788 million compared to $539 million at the end of the same prior year period.

The increase in net working capital is primarily attributable to higher receivables, resulting from our strong sales growth and an increase in inventory due to supply chain uncertainty, cost inflation, and strategic purchases ahead of cost increases from our suppliers.

Cash used in operations during the first quarter was $118 million compared to $46 million for the prior year period. The increase is primarily due to the increase in working capital. We've made cash investments of $41 million for the quarter compared to $46 million for the same quarter last year.

The decrease reflects slightly less acquisition investment during the quarter. Net debt at the end of the quarter was approximately$ 417 million compared to $355 million at the end of the prior year period.

Leverage at the end of the first quarter decreased to 0.9 times of trailing 12 months of adjusted EBITDA compared to 1.2 times at the end of the first quarter of 2021. The lower leverage reflects our improved profitability. Our target net debt to adjusted EBITDA leverage range at the end of the year is 1 to 2 times.

At the end of the quarter, we have liquidity of $243 million which consisted of $45 million of cash and approximately $198 million in available capacity under our ABL facility. In summary, our priority from a balance sheet perspective is to maintain our financial strength and flexibility without sacrificing long-term growth or market opportunities.

I will now turn the call over to Scott for an update on our acquisition strategy..

Thanks, John. As shown on Slide 12, we acquired one company during the first quarter and two companies in April, bringing our total to three for 2022 with a combined trailing 12 months net sales of approximately $50 million. Since 2014 we have acquired 67 Companies with approximately $1.3 billion in trailing 12 months net sales added to SiteOne.

Turning to Slide 13 through 15, you will find information on our most recent acquisitions. On March 18, we acquired JK Enterprise Landscape Supply, with seven locations focused on providing bulk and bagged landscape supplies and hardscape to the Northern Virginia and Maryland markets.

This acquisition complements our prior acquisition of another regional hardscapes leader, Stone Center of Virginia. On April 22, we acquired BellStone Masonry Supply with a single location serving the Fort Worth, Texas market.

BellStone distributes hardscape and bulk landscape supplies and builds upon our December 2020 acquisition of Alpine Materials, which also supplies hardscape products. On April 28, we acquired Preferred Seed, a leading supplier of agronomic products to landscape contractors in Upstate New York with one location in Buffalo.

These acquisitions add terrific talent to SiteOne, and move us forward toward our goal of providing a full line of landscape products and services to our customers in all major U.S. and Canadian markets. Summarizing on Slide 16, our acquisition strategy continues to create significant value for SiteOne.

Our robust pipeline is expanding across all lines of business and geographies, giving us confidence that we will add more outstanding companies to SiteOne throughout 2022.

We have a very deep and experienced team in terms of bringing companies into SiteOne and an exceptional reputation for being a great home for landscape distribution entrepreneurs and their teams.

We also have several advantages as the market leader 100% focused on landscape distribution with almost 60 former owners in leadership roles, our rich and down to earth culture, and tremendous functional and technological capabilities to support the growth of companies who join us.

All these factors allow us to achieve a high percentage of negotiated sales and give us the edge in competitive acquisition situations. We believe these advantages are formidable and sustainable, and will enable us to continue successfully executing our acquisition strategy in the coming years.

I want to thank the entire SiteOne team for their passion and commitment in welcoming the newly acquired teams when they join SiteOne. Their leadership and efforts are the key to our long-term success in building SiteOne. I will now turn the call back to Doug..

Thanks Scott. I'll wrap up on Slide 17. We have good momentum moving into our busy spring selling season. Underlying demand is healthy and we remain optimistic about the year despite the tough comparisons ahead.

As we discussed, we now expect prices in the second half of the year to be higher than our prior forecast with continued supply chain challenges and solid demand. Overall the market should provide a reasonable environment for us to execute our commercial and operational initiatives and drive further growth in sales and profits in 2022.

In terms of markets, we are currently seeing solid demand trends in all our end markets; maintenance, repair and upgrade, and both residential and commercial new construction.

Our contractors remain busy and have strong backlogs for 2022, although as mentioned, the spring season is starting later this year, due to colder and wetter weather in northern markets. We also understand that there is a lot of economic uncertainty associated with inflation, but we have not yet seen this translate into meaningfully lower demand.

Furthermore, we expect to gain market share as we deliver higher value to our customers, and further execute our customer and product growth strategies, including our marketing and digital initiatives.

Taken altogether, we continue to expect to achieve high single digit organic daily sales growth for the full year 2022 mostly driven by price inflation. As mentioned, we also expect our gross margin to decline somewhat this year, with less benefit from price realization, partially offset by our gross margin improvement initiatives.

While we will be able to achieve some SG&A leverage, we expect our adjusted EBITDA margin to decline modestly in 2022. In terms of acquisitions, as Scott mentioned, we currently have a strong pipeline of high quality companies, and look forward to adding more of these to the SiteOne family during the year.

Our acquisitions are performing very well, and we continue to improve our ability to integrate them into our company. Accordingly, we expect acquisitions to contribute strongly to our performance and growth in 2022 and the years ahead.

With all these factors in mind, we are maintaining our expectation for fiscal 2022 adjusted EBITDA guidance to be in the range of $430 million to $450 million, which represents year-over-year growth of 4% to 8%. This range does not factor any contribution from unannounced acquisitions.

In closing, I would like to sincerely thank all our SiteOne associates who continue to amaze me with their passion, commitment, teamwork, and selfless service. We have a tremendous team, and it is an honor to be joined by them as we deliver increasing value for all 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. Our first question comes from the line of David Manthey with Baird. Please proceed with your question..

Thank you. Good morning.

I was wondering if you could break out price across agronomics versus landscape products? And then in terms of the cadence of growth through the months of the quarter, is it right to assume that obviously things were a little bit weaker in March or April, does that mean that they were negative year-over-year or just slower growth?.

Yes, I'll take the second half of that and I'll let John take the first, David. As we mentioned, it's been a colder and wetter spring so far in especially in the northern markets. Last year was an especially mild spring, so and spring started a bit early, so we're comping against that.

So April started out flat, but it has actually progressed through the month. So we've seen growth resume and strengthen as the month has developed. So we're encouraged in what we see, the trends we see, and it seems to be just your typical later spring.

We'll see how it goes through the rest of the second quarter, but that's the time which we had seen in April has started out flattish, progressed to more strong growth in the recent weeks.

And John, you want to pick up the first half of that?.

Yes, they were both about, our agronomics was about 17% and our landscaping products would have been a little over 20%. From that standpoint, but there was even within that, it had quite a bit of variation. Like, for instance, like fertilizers were probably in the high 20s and PVC pipes and those were about 50%.

So there is -- those commodity type products that kind of trade -- was still the primary drivers. If you look at a lot of products were in the in the, I would say, mid to low or high single digit inflation mark..

Got it, okay. And then second, I know gross margin is a moving target. Last quarter, you were signaling sort of a 40 to 80 basis point decline for the year.

Just to be clear, is that to represent the -- as the inventory gains dissolve, when pricing stabilizes, is that what you were indicating was sort of the magnitude and or is that number related to inventory gains greater offset by some of the operational positives you're working on?.

Yes it's really a factor of both. You know, the big -- we received a lot of benefit from price realization, especially in the third and fourth quarters of last year and we're comping against that and that pushed the decline in gross margin. We do have our gross margin initiatives private label small customer, which will work some of that back.

You know, when we reported that, in February, we said that gross margin, which was 34.9% in 2021 was going to be more 34% to 34.5%, I think, seeing what we're seeing now with commodities kind of holding up, we'd probably be toward the higher end of that, that range if we had to forecast it today..

Yes, right, makes sense. Thank you very much..

Great, thanks, David..

Thank you. Our next question comes from line of Stephen Volkmann with Jefferies. Please proceed with your question..

Hi, good morning, guys. Thanks for taking the question. This is, maybe I apologize at the outset. It's a very big picture question, Doug. But obviously, the market has sort of taken a view on anything remotely sort of building products related. And I know you have a lot of experience in different markets in building products.

So I'm curious how you think, if we were to get a slowdown in housing, for example, that seems to be what people are thinking, how do you think that impacts SiteOne? And then sort of related to that, obviously, interest rates are going up and maybe quite a bit, does that impact your business model going forward?.

No, good question. And, you know, we obviously we've been through downturns and soft periods and strong periods. And so we, we have one of our goals at SiteOne, and what we're kind of proud of is we've built a very balanced business.

So if you look at our business mix, being a little over about 37% maintenance, which is going to hold up well really regardless of the market, you've got a strong repair and remodel, kind of 27% repair and remodel.

And repair and remodel, if you see a new housing slowdown, but jobs are still plentiful, and consumer confidence is there, that that will hold up quite nicely. And one of the trends we've seen is that the DIY part of repair and remodel had a big COVID bump, and has come back down.

The professional side was constrained by labor, so you never had the big bump and so you're seeing stronger growth in that do it for me side, which we're benefiting from. And then you get the parts of our business that are tied to new construction, about 36% overall, 21% of that is housing, 15% of that is commercial and recreational.

And if housing slows down a bit, but that will be the part that gets affected, we feel like we've got great initiatives in place that will allow us to swim upstream, if you will, and gain market share if we're in softer markets.

So we feel like if the housing goes down, sure it will dampen our organic growth, but we've got a lot of levers to pull and a balanced business. So we'll be able to continue to march forward and be okay in terms of our strategy and our profitability going forward. So that's what we see. And then in housing today we don't see a slowdown yet.

So, but certainly interest rates are going up, housing prices are up. We like everybody else we're watching. But for now the builders are building and our contractors are busy. So we'll see how it goes this year..

Great, that's helpful and do higher rates make Scott's job tougher, just a higher cost of capital and hurdle rates, et cetera?.

No, I mean, Scott can comment, but owners are driven by a myriad of reasons when they sell their companies and we've got a strong balance sheet. And we're out there talking to all of them. So if they're ready to sell, we're going to buy. But interest rate movements, and those kinds of things don't tend to affect that..

I appreciate it..

Thank you..

Thank you. Our next question comes from line of Ryan Merkel with William Blair. Please proceed with your question..

Thanks. Good morning, and congrats on the quarter. I wanted to ask about the comment on customer backlogs remaining strong.

So I'm just curious, how far are people booked out? And is this commentary tied to new construction or is it also to remodel?.

You know, it's really tied to -- I'll start with commercial. The commercial backlogs are the longest. They tend to be 9 to 12 months out, and in bigger projects, et cetera. When it comes to new home or new home construction you're typically in more kind of three to six months of backlog.

Customers that are tied to builders, they know what the builder schedule is and so they're tied to that. Repair, remodel can vary, right? You have some folks that would work up three-month backlog.

Really, in today's market in the last couple of years a lot of repair and remodel folks are booked up for nine to 12 months, which isn't historically the case. But with the strong demand, and the lack of labor has been the case. So if you average that together, you're probably four months of backlog.

And so what we're hearing from our customers is, hey, a lot of them seeing the rest of the year, and they have a backlog for the rest of the year. There's always some that don't. The commercial folks are booked up. And so net-net there seems to be work both for the spring season and the fall season for 2022.

But we don't have a lot of visibility into is, is 2023. Right? Because most of the backlogs run out before you go into next year..

Got it? That's helpful, okay.

And then I wanted to ask a question on price, what do you expect for price now in 2022? And just clarify, is the higher price included in guidance or not included in guidance?.

We went into the year kind of, our forecast for the year was and we're maintaining that was high single digit organic growth with the majority of that being priced. So 8% or 9%, if you will, type of price for the full year. Obviously, we expected it to be very elevated in the first quarter, and then sequentially decrease as we go throughout the year.

As we've talked about certain manufacturers or suppliers to us are putting in price increases now that a lot of what drove price increases really especially in the second half of the year, the prices rose at that time, and they're kind of being maintained at these elevated levels currently.

So in general, we think this will probably be the high watermark, and this was built into our guidance for price for the year, and then sequentially go down as we go throughout the rest of the year being in single digits likely in the fourth quarter. Obviously a lot of great uncertainty with regards to that..

Right. Yes, I would just add, I think, we're obviously -- there's a lot of uncertainty. The pricing, if it stays elevated, if we're correct now versus our forecast would give us some upside. But we've not, if you will, kind of factored that in, just because we feel like there's a lot of uncertainty.

And the weather, although we think the weather is manageable now, we can't forget that last year was a very good weather here actually both in the spring and the fall. So we've probably baked in a little downside on weather, on volume to balance that.

It's early in the year and so we're shy to change any guidance just based on the smallest first quarter..

Makes sense. Thanks, I'll pass it on..

Thank you. Our next question comes from line of Keith Hughes with Truist Securities. Please proceed with your question..

Thank you. More longer-term question here. On Slide 8, you talk about all the MSAs that you're not in, hardscapes or nursery or both? I guess my question is for Scott.

When you're looking to purchase or do acquisitions in hardscape and nursery, is it more difficult to buy those types of businesses than agronomics and sprinkler pipe suppliers and things like that? Is there anything different about acquisitions there?.

I wouldn't say it's any more difficult. We have a very strong pipeline across all the lines of business. And there's certainly willing sellers, I think, in all of them. But I don't see any fundamental difference in terms of the difficulties or hurdles in acquiring across any of the lines of business..

The one thing I would add to that is that they're very fragmented, hardscapes and nursery are extremely fragmented, and more fragmented than agronomics and irrigation. So they are not more difficult, but you're going to have to do more deals.

Would you agree, Scott, take the fill in when we acquire an irrigation company, they often have 15 to 20 locations, et cetera and hardscapes tend to be single or a couple locations, so which is good for us, right? We're used to doing lots of acquisitions. It's our strength in bringing on lots of small companies.

But the hardscapes and nursery would be more fragmented, which just means it's -- there's more deals to be done in order to fill that in..

Absolutely, yes irrigation, agronomic are more mature in terms of their consolidation, yes..

Okay, great. Thank you..

Thank you. Our next question comes from line of Matthew Boulais with Barclays. Please proceed with your question..

Good morning, everyone. Thank you for taking the questions. I wanted to ask on demand and weather, you said that sort of slower start to the spring selling season attributed to weather.

I just kind of wanted to unpack that a little bit, is any kind of detail or quantification on what you think the impact may have been, maybe trends in sort of the non-seasonal markets, or product lines into the spring might be the best way to explain that? You know obviously, what I'm trying to get at is your confidence that it's not some broader signal around that underlying demand.

Thank you,.

Yes, I think the best way to look at that is, if you would split the kind of the Northern markets versus the Southern markets. So we saw organic growth, I think of 23% in the South and Western markets, and only 13% in the Northern markets. So these are the markets that are slowing, that are really impacted that haven't really hit the spring.

I would also add that up until kind of the March where the spring hit, we were actually doing even stronger performance on both sales and volume. March slowed down a little bit, as Doug mentioned, and it's been escalating since then, as spring has hit.

So we seem -- we feel as if we have it isolated to those specific markets with regards to it and are optimistic about the next quarter..

Got you. That's really helpful John. Thank you for that. And secondly, on SG&A I guess just to the extent the makeup of your full year growth guidance has maybe shifted to a little more price inflation and a little less volume.

If that's the case, would we expect to see some sort of greater leveraging of SG&A or maybe reduced SG&A dollar spending versus what we had previously thought? Thank you..

I think we're still we're expecting SG&A leverage this year. And so I think obviously price is a positive to that. I think that was -- that's kind of reflective in our in our original guidance. Obviously, we're still investing in the business and in our largest cost is our people.

And obviously, we're seeing some pressure there as everybody in the market is with regard to labor costs. But so what we're still expecting SG&A leverage and that was kind of I think our outlook for the year is still kind of solid as we are managing it..

Great. Thanks, John, thanks, Doug..

Thank you..

Our next question comes from line of Mike Dahl with RBC Capital Markets. Please proceed with your question..

Good morning. Thanks for taking my questions. My first question is a followup on some of the comments around what you're seeing and watching.

And I'm curious, is there anything that you're seeing in either average purchase size or product mix, that would give you any early indication of kind of shifts in the underlying customer environment, and whether you are -- and what are the other types of things that you'd be looking for as far as those early indicators?.

Right. Well, we haven't seen any fundamental shifts in product lines. I mean again, you do have, you have product lines that are tied to new constructions, repair, remodel, maintenance, obviously, but the lines have been strong right across those, so no real trend there.

Quite frankly, we watch, we talk to our customers, we talked to, you know, they are the best gauge. And again, we feel good in that. We also have our own Project Services Group, which does commercial bidding. And so we keep track of that, how with their bidding activity.

It's kind of like an ABI index, if you will, for us and they've shown growth this year. So, our main ways, we don't have any tricks in forecasting better than anybody else. So our main ways of keeping our ear to ground is talking with customers, keeping track of what work they've got coming down and that seems good.

Our product lines are moving, that seems good, and our project services bidding is growing. So all indications are that we'll have a good year this year and we'll see how it goes..

That helps, thanks. And my second question is back to kind of the cycle question and appreciating that in you know, in most normal times your business is going to be less cyclical than many other things, so would probably fall in this space. I'm curious, this cycle is a little unique in terms of the pricing dynamics.

If you look by the end of this year, you'll probably have benefited from cumulative at least 20% pricing a lot of that being driven by some of the commodity products, you mentioned PVC, or John mentioned PVC up 50% this quarter.

So does the -- do the dynamics around pricing over the last two years, potentially increase the sensitivity of growth in earnings if we were to see a slowdown compared to maybe prior times?.

We're always building off of our last year, right? And last year if pricing was high, I think it was 11% and I believe we had 11% volume growth. Right? So we shouldn't forget that, the fundamentals of the business are very strong.

And so, I think John might comment, but we don't think that the pricing as inflation comes back into where it normally would be for this industry, which is, 2% or 3%. We can continue to build and then move forward in that environment.

Commodities if they come off more, you might have flattish inflation where you've got the other products going up at a normal rate and your commodities down, you might end up. But we've had years before where we had no inflation, and we're able to still improve our gross margins, good SG&A leverage and drive forward.

So certainly, we feel like we can continue to grow and drive forward even as the inflation comes back to normal and we hope it does come back to normal so we can get into more kind of stable environment for the long-term.

But John, anything to add to that?.

Yeah, I think you hit on the key points. I guess the one point I would say is, there's about 80% of our businesses, I would call it considered wallets. There was a push-pull inflation component, there's only about 20% of our business that is highly, I would call that we reprice regularly from that component.

And that's what we're constantly managing to, and operating and we get to kind of -- we build that into the business and we'll adapt accordingly..

Okay, thanks, Doug, thanks John..

Thank you. Our next question comes from line of Jeff Stevenson with Loop Capital Markets. Please proceed with your question..

Hey, thanks for taking my questions today and congrats on the strong quarter..

Thank you..

So, have you seen any improvement with material availability in any product categories since the start of the year? Any more color on which products are in short supply and which have improved would be helpful?.

I think the environment is about the same as it's been over the last couple of years. We still have products in each product category that are in tight supply.

And they have to do with specific raw materials, be it urea or for fertilizer, et cetera or that could be electronic components that make it difficult for our irrigation providers to provide controllers. So and it's here and there across product line. We have a terrific supply chain team. We have four major DCs, and we have over 600 locations.

So we have a huge strength in terms of being able to anticipate those, make sure that we've got inventory, and smooth, and have products for sale. And to some extent those disruptions help us in that our competitors don’t have a product, and we've got the product and we can gain market share. So and that continues to be the case.

As John has mentioned, our inventories are elevated and that's a strategic decision for us to make sure we're in stock of products that we're going to need to have that we think might be tight. So again, we're navigating through.

There's no, you know, if you take one product line, it's not the whole product line, it's just select products here and there that are tied to kind of global markets, that that are in tight supply and it really hasn't changed. We think it's going to continue to be challenging through this year and then we'll see how it smooths out.

Hopefully the world complex, we hope and pray that they may end and those risks go away, but certainly we can't count on that..

Yes, that's helpful. And just expanding on that, you mentioned the share gains you've seen against your smaller and regional competitors doling part of industry and material availability challenges.

Are you expecting a similar pace of share gains that you saw last year or is there some moderation baked into your guidance?.

No, we feel like we can continue to gain share. I think on the supply side, I think a lot of our competitors have adjusted as well, so we probably don't have the advantage now that we had few years ago on that.

But we've got other capabilities that we've been building and working on in terms of the technologies we have for our teams, how we fortified our teams, more bilingual branches, our marketing prowess that we now have to go out and find the small customers.

So we have other capabilities that are kicking in that we feel confident will allow us to continue to gain market share..

Great, thank you..

Thank you..

Thank you. It appears we have no additional questions. I'll pass the floor back to management for closing remarks..

Okay, great. Well, thank you all for joining us today. We certainly appreciate your interest in SiteOne and I look forward to speaking with you again in the next quarter. I'd like to once again thank our tremendous associates for all they do for us, our customers for allowing us to be their partner and our suppliers for supporting us so well.

Again, we look forward to talking to you again in August. Thank you..

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