Business Context and Reporting Period
Company: SiteOne Landscape Supply, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: April 17, 2017
Reporting Period: Fiscal quarter ended April 2, 2017 (First Quarter 2017)
Context: This filing provides preliminary, unaudited estimated financial results in connection with a secondary offering Registration Statement on Form S-1. The company is a distributor of landscape supplies.
Key Financial Metrics
The following metrics represent management's estimates for the three months ended April 2, 2017, compared to actual results for the three months ended April 3, 2016.
| Metric | Q1 2017 (Estimated) | Q1 2016 (Actual) | Change |
|---|---|---|---|
| Net Sales | $332.0 million – $337.0 million | $328.5 million | +$3.5 million to +$8.5 million (1% to 3%) |
| Net Loss | $(11.2) million – $(10.2) million | $(5.6) million | Widened by $4.6 million to $5.6 million |
| Adjusted EBITDA | $0.5 million – $1.5 million | $4.5 million | Decreased by $3.0 million to $4.0 million |
| EBITDA | $(2.8) million – $(1.8) million | $2.2 million | Declined from positive to negative |
| Interest Expense (Net) | $6.2 million | $2.6 million | Increased significantly |
| Borrowing Base Capacity | $114.8 million (as of April 2, 2017) | N/A | Increased from $91.0 million (Jan 1, 2017) |
Liquidity: Ongoing liquidity needs are expected to be funded by cash on hand, operating cash flows, and borrowings under an asset-based loan facility. Revolving credit loans increased to approximately $205.8 million to support working capital for the spring season and recent acquisitions.
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 1% to 3% year-over-year. Growth was driven by acquisitions and construction sector sales, offset by slightly negative organic daily sales growth due to a return to normal spring weather patterns (compared to unusually strong growth in early spring 2016).
- Profitability Decline: Net loss widened significantly despite gross margin improvements from operational initiatives. This was primarily due to increased operating expenses from acquisitions and higher interest expense resulting from higher debt levels and a higher blended interest rate following term loan refinancing.
- Adjusted EBITDA: Decreased by approximately $3.0 million to $4.0 million year-over-year, reflecting the impact of higher interest costs and acquisition-related expenses.
- Debt Utilization: Borrowing base capacity increased by $114.8 million from the beginning of the year, reflecting increased working capital needs and the completion of four acquisitions in the first quarter.
Guidance, Outlook, and Risks
Management Commentary: The company expects results to benefit from construction sector growth and gross margin improvements. However, these were offset by acquisition-related operating expenses and higher interest costs. The filing notes that the estimated results are preliminary and subject to finalization of accounting procedures.
Risks and Contingencies:
- Forward-Looking Statements: Actual results may differ materially due to risks including cyclicality in construction markets, general economic conditions, weather patterns, and regulatory changes.
- Acquisition Risks: Integration risks and the timing/amount of future acquisition-related fees (retention, severance, bonuses) are uncertain.
- Unaudited Data: The financial estimates have not been audited, reviewed, or compiled by an independent registered public accounting firm.
Investor Verification Checklist
- Verify the final audited Q1 2017 financial statements once filed to confirm the preliminary estimates for Net Sales, Net Loss, and Adjusted EBITDA.
- Review the specific terms of the term loan refinancing and amendment transactions to understand the drivers of the increased blended interest rate.
- Assess the integration progress and financial impact of the four acquisitions completed in the first quarter.
- Monitor the utilization of the asset-based loan facility and the company's ability to service the increased debt load ($205.8 million in revolving credit loans).
- Confirm the impact of weather patterns on organic daily sales growth in subsequent quarters.