SiteOne Landscape Supply, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended April 3, 2022 (13 weeks); comparable period ended April 4, 2021. SiteOne is a wholesale distributor of landscape supplies, operating more than 600 branches. Sales are seasonal, generally strongest in the second and third quarters.
Key financial results
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net sales | $805.3 million | $650.2 million | +24% |
| Gross profit / margin | $269.2 million / 33.4% | $201.5 million / 31.0% | +34%; margin +240 bps |
| SG&A | $230.5 million | $192.3 million | +20%; 28.6% of sales vs. 29.6% |
| Operating income / margin | $41.2 million / 5.1% | $10.4 million / 1.6% | Improved |
| Net income / diluted EPS | $32.3 million / $0.70 | $7.4 million / $0.16 | Improved |
| Adjusted EBITDA | $67.8 million | $34.5 million | +97% |
| Operating cash flow | $(118.3) million | $(45.5) million | Greater cash use |
Gross margin expansion reflected price realization and supply-chain initiatives, including strategic inventory purchases. SG&A rose with growth and acquisitions, but declined as a share of sales due to operating leverage. The effective tax rate was 12.5%, versus (51.0)% a year earlier, when income before taxes was much lower and tax benefits affected the comparison.
Revenue and material changes
- Organic Daily Sales increased 17%; management said price inflation contributed approximately 20% to that growth. Landscaping products’ Organic Daily Sales rose 20%, and agronomic products’ rose 10%.
- Acquisitions contributed $43.4 million, or approximately 7%, to reported sales growth. Q1 included the March 2022 acquisition of JK Enterprise.
- Management attributed demand to continued investment in outdoor living spaces, new construction, and landscape maintenance. Product-cost inflation, supply constraints, freight costs, and labor constraints continued.
- Product categories: landscaping products generated $587.7 million of sales, versus $452.4 million; agronomic and other products generated $217.6 million, versus $197.8 million.
Cash, debt, and liquidity
- Cash was $45.1 million at April 3, 2022, down from $53.7 million at January 2, 2022. Working capital was $788.4 million, up from $615.9 million, primarily reflecting seasonal business needs.
- Operating cash use increased to $118.3 million, mainly because of a larger seasonal inventory build, supply-chain uncertainty, inflation, and purchases ahead of supplier price increases. Inventory was $853.7 million, versus $636.6 million at fiscal year-end.
- Gross debt was $421.9 million, up from $260.2 million; carrying-value debt was $417.2 million. The increase primarily funded seasonal working capital. Finance lease obligations, excluding interest, were $44.5 million.
- The $375 million ABL facility had $162.7 million drawn and $198.4 million of availability, after borrowing-base limitations and letters of credit. The ABL rate was 3.75%; the term-loan rate was 2.50% at quarter-end. The company reported covenant compliance.
- Investing cash use was $41.0 million, including $31.5 million for acquisitions and $7.5 million of capital expenditures. Financing provided $150.6 million, principally through net ABL borrowings.
- Management expects cash, operating cash generation, and available ABL capacity to fund operations, expected capital expenditures, acquisitions, and debt service for the next 12 months.
Outlook, risks, and notable items
- No specific full-year financial guidance was provided in the filing. Management expected product-cost inflation to remain elevated for most of fiscal 2022 and anticipated ongoing supply-chain disruption, while expressing confidence in its ability to mitigate effects through pricing and operating initiatives.
- Key risks include seasonal demand and weather, construction-market cyclicality, inflation in products, wages, fuel and freight, inability to pass through cost increases, supply and labor constraints, inventory and working-capital requirements, interest rates, and geopolitical uncertainty. Management said the Russia-Ukraine conflict had not materially affected results to date but could worsen costs and economic conditions.
- COVID-19 had no material adverse impact on Q1 results, according to management; future effects remained uncertain. The company retained a $3.9 million environmental remediation liability, with its exposure capped at $2.4 million and a $1.5 million indemnification asset recorded.
- Two acquisitions—Bellstone Masonry Supply and Preferred Seed Company—closed after quarter-end in April 2022. The company reported no material litigation and no significant changes in internal control over financial reporting.
Investor facts to verify
- Whether sales growth, pricing, and gross-margin gains persist as inflation and product availability evolve.
- Whether inventory levels convert to sales and cash, and how seasonal working-capital needs affect operating cash flow and ABL borrowing.
- Debt levels, borrowing availability, floating-rate exposure, and compliance with credit-facility covenants.
- The contribution, purchase accounting, and integration performance of recent and subsequent acquisitions.
- Whether management’s stated ability to pass through cost increases and mitigate supply, freight, and labor pressures continues.