Business context and reporting period
SiteOne Landscape Supply, Inc. is a wholesale distributor of landscape products and related services to green-industry professionals, operating more than 590 branches. This unaudited Form 10-Q covers the 13 weeks and 26 weeks ended July 4, 2021; comparable periods ended June 28, 2020. The business is seasonal, with sales and income typically strongest in the second and third quarters.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $1,083.9 million | $817.7 million | $1,734.1 million | $1,277.5 million |
| Gross profit / margin | $388.2 million / 35.8% | $286.1 million / 35.0% | $589.7 million / 34.0% | $428.9 million / 33.6% |
| Operating income | $164.6 million | $112.3 million | $175.0 million | $89.0 million |
| Net income | $123.5 million | $79.1 million | $130.9 million | $61.6 million |
| Diluted EPS | $2.70 | $1.83 | $2.86 | $1.43 |
| Adjusted EBITDA (non-GAAP) | $190.6 million | $132.1 million | Not stated as a six-month total in the provided filing text | Not stated as a six-month total in the provided filing text |
- Net sales increased 33% in Q2 and 36% in the first half. Organic Daily Sales rose 22% and 26%, respectively; acquisitions contributed $90.4 million to Q2 growth and $123.9 million to first-half growth.
- Q2 gross margin expanded 80 basis points; first-half margin expanded 40 basis points. SG&A was 20.8% of sales in Q2 versus 21.4%, and 24.1% for the first half versus 26.8%.
- Operating cash flow was $92.2 million for the first half, down from $119.1 million. Investing cash outflow was $82.0 million, including $63.0 million of acquisition spending and $16.6 million of capital expenditures. Financing cash inflow was $41.9 million. Ending cash was $107.8 million.
- At July 4, 2021, gross debt was $329.7 million, reported debt net of issuance costs was $323.2 million, and finance lease liabilities were $41.8 million. Cash was $107.8 million. The company had no ABL borrowings and $364.1 million of ABL availability; stated total available liquidity was $471.9 million.
- Total assets were $2,077.9 million, total liabilities $1,141.3 million, and stockholders’ equity $936.6 million. Inventory was $614.0 million, up from $458.6 million at January 3, 2021.
Material changes and management commentary
- Management attributed sales growth to strong demand, including customer investment in outdoor living, repair and upgrade, and residential construction. Landscaping-product Organic Daily Sales increased 24% in Q2; agronomic-product Organic Daily Sales increased 17%.
- Management cited supply-chain initiatives, favorable pricing and customer mix, operating leverage, and expense management as drivers of higher margins and earnings. Lower average debt balances contributed to lower interest expense year over year.
- First-half operating cash flow declined primarily because higher sales required more receivables and inventory. Investing outflow increased with acquisition activity and higher branch equipment spending.
- In March 2021, the company issued $325 million of new term loans, used in part to repay prior term loans. The new loans mature March 23, 2028 and carried a 2.50% interest rate at July 4, 2021. The company also restructured certain interest-rate swaps; related arrangements were partly accounted for as hybrid debt instruments.
- Six-month acquisitions had aggregate purchase consideration of $63.2 million, with $4.8 million of deferred contingent consideration. Acquisitions added $26.1 million of goodwill during the period.
Outlook, risks and contingencies
No specific revenue, earnings, or margin guidance is provided in the filing text. Management expects cash from operations and ABL availability to fund operations, expected capital expenditures, debt service, and liquidity needs for the next 12 months. Management reported no material adverse impact from COVID-19 on the results presented, while emphasizing continuing uncertainty and potential future effects.
- Key risks include seasonality and weather; housing and construction cycles; product shortages and supplier loss; price and freight volatility and the ability to pass through cost increases; working-capital and inventory management; acquisition integration; labor and operating costs; cybersecurity, including the previously disclosed July 2020 ransomware attack; and substantial indebtedness and interest-rate exposure.
- The company reported compliance with its term-loan and ABL covenants. The ABL facility matures in 2024; its fixed-charge coverage covenant is springing and applies only if specified availability falls below its threshold.
- Environmental remediation liabilities were estimated at $4.0 million, with company exposure capped at $2.4 million under the described indemnification arrangement. Outstanding letters of credit were $10.9 million. The company reported no current material litigation or arbitration.
- The company deferred $12.2 million of qualifying employer payroll taxes under the CARES Act, with payment due in installments by December 2021 and December 2022.
Most important facts for investors to verify
- How much of sales and margin growth reflects sustainable organic demand versus acquisitions, pricing, and unusually favorable customer mix?
- Whether inventory and receivables convert into cash as seasonal demand proceeds, given the first-half operating cash flow decline.
- Debt repayment capacity, covenant headroom, floating-rate exposure, and the effects of the term-loan refinancing and swap restructuring.
- Whether supplier cost increases, freight constraints, weather, or changing consumer demand pressure margins or availability.
- Acquisition integration outcomes and the return on acquisition and capital-expenditure spending.
- Potential changes in COVID-19 impacts, cybersecurity exposure, and environmental remediation costs.