SiteOne Landscape Supply, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended December 29, 2019 (52 weeks). The filing is an annual report, not a standalone Q4 filing; Q4 figures below are unaudited. SiteOne is a wholesale landscape-supply distributor operating 555 branches in 45 U.S. states and six Canadian provinces, with more than 120,000 SKUs.
Financial performance
| Metric | FY2019 | FY2018 | Change |
|---|---|---|---|
| Net sales | $2,357.5 million | $2,112.3 million | +12% |
| Gross profit / margin | $773.2 million / 32.8% | $678.1 million / 32.1% | +14%; margin +70 bps |
| SG&A | $654.3 million | $578.8 million | +13% |
| Operating income / margin | $124.9 million / 5.3% | $107.3 million / 5.1% | +16% |
| Net income / margin | $77.7 million / 3.3% | $73.9 million / 3.5% | +5% |
| Diluted EPS | $1.82 | $1.73 | +5% |
| Adjusted EBITDA (non-GAAP) | $201.1 million | $176.0 million | +14% |
- Organic Daily Sales grew 5%; acquisitions contributed 7%, or $151.5 million, to reported sales growth. Landscaping-product organic daily sales grew 5% and agronomic-product sales grew 4%.
- Q4 sales were $535.0 million versus $474.6 million. Q4 net income was $2.5 million versus a $2.1 million loss; operating income was $4.4 million versus $0.6 million.
- Operating cash flow was $130.8 million, compared with $78.1 million. Investing cash outflow was $91.9 million and financing cash outflow was $37.3 million. Capital expenditures were $19.5 million.
- Year-end cash was $19.0 million. Net debt carrying value was $524.9 million; gross debt principal was $534.6 million, plus $22.9 million in finance leases. ABL borrowings were $92.8 million, with $263.4 million of borrowing-base availability. Working capital was $455.0 million.
Changes and notable items
- Sales growth reflected market demand and price increases in response to cost inflation; gross-margin expansion also reflected acquisition contributions and inventory purchases ahead of price increases. SG&A rose faster than sales, driven mainly by acquisitions and wage and benefit inflation.
- Net income growth was limited by higher operating expenses and a higher effective tax rate: 15.1% versus 1.7%. The prior-year rate was unusually low, principally due to greater excess tax benefits recognized in 2018.
- Operating cash flow improved with better inventory and receivables turns. Acquisition spending declined; cash paid for acquisitions, net of cash acquired, was $71.5 million versus $147.7 million.
- SiteOne completed multiple acquisitions in 2019, with aggregate purchase price of approximately $70.7 million. The filing reports approximately $220 million invested in 23 acquisitions since the start of FY2018.
- Adoption of the lease accounting standard added operating lease right-of-use assets and liabilities to the balance sheet; management said the effect on the balance sheet was material, but on earnings and cash flows immaterial.
Outlook, risks and contingencies
- Management expects operating cash flow and available ABL capacity to fund operations, expected capital expenditures and debt service for the next 12 months. No specific revenue, earnings or margin guidance is provided.
- Management intends to continue acquisitions and operational initiatives in pricing, category management, supply chain, sales productivity and e-commerce. Initiatives are expected to continue through 2021–2022; benefits and execution timing are not assured.
- Business is seasonal, with sales and income generally strongest in Q2 and Q3 and weaker in Q1 and Q4. Management said increased Q2 2019 rainfall negatively affected demand and organic sales growth.
- Key risks include construction-market cyclicality, weather and drought, competition, supplier availability and product-cost inflation, inventory management, customer credit and collections, labor costs, acquisition integration, environmental regulation, cybersecurity and substantial variable-rate debt.
- Debt maturities are concentrated in 2024: $515.5 million of principal is scheduled for that year. The company reported compliance with credit-facility covenants at year-end. A 1 percentage-point rise in rates was estimated to increase annual interest expense by approximately $1.4 million on variable-rate debt.
- Environmental remediation liability was estimated at $3.6 million, partly offset by a $1.2 million indemnification asset; company exposure is capped at $2.4 million under the disclosed arrangement. No material litigation was reported. Purchase commitments include approximately $97 million for nursery products and grass seed, plus a long-term fertilizer minimum-purchase agreement.
- The independent auditor issued an unqualified opinion on the financial statements and internal controls. The audit identified acquisition-related customer-relationship intangible valuation, particularly discount-rate assumptions, as a critical audit matter.
Investor verification priorities
- Verify the quality and durability of organic growth separately from acquisition-driven sales, and monitor the contribution of pricing versus underlying volume.
- Assess whether gross-margin gains can persist as inventory turns, supplier incentives and input costs change, while SG&A continues to grow.
- Review debt covenants, refinancing concentration in 2024, interest-rate hedges and actual ABL availability under seasonal working-capital needs.
- Track receivables and allowance adequacy: the doubtful-account allowance was $8.3 million versus $5.9 million a year earlier.
- Evaluate acquisition integration, purchase-price allocations and the assumptions supporting customer-relationship intangibles and goodwill.
- Consider weather, water-use restrictions, environmental remediation exposure and the impact of seasonality on quarterly comparability.