SiteOne Landscape Supply, Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended January 3, 2021 (53 weeks); the comparable year ended December 29, 2019 had 52 weeks. The filing is an annual report, with fourth-quarter results also disclosed.
Business context
SiteOne is a wholesale distributor of landscape supplies, operating 575 branches across 45 U.S. states and six Canadian provinces. It serves landscape and green-industry professionals with more than 130,000 products and related advisory services. The company reports one operating segment. Residential construction represented about 57% of 2020 sales, commercial construction 30%, and recreational and other construction 13%.
Financial results and liquidity
| Metric | FY 2020 | FY 2019 |
|---|---|---|
| Net sales | $2,704.5 million | $2,357.5 million |
| Gross profit / margin | $901.3 million / 33.3% | $773.2 million / 32.8% |
| Operating income / margin | $179.8 million / 6.6% | $124.9 million / 5.3% |
| Net income / diluted EPS | $121.3 million / $2.75 | $77.7 million / $1.82 |
| Adjusted EBITDA (non-GAAP) | $260.2 million | $201.1 million |
| Cash provided by operating activities | $229.4 million | $130.8 million |
- Sales increased 15%; Organic Daily Sales grew 8%, while acquisitions contributed $135.9 million to sales growth. Landscaping-product Organic Daily Sales rose 9%; agronomic and other products rose 3%.
- Gross margin expanded 50 basis points, attributed mainly to lower freight costs and higher-margin acquisitions. SG&A rose 11% to $728.2 million but declined as a share of sales to 26.9% from 27.8%, reflecting operating leverage and cost management.
- Fourth-quarter sales were $675.1 million versus $535.0 million a year earlier; net income was $11.5 million versus $2.5 million. Results remain seasonal, and the first and fourth quarters are typically weaker.
- Investing cash outflow was $184.2 million, including $159.4 million for acquisitions; capital expenditures were $18.6 million. Financing cash outflow was $9.1 million.
- Year-end cash was $55.2 million; working capital was $483.0 million. Gross long-term debt was $269.0 million ($263.5 million net of debt discounts and issuance costs), plus $41.6 million of finance lease liabilities. No ABL borrowings were outstanding; reported ABL availability was $362.3 million, for approximately $418 million of total available liquidity.
Material changes and unusual items
- In August 2020, SiteOne issued 2.15 million shares, receiving approximately $261.7 million net proceeds. It used cash to repay $169.4 million of term-loan principal in September and December; year-end gross debt fell from $534.6 million to $269.0 million.
- Acquisition spending increased: 2020 acquisitions had an aggregate purchase price of approximately $160.6 million, and acquisitions contributed $135.9 million of year-over-year sales growth. The company completed multiple acquisitions, including BURNCO’s 12 Canadian locations.
- The COVID-19 pandemic caused a 3% sales decline in April amid restrictions, but full-year demand strengthened as consumers invested in outdoor spaces. Management reported no material adverse impact on 2020 results from the pandemic and deferred $12.2 million of qualifying employer payroll taxes under the CARES Act.
- A one-time $1.5 million payment was made to frontline branch associates in August. Term-loan repayments also led to a $2.2 million write-off of unamortized debt costs and a $1.1 million reclassification of swap losses into income.
Outlook, risks and contingencies
- Management said operating cash flow and ABL availability should be sufficient for operations, expected capital expenditures and liquidity needs over the following 12 months; no credit-facility debt maturities were due before 2024. The filing provides no quantified sales or earnings guidance.
- Management intends to pursue acquisitions and operational initiatives in procurement, supply chain, category management, sales productivity and e-commerce. It expects initiatives to continue over coming years; benefits and timing remain uncertain.
- Key risks include construction-market cyclicality, weather and seasonality, COVID-19 disruption, product availability and input-cost volatility, labor constraints, customer credit and collections, acquisition integration, environmental regulation, and substantial indebtedness. The term loan matures in October 2024; the ABL facility matures in February 2024.
- SiteOne disclosed a July 2020 ransomware attack; it could not assure that customer, employee or company information would not be disclosed, or that related claims and response costs would not be material.
- Environmental remediation costs were estimated at $3.6 million, with the company’s exposure capped at $2.4 million under the disclosed arrangement and a $1.2 million indemnification asset recorded. Management reported no current material litigation and did not expect ordinary-course proceedings to have a material effect.
- The company does not expect to pay common-stock dividends for the foreseeable future. The financial-statement and internal-control audits received unqualified opinions; management and the auditor reported effective internal controls, with certain recently acquired businesses excluded from the internal-control assessment.
Important facts for investors to verify
- Whether post-year-end demand, gross margin and sales growth are sustainable after unusually strong outdoor-living demand and the extra fiscal week.
- Acquisition integration, purchase accounting and returns on the $160.6 million of 2020 acquisitions, including the effect of preliminary valuations and goodwill growth.
- Cash generation, working-capital needs, liquidity availability and the ability to refinance or repay the 2024 debt maturities.
- Any financial, operational, legal or disclosure consequences of the July 2020 ransomware attack.
- Exposure to supplier commitments, including nursery and grass-seed purchases, a long-term fertilizer minimum-volume contract, and customer credit losses.