SiteOne Landscape Supply, Inc. — Q1 2021 10-Q
Business context and period. Wholesale distributor of landscape and agronomic supplies serving green-industry professionals, with more than 580 branches. The quarter ended April 4, 2021; both comparison quarters comprised 13 weeks. Sales are seasonal, typically strongest in Q2 and Q3. All figures below are in U.S. dollars.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Net sales | $650.2 million | $459.8 million |
| Gross profit / margin | $201.5 million / 31.0% | $142.8 million / 31.1% |
| SG&A | $192.3 million (29.6% of sales) | $167.1 million (36.3% of sales) |
| Operating income (loss) | $10.4 million (1.6% margin) | $(23.3) million ((5.1)% margin) |
| Net income (loss) | $7.4 million; $0.16 diluted EPS | $(17.5) million; $(0.42) diluted EPS |
| Adjusted EBITDA | $34.5 million | $(3.6) million |
Sales rose 41%; management reported Organic Daily Sales growth of 32%. Landscaping products contributed $452.4 million of sales and agronomic and other products $197.8 million. Acquisitions contributed $33.5 million, or 7%, to reported sales growth. Gross margin edged down 10 basis points amid product-cost inflation and higher material-handling expense. SG&A grew 15%, substantially slower than sales, which management attributed to operating leverage and expense control. Lower interest expense also supported the improvement in earnings.
Cash flow, debt and liquidity
- Operating cash used was $45.5 million, versus $65.6 million used in Q1 2020. Seasonal working-capital investment remained significant: inventory increased $157.6 million and receivables increased $45.8 million, partly offset by a $145.6 million increase in accounts payable.
- Investing cash used was $46.3 million, including $37.7 million for acquisitions and $7.2 million of capital expenditures. Financing cash provided was $68.9 million; cash ended the quarter at $32.5 million, down $22.7 million from year-end.
- Gross debt was $352.8 million ($345.9 million net of issuance costs and discounts); finance lease liabilities were $41.3 million at present value. Cash was $32.5 million. Operating lease liabilities were $261.7 million.
- Cash plus available ABL capacity totaled approximately $376.5 million (reported by management as approximately $377 million). The $375 million ABL facility had $21.9 million drawn and $344.0 million available at quarter-end.
- On March 23, the company refinanced its term loans with $325 million of new term loans maturing in 2028; the stated rate was 2.50% at quarter-end. The ABL facility matures in 2024. The company reported compliance with debt covenants.
Changes, outlook and notable items
The year-over-year turnaround reflects strong demand, particularly for outdoor-living products, an early spring selling season, winter-storm-related ice-melt sales, and increased LESCO sales through retail home centers. Management said COVID-19 had not materially adversely affected Q1 results and expected cash from operations and ABL availability to fund operations, expected capital expenditures and obligations for the next 12 months. The filing provides no specific earnings or sales guidance; management emphasized continued uncertainty around the pandemic.
Acquisitions supported growth and expanded product lines and geographic reach. Arizona Stone & Architectural Products and Solstice Stone were acquired in April 2021; the filing also reports April 30 acquisitions of Melrose Supply and Timberwall, after quarter-end. These transactions and their results were not part of Q1 operations. The company reported $12.2 million of deferred employer payroll taxes under the CARES Act, payable in installments by the end of 2021 and 2022.
Key risks include seasonality and weather, construction-market cyclicality, COVID-19 uncertainty, inflation and the ability to pass cost increases through, supplier or product shortages, inventory and working-capital demands, acquisition integration, labor and operating costs, cybersecurity (including the July 2020 ransomware incident), and substantial indebtedness and floating-rate exposure. Interest-rate swaps hedge portions of debt; the company restructured swaps during the quarter, and estimated after-tax swap losses of $2.6 million were expected to be reclassified to earnings over the next 12 months. An environmental remediation liability was estimated at $3.9 million, with company exposure capped at $2.4 million under an indemnity arrangement. No material litigation was reported.
Important facts for investors to verify
- Whether exceptional sales growth persists and how much reflects organic demand versus acquisitions, seasonal timing and product mix.
- Whether gross margin holds as product costs and freight/material-handling expenses change, and whether pricing offsets inflation.
- Seasonal inventory and receivables needs, operating cash flow, and the availability of borrowing-base capacity as the year progresses.
- Debt-service capacity, covenant headroom, variable-rate exposure and the effects of the refinancing and swap accounting.
- Acquisition integration, purchase-price allocations and the contribution of post-quarter acquisitions; also monitor COVID-19, weather, supplier, labor and cybersecurity risks.