SiteOne Landscape Supply, Inc.
SiteOne Landscape Supply, Inc. (hereinafter collectively with all its consolidated subsidiaries referred to as the “Company”) is a supplierwholesale distributor of irrigation supplies, fertilizer and control products irrigation supplies,(e.g., herbicides), hardscapes (including pavers, natural stone, and blocks), landscape accessories, nursery goods, hardscapesoutdoor lighting, and outdoor lightingice melt products to green industry professionals. The Company currently has over 475 branches.also provides value-added consultative services to complement its product offering and to help customers operate and grow their businesses. Substantially all of the Company’s sales are to customers located in the United States of America (“U.S.”), with less than two2 percent of sales and less than 4 percent of total assets in Canada for all periods presented. As of April 3, 2022, the Company had over 600 branches. Based on the nature of the Company’s products and customers’ business cycles, sales are significantly higher in the springsecond and summer months.third quarters of each fiscal year.
The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) as applicable to interim financial reporting. In management’s opinion, the unaudited financial information for the interim periods presented includes all adjustments, consisting of normal recurring accruals necessary for a fair statement of the financial position, results of operations, and cash flows. Certain information and disclosures normally included in ourthe Company’s annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC.Securities and Exchange Commission (“SEC”). These interim unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K filed with the SEC for the fiscal year ended January 1, 2017.2, 2022. The interim period unaudited financial results for the three and nine monththree-month periods presented are not necessarily indicative of results to be expected for any other interim period or for the entire year.
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and accompanying notes. Actual results could differ materially from these estimates.
The Company’s fiscal year is a 52- or 53-week period ending on the Sunday nearest to December 31. The fiscal year ending December 31, 2017 and the fiscal year ended January 1, 20172023 and January 2, 2022 both include 52 weeks. Additionally, the Company’s fiscal quarters end on the Sunday nearest to March 31, June 30, and September 30, respectively. The three months ended October 1, 2017April 3, 2022 and October 2, 2016April 4, 2021 both include 13 weeks. The nine months ended October 1, 2017 and October 2, 2016 both include 39 weeks.
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), to provide clarification on cash flow classification related to eight specific issues including debt prepayment or debt extinguishment costs and contingent consideration payments made after a business combination. The guidance in ASU 2016-15 should be applied using a retrospective transition method to each period presented. ASU 2016-15 becomes effective for the Company in the first quarter of fiscal year 2018. The Company is currently evaluating the amended guidance and the impact on its consolidated financial statements and related disclosures.
In October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory”(“ASU 2016-16”), which amends existing guidance to require entities to recognize income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. ASU 2016-16 will be effective for the Company commencing in the first quarter of fiscal year 2018 using a modified retrospective method. The Company is currently evaluating the impact of this amended guidance; however, provisions of ASU 2016-16 are not expected to have a significant impact on the Company’s consolidated financial statements and related disclosures.
In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash” (“ASU 2016-18”), which requires restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. Transfers between cash and cash equivalents and restricted cash or restricted cash equivalents are not reported as cash flow activities in the statement of cash flows. ASU 2016-18 will be effective for the Company in the first quarter of fiscal year 2018, using a retrospective transition method. The Company is currently evaluating the amended guidance and the impact on its consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business” (“ASU 2017-01”), to clarify the definition of a business to assist entities with evaluating whether transactions should be accounted for as
acquisitions of assets or businesses. ASU 2017-01 provides a screen to determine when an integrated set of assets and activities (collectively a “set”) is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. If the screen is not met, ASU 2017-01 requires that to be considered a business, a set must include an input and a substantive process that together significantly contribute to the ability to create output. ASU 2017-01 will be effective for the Company in the first quarter of fiscal year 2018, and should be applied prospectively. The Company is currently evaluating the amended guidance; however, the provisions of ASU 2017-01 are not expected to have a material impact on the Company's consolidated financial statements and related disclosures.
In May 2017, the FASB issued ASU 2017-09, “Compensation-Stock Compensation (Topic 718) - Scope of Modification” (“ASU 2017-09”), which provides clarity and reduces both diversity in practice and cost and complexity when applying the guidance in Topic 718 when there are changes to the terms or conditions of a share-based payment award. The amendments in ASU 2017-09 provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. ASU 2017-09 will be effective for the Company in the first quarter of fiscal year 2018 on a prospective basis. The Company is currently evaluating the amended guidance and the impact on its consolidated financial statements and related disclosures.
Note 2. Revenue from Contracts with Customers
The following table presents Net sales disaggregated by product category (in millions):
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | |
| | April 3, 2022 | | April 4, 2021 | | | | |
Landscaping products(a) | | $ | 587.7 | | | $ | 452.4 | | | | | |
Agronomic and other products(b) | | 217.6 | | | 197.8 | | | | | |
| | $ | 805.3 | | | $ | 650.2 | | | | | |
______________(a) Landscaping products include irrigation supplies, hardscapes, landscape accessories, nursery goods, and outdoor lighting.
(b) Agronomic and other products include fertilizer, control products, ice melt, equipment, and other products.
Remaining Performance Obligations
Remaining performance obligations related to ASC Topic 606 represent the aggregate transaction price allocated to performance obligations with an original contract term greater than one year that are fully or partially unsatisfied at the end of the period. Remaining performance obligations include the outstanding points balance related to the customer loyalty rewards program. The program allows enrolled customers to earn loyalty rewards on purchases to be used on future purchases, to pay for annual customer trips hosted by the Company, or to obtain gift cards to other third-party retailers.
As of April 3, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations was $8.6 million. The Company expects to recognize revenue on the remaining performance obligations over the next 12 months.
Contract Balances
The timing of revenue recognition, billings, and cash collections results in billed accounts receivable, deferred revenue, and billings in excess of revenue recognized in the Company’s Consolidated Balance Sheets.
Contract liabilities
As of April 3, 2022 and January 2, 2022, contract liabilities were $8.6 million and $8.8 million, respectively, and were included within Accrued liabilities in the accompanying Consolidated Balance Sheets. The decrease in the contract liability balance during the three months ended April 3, 2022 is primarily a result of $2.0 million of revenue recognized and the expiration of points related to the customer loyalty rewards program during the period, partially offset by cash payments received in advance of satisfying performance obligations.
Note 3. Acquisitions
From time to time, the Company enters into strategic acquisitions in an effort to better service existing customers and to attainattract new customers. The Company completed the following acquisitions for an aggregate cash considerationspurchase price of approximately $66.8$32.9 million and $58.5$37.1 million and deferred contingent consideration of $0.9 million and zero for the ninethree months ended OctoberApril 3, 2022 and April 4, 2021, respectively.
•In March 2022, the Company acquired all of the outstanding stock of J K Enterprise, Inc., Culpeper Recycling Hauling LLC, Culpeper Recycling Transport LLC, Gateway Home & Garden Center, LLC, JK Enterprise Landscape Supply, Limited Liability Company, Madera Farm Transport, LLC, Saunders LS, LLC, and Tilden Farm Nursery, LLC, and also acquired the assets of Metro Landscape Supply, Limited and Culpeper Recycling, LLC (collectively, “JK Enterprise”). With 6 locations in Northern Virginia and 1 2017location in Maryland, JK Enterprise is a wholesale distributor of bulk and October 2, 2016, respectively.bagged mulches and soil, hardscapes, and nursery products to landscape professionals.
•In September 2017,December 2021, the Company acquired the assets and assumed the liabilities of Marshall Stone,Bothe Trucking, Inc., doing business as Seffner Rock and Davis Supply, LLC (collectively, “Marshall Stone”Gravel (“Seffner”). With two locations1 location in Greensboro, North Carolina and Roanoke, Virginia, Marshall StoneTampa, Florida, Seffner is a market leader in the distributionwholesale distributor of natural stone, bulk aggregates, mulch, soil, and hardscape materialsother landscape supplies to landscape professionals.
•In August 2017,November 2021, the Company acquired the assets and assumed the liabilities of Bondaze Enterprises,Semco Distributing, Inc., a California corporation doing business as South Coast Supply (“South Coast Supply”Semco”). With two4 locations in Orange County, California, South Coast SupplyOhio and Missouri, Semco is a market leader in the distributionwholesale distributor of hardscape, natural stone and related productslandscape supplies to landscape professionals.
•In May 2017,August 2021, the Company acquired the assets and assumed the liabilities of Evergreen Partners of Raleigh, LLC, Evergreen Partners of Myrtle Beach, LLC,Green Brothers Earth Works and Evergreen Logistics, LLC (collectively, “Evergreen”Southern Landscape Supply (“Green Brothers”). With two4 locations in Raleigh, North Carolina and Myrtle Beach, South Carolina, Evergreenthe greater Atlanta, Georgia market, Green Brothers is a market leaderdistributor of landscape supplies and hardscapes to landscape professionals.
•In May 2021, the Company acquired all of the outstanding stock of Rodvold Enterprises, Inc., doing business as Rock & Block Hardscape Supply (“Rock & Block”). With 2 locations in the distributionSan Diego, Southern Orange County and Inland Empire markets in California, Rock & Block is a distributor of nurseryhardscapes, masonry, and landscape supplies to landscape professionals.
•In March 2017,April 2021, the Company acquired the assets and assumed the liabilities of Angelo’s Supplies, Inc. and Angelo’s Wholesale Supplies, Inc. (collectively, “Angelo’s”Melrose Supply & Sales Corp (“Melrose”) with two. With 6 locations in Wixom and Farmington Hills, Michigan, both suburbs of Detroit. Angelo’sthroughout Florida, Melrose is a hardscapedistributor of irrigation, lighting, and drainage products to landscape supply distributor, and has been a market leader since 1984.professionals.
•In March 2017,April 2021, the Company acquired all of the outstanding stock of American Builders Supply,Timberwall Landscape & Masonry Products, Inc. and MasonryClub, Inc. and subsidiary (collectively, “AB Supply”(“Timberwall”) with 10 locations. With 1 location in the greater Los Angeles, California area and two locations in Las Vegas, Nevada. AB SupplyVictoria, Minnesota, Timberwall is a market leader in the distributiondistributor of hardscape, natural stonehardscapes and related productslandscape supplies to landscape professionals.
•In February 2017,April 2021, the Company acquired the assets and assumed the liabilities of Arizona Stone Forest Materials, LLC& Architectural Products and Solstice Stone (“Arizona Stone Forest”and Solstice”) with one location. With 7 locations throughout Arizona and 2 locations in Kennesaw, Georgia.the Las Vegas, Nevada market, Arizona Stone Forestand Solstice is a market leader in the distributiondistributor of hardscape productshardscapes, natural stone, and landscape supplies to landscape professionals.
•In January 2017,February 2021, the Company acquired the assets and assumed the liabilities of Aspen ValleyLucky Landscape Supply, Inc.LLC (“Aspen Valley”Lucky Landscape Supply”) with three locations. Headquartered. With 1 location in Homer Glen, Illinois, Aspen Valleythe greater Houston, Texas market, Lucky Landscape Supply is a market leader in the distribution of hardscapes and landscape supplies in the Chicago Metropolitan Area.
In September 2016, the Company acquired the assets and assumed liabilities of Glen Allen Nursery & Garden Center, Inc. (“Glen Allen”). With one location in Richmond, VA, Glen Allen is a leader in the distributiondistributor of nursery products to landscape professionals.
In August 2016, the Company acquired the assets and assumed liabilities of Bissett Nursery Corp. and acquired all of the outstanding stock of Bissett Equipment Corp. (collectively, “Bissett”). Headquartered in Holtsville, NY, Bissett is a leader in the distribution of nursery, hardscapes, landscape supplies as well as equipment sales, rental and repairs to landscape professionals with three locations serving customers throughout the New York City metropolitan area.
In April 2016, the Company acquired the assets and assumed liabilities of Blue Max Materials, Inc., Blue Max Materials of Charleston, Inc., Blue Max Materials of Columbia, Inc. and Blue Max Materials of the Grand Strand, Inc., which together comprise Blue Max (“Blue Max”), a hardscapes and landscape supplier with five locations serving North Carolina and South Carolina.
In January 2016, the Company acquired all of the outstanding stock of Hydro-Scape Products, Inc. (“Hydro-Scape”), a leading provider of landscape products (irrigation, lighting, maintenance, outdoor living and hardscapes) with 17 locations serving customers throughout Southern California.
These transactions were accounted for by the acquisition method, and accordingly, the results of operations arewere included in the Company’s consolidated financial statements from their respective acquisition dates.
Note 3.4. Fair Value Measurement and Interest Rate Swaps
Fair value is defined as an exit price, representing an amount that would be received to sell an asset or the amount paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The inputs used to measure fair value are prioritized into the following three-tiered value hierarchy:
•Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.
•Level 2: Unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active or inputs, other than quoted prices in active markets, which are observable either directly or indirectly.
•Level 3: Unobservable inputs for which there is little or no market data.
The hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The classification of fair value measurement within the hierarchy is based upon the lowest level of input that is significant to the measurement.
The Company’s financial instruments consist of cash and cash equivalents, accounts receivables, forward-starting interest rate swap contracts, interest rate swap contracts, and long-term debt. The variable interest rate on the long-term debt is reflective of current market borrowing rates. As such, the Company has determined that the carrying value of these financial instruments approximates fair value.
Interest Rate Swaps
The Company is subject to interest rate risk with regard to existing and future issuances of debt. The Company utilizes interest rate swap contracts to reduce its exposure to fluctuations in variable interest rates for future interest payments on its unsecured syndicated senior Term Loan Facility. In June 2017, theexisting debt. The Company entered into twois party to a forward-starting interest rate swap contract and interest rate swap contracts to convert the variable interest rate to a fixed interest rate on portions of the borrowings under the Term Loan Facility. term loans.
The contracts are scheduledCompany recognizes any differences between the variable interest rate payments and the fixed interest rate settlements with the swap counterparties as an adjustment to become effectiveinterest expense over the life of the swaps. The Company has designated these swaps as cash flow hedges and records the estimated fair value of the swaps to Accumulated other comprehensive income (loss) (“AOCI”) on its Consolidated Balance Sheets. If it becomes probable the forecasted transactions will not occur, the hedge relationship will be de-designated and amounts accumulated in AOCI will be reclassified to Interest and other non-operating expenses, net in the current period.
On March 23, 2021, the Company restructured the interest rate swap positions of its Forward-starting interest rate swaps 4, 5, and 6 to extend the terms to maturity using a strategy commonly referred to as a “blend and extend” in order to continue to manage its exposure to interest rate risk on borrowings under the term loans. Refer to “Note 9. Long-Term Debt” for additional information regarding the Company’s term loans. As a result of these transactions, all existing agreements for Forward-starting interest rate swaps 4, 5, and 6 were amended and restructured as new agreements designated by the Company as Interest rate swaps 7, 8, and 9 with the same counterparties. Each of these amended Interest rate swap agreements mature on March 11, 201923, 2025 and terminateblended the liability positions of the Forward-starting interest rate swaps into the Interest rate swaps and extended the term of the hedged positions. The Interest rate swaps are indexed to three-month LIBOR and net settled on June 11,a quarterly basis with the counterparties for the difference between the fixed rates and the variable rates based upon three-month LIBOR (subject to a floor of 0.50%) as applied to the notional amounts of each Interest rate swap. Due to the size of the initial net investment amounts resulting from the termination values of the Forward-starting interest rate swaps that were rolled into the Interest rate swap arrangements, Interest rate swaps 7, 8, and 9 were determined to be hybrid debt instruments containing embedded at-market interest rate swap derivatives. As a result, the Company bifurcated the derivative instruments from the debt host instruments for accounting purposes. Refer to “Note 9. Long-Term Debt” for additional information regarding the Company’s hybrid debt instruments. The Company also de-designated the hedging relationships for Forward-starting interest rate swaps 1 and 2 on March 23, 2021. The swaps were not terminated upon de-designation; however, hedge accounting was discontinued since these swaps were no longer designated as hedging instruments. The related accumulated losses for these swaps remained in AOCI upon de-designation and were recognized in earnings at the time the hedged interest payments impacted earnings.
The following table provides additional details related toregarding the swap contracts designated as hedging instruments as of April 3, 2022:
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Derivatives designated as hedging instruments | | Inception Date | | Effective Date | | Maturity Date | | Notional Amount (in millions) | | Fixed Interest Rate | | Type of Hedge |
Forward-starting interest rate swap 3 | | December 17, 2018 | | July 14, 2020 | | January 14, 2024 | | $ | 34.0 | | | 2.93450 | % | | Cash flow |
Interest rate swap 7 | | March 23, 2021 | | March 23, 2021 | | March 23, 2025 | | $ | 50.0 | | | 0.99500 | % | | Cash flow |
Interest rate swap 8 | | March 23, 2021 | | March 23, 2021 | | March 23, 2025 | | $ | 90.0 | | | 0.98600 | % | | Cash flow |
Interest rate swap 9 | | March 23, 2021 | | March 23, 2021 | | March 23, 2025 | | $ | 70.0 | | | 0.99784 | % | | Cash flow |
The following table provides additional details regarding the swap contracts not designated as hedging instruments, which were terminated upon maturity on June 11, 2021:
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Derivatives not designated as hedging instruments | | Inception Date | | Effective Date | | Maturity Date | | Notional Amount (in millions) | | Fixed Interest Rate |
Forward-starting interest rate swap 1 | | June 30, 2017 | | March 11, 2019 | | June 11, 2021 | | $ | 58.0 | | | 2.13450 | % |
Forward-starting interest rate swap 2 | | June 30, 2017 | | March 11, 2019 | | June 11, 2021 | | $ | 116.0 | | | 2.15100 | % |
The Company recognizes the unrealized gains or unrealized losses for interest rate swap contracts as either assets or liabilities at fair value on its Consolidated Balance Sheets. The interest rate swap contracts are subject to master netting arrangements. The Company has elected not to offset the fair value of assets with the fair value of liabilities related to these contracts. The following tables summarize the fair value of the derivative instruments and the respective lines in which they were recorded in the Consolidated Balance Sheets as of April 3, 2022 and January 2, 2022 (in millions except fixed interest rate)millions):
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| | Derivative Assets |
| | April 3, 2022 | | January 2, 2022 |
| | Balance Sheet Location | | Fair Value | | Balance Sheet Location | | Fair Value |
Derivatives designated as hedging instruments | | | | | | | | |
Interest rate contracts | | Prepaid expenses and other current assets | | $ | 2.0 | | | Prepaid expenses and other current assets | | $ | — | |
| | Other assets | | 8.5 | | | Other assets | | 2.5 | |
Total derivative assets | | | | $ | 10.5 | | | | | $ | 2.5 | |
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| | | | | | | | | | | | Fair Value of Hedge Liabilities |
Derivatives accounted for as hedges | | Inception Date | | Notional Amount | | Fixed Interest Rate | | Type of Hedge | | Balance Sheet Classification | | October 1, 2017 | | January 1, 2017 |
Forward-starting interest rate swap 1 | | June 30, 2017 | | $ | 58.0 |
| | 2.1345 | % | | Cash flow | | Other long-term liabilities | | $ | 0.1 |
| | $ | — |
|
Forward-starting interest rate swap 2 | | June 30, 2017 | | $ | 116.0 |
| | 2.1510 | % | | Cash flow | | Other long-term liabilities | | $ | 0.1 |
| | $ | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Derivative Liabilities |
| | April 3, 2022 | | January 2, 2022 |
| | Balance Sheet Location | | Fair Value | | Balance Sheet Location | | Fair Value |
Derivatives designated as hedging instruments | | | | | | | | |
Interest rate contracts | | Accrued liabilities | | $ | 0.3 | | | Accrued liabilities | | $ | 1.2 | |
| | Other long-term liabilities | | — | | | Other long-term liabilities | | 0.6 | |
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| | | | | | | | |
Total derivative liabilities | | | | $ | 0.3 | | | | | $ | 1.8 | |
For determining the fair value of the interest rate swap contracts, the Company uses significant observable market data or assumptions (Level 2 inputs) that market participants would use in pricing similar assets or liabilities, including assumptions about counterparty risk. The fair value estimates reflect an income approach based on the terms of the interest rate swap contracts and inputs corroborated by observable market data including interest rate curves. The Company recognizes the unrealized gains or unrealized losses as either assets or liabilities at fair value on its Consolidated Balance Sheets. As of October 1, 2017, the fair value changes of the forward-starting interest rate swaps in the amount of $0.2 million was recorded in Other long-term liabilities.
The Company will recognize any differences between the variable interest rate payments and the fixed interest rate settlements with the swap counterparties as an adjustment to interest expense over the life of the swaps. The Company has designated these swaps as cash flow hedges and records the changes in the estimated fair value of the swaps to Accumulated other comprehensive income (loss) on its Consolidated Balance Sheets. As of October 1, 2017, the fair value changes of the forward-starting interest rate swaps in the amount of $0.2 million was recorded in accumulated other comprehensive loss as a component of other comprehensive income. To the extent the interest rate swaps are determined to be ineffective, the Company recognizes the changes in the estimated fair value of the swaps in earnings. For the three and nine months ended October 1, 2017,April 3, 2022 and April 4, 2021, there was no ineffectiveness recognized in earnings. The netafter-tax amount of unrealized gain or loss on derivative instruments included in Accumulated other comprehensive income (loss)loss related to the forward-starting interest rate swap contracts maturing and expected to be realizedreclassified to earnings during the next twelve months was zero$0.5 million as of October 1, 2017.April 3, 2022. The ultimate amount recognized will vary based on fluctuations of interest rates through the maturity dates.
The table below details pre-tax amounts in AOCI and gain (loss) reclassified into income for derivatives designated as cash flow hedges for the three months ended April 3, 2022 and April 4, 2021 (in millions):
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| | Three Months Ended |
| | April 3, 2022 | | April 4, 2021 |
Derivatives in Cash Flow Hedging Relationships | | Gain (Loss) Recorded in OCI | | Classification of Gain (Loss) Reclassified from AOCI into Income | | Gain (Loss) Reclassified from AOCI into Income | | Gain (Loss) Recorded in OCI | | Classification of Gain (Loss) Reclassified from AOCI into Income | | Gain (Loss) Reclassified from AOCI into Income |
Interest rate contracts | | $ | 9.1 | | | Interest and other non-operating expenses, net | | $ | (0.4) | | | $ | 1.2 | | | Interest and other non-operating expenses, net | | $ | (0.9) | |
The table below details gain (loss) recorded in income and reclassified from AOCI into income for derivatives not designated as hedging instruments for the three months ended April 3, 2022 and April 4, 2021 (in millions):
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| | | | Three Months Ended |
| | | | Gain (Loss) Reclassified from AOCI into Income | | Gain (Loss) Recognized in Income |
Derivatives not designated as hedging instruments | | Location of Gain (Loss) | | April 3, 2022 | | April 4, 2021 | | April 3, 2022 | | April 4, 2021 |
Interest rate contracts | | Interest and other non-operating expenses, net | | $ | (0.7) | | | $ | (0.6) | | | $ | — | | | $ | 0.4 | |
Failure of the swap counterparties to make payments would result in the loss of any potential benefit to the Company under the swap agreements. In this case, the Company would still be obligated to pay the variable interest payments underlying the debt agreements. Additionally, failure of the swap counterparties would not eliminate the Company’s obligation to continue to make payments under the existing swap agreements if it continues to be in a net pay position.
Note 4.5. Property and Equipment, Net
Property and equipment consisted of the following (in millions):
| | | | | | | | | | | | | | |
| | April 3, 2022 | | January 2, 2022 |
Land | | $ | 12.2 | | | $ | 12.2 | |
Buildings and leasehold improvements: | | | | |
Buildings | | 7.8 | | | 7.8 | |
Leasehold improvements | | 39.8 | | | 39.5 | |
Branch equipment | | 85.9 | | | 81.0 | |
Office furniture and fixtures and vehicles: | | | | |
Office furniture and fixtures | | 25.5 | | | 25.5 | |
Vehicles | | 34.0 | | | 33.6 | |
Finance lease right-of-use assets | | 79.4 | | | 77.5 | |
Tooling | | 0.1 | | | 0.1 | |
Construction in progress | | 9.4 | | | 7.3 | |
Total property and equipment, gross | | 294.1 | | | 284.5 | |
Less: accumulated depreciation and amortization | | 142.1 | | | 133.0 | |
Total property and equipment, net | | $ | 152.0 | | | $ | 151.5 | |
|
| | | | | | | | |
| | October 1, 2017 | | January 1, 2017 |
Land | | $ | 14.5 |
| | $ | 14.5 |
|
Buildings and leasehold improvements: | | | | |
Buildings | | 8.6 |
| | 8.6 |
|
Leasehold improvements | | 16.0 |
| | 14.0 |
|
Store equipment | | 24.5 |
| | 17.6 |
|
Office furniture and fixtures and vehicles: | | | | |
Office furniture and fixtures | | 12.9 |
| | 11.1 |
|
Vehicles | | 44.8 |
| | 36.1 |
|
Tooling | | 0.1 |
| | 1.0 |
|
Construction in process | | 4.7 |
| | 3.3 |
|
Total property and equipment, gross | | 126.1 |
| | 106.2 |
|
Accumulated depreciation | | (48.3 | ) | | (36.4 | ) |
Total property and equipment, net | | $ | 77.8 |
| | $ | 69.8 |
|
DepreciationAmortization of finance right-of-use (“ROU”) assets and depreciation expense was approximately $4.7$10.0 million and $12.9$8.5 million for the three and nine months ended October 1, 2017,April 3, 2022 and $3.5April 4, 2021, respectively.
Capitalized software has an estimated useful life of three years. The amounts of total capitalized software costs, including purchased and internally developed software, included in Other assets at April 3, 2022 and January 2, 2022 were $13.1 million and $10.3$12.8 million, less accumulated amortization of $11.5 million and $11.1 million, respectively. Amortization of these software costs was $0.4 million and $0.4 million for the three and nine months ended October 2, 2016,April 3, 2022 and April 4, 2021, respectively.
Note 5.6. Goodwill and Intangible Assets, Net
Goodwill
ChangesThe changes in the carrying amount of goodwill were as follows (in millions):
| | | | | | | | |
| | January 2, 2022 |
| | to April 3, 2022 |
Beginning balance | | $ | 311.1 | |
Goodwill acquired during the period(a) | | 16.0 | |
Goodwill adjusted during the period | | (1.2) | |
Ending balance | | $ | 325.9 | |
|
| | | | |
| | January 2, 2017 |
| | to October 1, 2017 |
Beginning balance | | $ | 70.8 |
|
Goodwill acquired | | 35.1 |
|
Goodwill adjusted | | (0.1 | ) |
Ending balance | | $ | 105.8 |
|
(a) Additions to goodwill during the ninethree months ended October 1, 2017April 3, 2022 related to the acquisitions of Aspen Valley, Stone Forest, AB Supply, Angelo’s, Evergreen, South Coast Supply and Marshall Stone (asacquisition completed in 2022 as described in Note 2)3.
Intangible Assets
Intangible assets include customer relationships as well as trademarks and other intangibles acquired through acquisitions. Intangible assets with finite useful lives are amortized on an accelerated method or a straight-line method over their estimated useful lives. An accelerated amortization method reflecting the pattern in which the asset will be consumed is utilized if that pattern can be reliably determined. If that pattern cannot be reliably determined, a straight-line amortization method is used. The Company considers the period of expected cash flows and underlying data used to measure the fair value of the intangible assets when selecting a useful life.
During the ninethree months ended October 1, 2017,April 3, 2022, the Company recorded $24.0$16.4 million of intangible assets, which related to customer relationships, trademarksincluding $13.9 million in Customer relationship intangibles and trade names,$2.5 million in Trademarks and non-competition agreementsother intangibles. The change in Customer relationship intangibles and Trademarks and other intangibles included additions of $12.8 million and $1.1 million, respectively, as a result of the Aspen Valley, Stone Forest, AB Supply, Angelo’s, Evergreen, South Coast Supply and Marshall Stone acquisitions (asacquisition completed in 2022 as described in Note 2)3. Updates of purchase price allocations related to prior year acquisitions during the allowable measurement period and currency translation adjustments of Customer relationship intangibles and Trademarks and other intangibles were $1.1 million and $1.4 million, respectively. During the three months ended April 4, 2021, the Company recorded $21.7 million of intangible assets, including $19.3 million in Customer relationship intangibles and $2.4 million in Trademarks and other intangibles. The change in Customer relationship intangibles and Trademarks and other intangibles included additions of $19.1 million and $2.4 million, respectively, as a result of the acquisitions completed in 2021 as described in Note 3. Adjustments to purchase price allocations related to prior year acquisitions during the allowable measurement period of Customer relationship intangibles and Trademarks and other intangibles were $0.2 million and zero, respectively.
The Company’s customerCustomer relationship intangible asset lives range from 10 to 21assets will be amortized over a weighted-average period of approximately 20 years. Trademarks, trade namesThe trademarks and other intangible asset lives range from 2 to 10assets recorded will be amortized over a weighted-average period of approximately five years.
The following table summarizes the components of intangible assets (in millions, except weighted average remaining useful life):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | April 3, 2022 | | January 2, 2022 |
| | Weighted Average Remaining Useful Life | | Amount | | Accumulated Amortization | | Net | | Amount | | Accumulated Amortization | | Net |
Customer relationships | | 17.0 years | | $ | 408.7 | | | $ | 207.2 | | | $ | 201.5 | | | $ | 394.8 | | | $ | 197.3 | | | $ | 197.5 | |
Trademarks and other | | 3.7 years | | 36.6 | | | 19.1 | | | 17.5 | | | 34.1 | | | 17.7 | | | 16.4 | |
Total intangibles | | | | $ | 445.3 | | | $ | 226.3 | | | $ | 219.0 | | | $ | 428.9 | | | $ | 215.0 | | | $ | 213.9 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | October 1, 2017 | | January 1, 2017 |
| | Weighted Average Remaining Useful Life (in Years) | | Amount | | Accumulated Amortization | | Net | | Amount | | Accumulated Amortization | | Net |
Customer relationships | | 17.5 | | $ | 170.2 |
| | $ | 64.3 |
| | $ | 105.9 |
| | $ | 147.7 |
| | $ | 47.5 |
| | $ | 100.2 |
|
Trademarks, trade names and other | | 4.6 | | 6.5 |
| | 2.8 |
| | 3.7 |
| | 5.0 |
| | 1.9 |
| | 3.1 |
|
Total intangibles | | | | $ | 176.7 |
| | $ | 67.1 |
| | $ | 109.6 |
| | $ | 152.7 |
| | $ | 49.4 |
| | $ | 103.3 |
|
Amortization expense for intangible assets was approximately $6.0$11.3 million and $17.6$10.5 million for the three and nine months ended October 1, 2017, respectively,April 3, 2022 and $5.9 million and $16.3 million for the three and nine months ended October 2, 2016,April 4, 2021, respectively.
Total future amortization estimated as of October 1, 2017,April 3, 2022 is as follows (in millions):
| | | | | |
Fiscal year ending: | |
2022 (remainder) | $ | 33.3 | |
2023 | 37.2 | |
2024 | 30.1 | |
2025 | 24.4 | |
2026 | 19.5 | |
Thereafter | 74.5 | |
Total future amortization | $ | 219.0 | |
| |
|
| | | |
Fiscal year ending: | |
2017 (remainder) | $ | 5.8 |
|
2018 | 20.5 |
|
2019 | 16.5 |
|
2020 | 13.5 |
|
2021 | 11.1 |
|
Thereafter | 42.2 |
|
Total future amortization | $ | 109.6 |
|
Note 6. Capital7. Leases
Capital
The Company determines if an arrangement is a lease at inception of a contract. The Company leases consistingequipment and real estate including office space, branch locations, and distribution centers under operating leases. Finance lease obligations consist primarily of the Company’s vehicle fleet. Most leases include 1 or more options to renew, with renewal terms that can extend the lease term from one year to five years or more. The exercise of lease renewal options is at the Company’s sole discretion. Certain leases include options to purchase the leased property. ROU assets represent the Company's right to use an underlying asset during the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the commencement date based on the net present value of fixed lease payments over the lease term. As most of the Company's operating leases do not provide an implicit interest rate, the Company uses an incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Finance lease agreements generally include an interest rate that is used to determine the present value of future lease payments. Variable lease payment amounts that cannot be determined at the commencement of the lease such as increases in lease payments based on changes in index rates or usage, are not included in the followingROU assets or lease liabilities and are expensed as incurred and recorded as variable lease expense. Leases with an initial term of 12 months or less are not recorded in the Consolidated Balance Sheets.
The components of lease expense were as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended | | |
Lease Cost | | Classification | | April 3, 2022 | | April 4, 2021 | | | | |
Finance lease cost: | | | | | | | | | | |
Amortization of right-of-use assets | | Selling, general and administrative expenses | | $ | 3.0 | | | $ | 2.6 | | | | | |
Interest on lease liabilities | | Interest and other non-operating expenses, net | | 0.4 | | | 0.4 | | | | | |
Operating lease cost | | Cost of goods sold | | 1.5 | | | 0.7 | | | | | |
Operating lease cost | | Selling, general and administrative expenses | | 18.4 | | | 16.7 | | | | | |
Short-term lease cost | | Selling, general and administrative expenses | | 0.5 | | | 0.5 | | | | | |
Variable lease cost | | Selling, general and administrative expenses | | 0.2 | | | 0.2 | | | | | |
Sublease income | | Selling, general and administrative expenses | | (0.3) | | | (0.3) | | | | | |
Total lease cost | | | | $ | 23.7 | | | $ | 20.8 | | | | | |
Supplemental cash flow information related to leases was as follows (in millions):
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | |
Other Information | | April 3, 2022 | | April 4, 2021 | | | | |
Cash paid for amounts included in the measurements of lease liabilities: | | | | | | | | |
Operating cash flows from finance leases | | $ | 0.4 | | | $ | 0.4 | | | | | |
Operating cash flows from operating leases | | $ | 19.3 | | | $ | 16.9 | | | | | |
Financing cash flows from finance leases | | $ | 2.9 | | | $ | 2.4 | | | | | |
Right-of-use assets obtained in exchange for new lease liabilities: | | | | | | | | |
Finance leases | | $ | 1.9 | | | $ | 2.0 | | | | | |
Operating leases | | $ | 26.0 | | | $ | 12.5 | | | | | |
The aggregate future lease payments for operating and finance leases as of April 3, 2022 were as follows (in millions):
| | | | | | | | | | | | | | |
Maturity of Lease Liabilities | | Operating Leases | | Finance Leases |
Fiscal year: | | | | |
2022 (remainder) | | $ | 52.5 | | | $ | 9.5 | |
2023 | | 69.5 | | | 12.2 | |
2024 | | 58.3 | | | 11.0 | |
2025 | | 46.9 | | | 8.0 | |
2026 | | 35.3 | | | 5.2 | |
2027 | | 25.2 | | | 1.8 | |
Thereafter | | 86.4 | | | 0.2 | |
Total lease payments | | 374.1 | | | 47.9 | |
Less: interest | | 58.8 | | | 3.4 | |
Present value of lease liabilities | | $ | 315.3 | | | $ | 44.5 | |
|
| | | | | | | | |
| | October 1, 2017 | | January 1, 2017 |
Capital lease obligations with rates ranging from 2.0% to 4.0% with monthly payments of approximately $0.5 million maturing through September 2022 | | $ | 12.8 |
| | $ | 11.0 |
|
Less: current maturities | | 5.1 |
| | 4.3 |
|
Total capital leases, less current portion | | $ | 7.7 |
| | $ | 6.7 |
|
Average lease terms and discount rates were as follows: | | | | | | | | |
Lease Term and Discount Rate | | April 3, 2022 |
Weighted-average remaining lease term: | | |
Finance leases | | 4.2 years |
Operating leases | | 6.8 years |
Weighted-average discount rate: | | |
Finance leases | | 3.7 | % |
Operating leases | | 4.7 | % |
Note 7.8. Employee Benefit and Stock Incentive Plans
The Company sponsors a defined contribution benefit plan for substantially all of its employees. Company contributions to the plan are based on a percentage of employee wages. The Company’s contributions to the plan were approximately $1.5 million and $5.0$4.4 million for the three and nine months ended October 1, 2017,April 3, 2022, and $1.3 million and $4.3$3.3 million for the three and nine months ended October 2, 2016, respectively.April 4, 2021.
Prior to the adoption of theThe Company’s Omnibus Equity Incentive Plan (the “Omnibus Incentive“2016 Plan”), as described below, the Company offered to key employees the ability to purchase common shares of the Company under a Stock Incentive Plan, which commenced in May 2014 as approved by stockholders. Common stock options (“options”) were granted with the purchased shares at a predetermined number of options per purchased share. Prior to the public offering these shares were not transferrable except upon the employee’s death, repurchase at the option of the Company or with the Company’s consent. The Stock Incentive Plan provided for drag-along and tag-along rights if the stockholders sold more than 50.01% of their shares prior to a public offering. As of the date of IPO, 762,079 shares were purchased by employees and were outstanding under the Stock Incentive Plan; in addition, 20,911 shares were repurchased from certain terminated employees by the Company. The Company’s policy was to retain these repurchased shares as treasury shares and not to retire them.
The Company adopted the Omnibus Incentive Planbecame effective on April 28, 2016, in connection withprovided for the IPO. Upon adoptiongrant of the Omnibus Incentive Plan, the Stock Incentive Plan terminated and no additional awards were made thereunder. However, awards previously granted under the Stock Incentive Plan were unaffected by the termination of the Stock Incentive Plan. Awards under the Omnibus Incentive Plan may be made in the form of stock options whichthat may be either incentive stock options or non-qualified stock options; stock purchase rights; restricted stock; restricted stock units (“RSUs”); performance shares; performance units;stock units (“PSUs”); stock appreciation rights (“SARs”); dividend equivalents; deferred stock units (“DSUs”); andor other stock-based awards. The Company also has outstanding stock-based awards under its stock incentive plan (“Stock Incentive Plan”), which commenced in May 2014 and terminated upon adoption of the 2016 Plan. However, awards previously granted under the Stock Incentive Plan were unaffected by the termination of the Stock Incentive Plan.
At the 2020 Annual Meeting of Stockholders of the Company on May 13, 2020 (the “Effective Date”), the Company’s stockholders approved the Company’s 2020 Omnibus Equity Incentive Plan (the “2020 Plan”), which replaced the 2016 Plan. The 2020 Plan reserves 2,155,280 shares of the Company’s common stock for issuance under the 2020 Plan, consisting of 1,600,000 new shares plus 555,280 shares that were previously authorized for issuance under the 2016 Plan and that, as of the Effective Date, were not subject to outstanding awards. No further grants of awards will be made under the 2016 Plan; however, outstanding awards granted under the 2016 Plan will remain outstanding and will continue to be administered in accordance with the terms of the 2016 Plan and the applicable award agreements. Any shares covered by an award, or any portion thereof, granted under the Omnibus Incentive2020 Plan, 2016 Plan, or Stock Incentive Plan that terminates, is forfeited, is repurchased, expires, or lapses for any reason will again be available for the grant of awards. Additionally, any shares tendered or withheld to satisfy the grant or exercise price or tax withholding obligations pursuant to any award under the Omnibus2020 Plan, 2016 Plan, or Stock Incentive Plan will again be available for issuance. The aggregate number of shares that may be issued under the 2020 Plan is 2,155,280 shares of which 1,897,382 remain available as of April 3, 2022.
During the nine months ended October 1, 2017, the Company granted 390,998 options, 18,880 DSUs and 46,898 RSUs; in addition, 51,285The stock options and 377 RSUs were forfeited, and 13,731 DSUs and 3,084 RSUs were settled in common stock. The RSUs and options granted to employees vest over a four-year period at 25 percent25% per year. The DSUs granted to non-employee directors vest immediately. Optionsimmediately but settlement is deferred until termination of the director’s service on the board or until a change of control of the Company. Stock options and RSUs expire ten years after the date of grant. The compensation cost for options and RSUs is recognizedPSUs granted to employees vest upon the achievement of the performance conditions, over a three-year period, measured by the growth of the Company’s pre-tax income plus amortization relative to a select peer group, subject to adjustment based upon the application of a return on a straight-line basis over the requisite vesting period. The weighted-average grant-date fair value of options granted was $13.46 per option and 172,896 options have been exercised during the nine months ended October 1, 2017.invested capital modifier.
The fair value of each stock option award wasis estimated on the date of grant using the Black-Scholes options pricing model. The DSUs, RSUs, and RSUsPSUs have grant date fair values equal to the fair market value of the underlying stock on the date of grant. Share-based compensation expense is recognized in the financial statements based upon fair value on the date of grant. The compensation cost for stock options and RSUs is recognized on a straight-line basis over the requisite vesting period. The Company recognized share-basedrecognizes compensation expense for PSUs when it is probable that the performance conditions will be achieved. The Company reassesses the probability of approximately $1.5 millionvesting at each reporting period and $4.5 million foradjusts its compensation cost accordingly.
A summary of stock-based compensation activities during the three and nine months ended October 1, 2017, and $1.1 million and $4.1 million forApril 3, 2022 was as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Stock Options | | RSUs | | DSUs | | PSUs |
Outstanding as of January 2, 2022 | 1,193.3 | | | 186.6 | | | 45.5 | | | 60.5 | |
Granted | 65.8 | | | 72.5 | | | 0.1 | | | 20.6 | |
Exercised/Vested/Settled | (95.5) | | | (60.4) | | | — | | | — | |
Expired or forfeited | (2.6) | | | (2.5) | | | — | | | (0.2) | |
Outstanding as of April 3, 2022 | 1,161.0 | | | 196.2 | | | 45.6 | | | 80.9 | |
The weighted average grant date fair value of awards granted during the three and nine months ended October 2, 2016, respectively. TotalApril 3, 2022 was as follows:
| | | | | |
| Weighted Average Grant Date Fair Value |
Stock options | $ | 57.47 | |
RSUs | $ | 179.71 | |
DSUs | $ | 161.69 | |
PSUs | $ | 179.40 | |
A summary of stock-based compensation expenses recognized during the periods was as follows (in millions):
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| April 3, 2022 | | April 4, 2021 | | | | |
Stock options | $ | 0.9 | | | $ | 1.1 | | | | | |
RSUs | 2.1 | | | 1.5 | | | | | |
DSUs | 0.1 | | | 0.1 | | | | | |
PSUs | 0.6 | | | 0.4 | | | | | |
Total stock-based compensation | $ | 3.7 | | | $ | 3.1 | | | | | |
A summary of unrecognized stock-based compensation cost from share-based compensation arrangementsexpense as of October 1, 2017April 3, 2022 was approximately $12.5 million. Share-based compensation expense is expected to be recognized over a weighted–average periodas follows:
| | | | | | | | | | | |
| Unrecognized Compensation (in millions) | | Weighted Average Remaining Period |
Stock options | $ | 8.3 | | | 2.9 years |
RSUs | $ | 27.0 | | | 3.2 years |
DSUs | $ | 0.1 | | | 0.8 years |
PSUs | $ | 5.7 | | | 2.3 years |
Note 8.9. Long-Term Debt
Long-term debt was as follows (in millions):
| | | | | | | | | | | | | | |
| | April 3, 2022 | | January 2, 2022 |
ABL facility | | $ | 162.7 | | | $ | — | |
Term loans | | 254.8 | | | 255.4 | |
Hybrid debt instruments | | 4.4 | | | 4.8 | |
Total gross long-term debt | | 421.9 | | | 260.2 | |
Less: unamortized debt issuance costs and discounts on debt | | (4.7) | | | (5.0) | |
Total debt | | $ | 417.2 | | | $ | 255.2 | |
Less: current portion | | (4.0) | | | (4.0) | |
Total long-term debt | | $ | 413.2 | | | $ | 251.2 | |
|
| | | | | | | | |
| | October 1, 2017 | | January 1, 2017 |
ABL facility | | $ | 193.7 |
| | $ | 91.0 |
|
Term loan facility | | 298.0 |
| | 297.9 |
|
Unamortized debt issuance costs and discounts on debt | | (12.2 | ) | | (13.4 | ) |
Total debt | | $ | 479.5 |
| | $ | 375.5 |
|
Less: current portion | | 3.0 |
| | 3.0 |
|
Total long-term debt | | $ | 476.5 |
| | $ | 372.5 |
|
ABL Facility
SiteOne Landscape Supply Holding, LLC (“Landscape Holding”) and SiteOne Landscape Supply, LLC (“Landscape,”Landscape” and together with Landscape Holding, the “Borrowers”), each an indirect wholly-owned subsidiary of the Company, entered into an amendedare parties to the credit agreement during 2015 (such agreement, asdated December 23, 2013 (as amended by the First Amendment to the Credit Agreement, dated June 13, 2014, the Second Amendment to the Credit Agreement, dated January 26, 2015, the Third Amendment to the Credit Agreement, dated February 13, 2015, and the Fourth Amendment to the Credit Agreement, dated October 20, 2015, the Omnibus Amendment to the Credit Agreement, dated May 24, 2017, and the Sixth Amendment to the Credit Agreement, dated February 1, 2019, the “ABL Credit Agreement”) providing for an asset-based credit facility (the “ABL Facility”) of up to $325.0$375.0 million, subject to borrowing base availability. The final maturity date of the ABL Facility is October 20, 2020. The ABL Facility is secured by a first lien on the inventory and receivables of the Borrowers. The ABL Facility is guaranteed by SiteOne Landscape Supply Bidco, Inc. (“Bidco”), an indirect wholly-owned subsidiary of the Company, and each direct and indirect wholly-owned U.S. restricted subsidiary of Landscape. The availability under the ABL Facility was $126.9$198.4 million and $164.5$364.1 million as of October 1, 2017April 3, 2022 and January 1, 2017,2, 2022, respectively. Availability is determined using borrowing base calculations of eligible inventory and receivable balances less the current outstanding ABL Facility and letters of credit balances.
On May 24, 2017,February 1, 2019, the Company entered into the OmnibusSixth Amendment (the “Omnibus Amendment”) which amends,to Credit Agreement, to among other things, (i) extend the termination date to February 1, 2024, (ii) increase the aggregate principal amount of the commitments under the ABL Credit Agreement in order to among other things, update$375.0 million pursuant to an increase via use of the existing “incremental” commitment increase provisions of the ABL Credit Agreement, and (iii) amend certain provisions relating to secured cash managementterms of the ABL Credit Agreement and hedging obligations.Guarantee and Collateral Agreement.
The interest rate on the ABL Facility is LIBOR plus an applicable margin ranging from 1.25% to 2.00%1.75% or an alternate base rate for U.S. denominated borrowings plus an applicable margin ranging from 0.25% to 1.00%0.75%. The interest ratesrate on outstanding balances range from 2.99% to 5.00% and 2.49% to 4.50%under the ABL Facility was 3.75% as of October 1, 2017 andApril 3, 2022. There were no outstanding balances under the ABL Facility as of January 1, 2017, respectively.2, 2022. Additionally, the Borrowers paid a commitment fee of 0.250% and 0.375%0.25% on the unfunded amount as of October 1, 2017April 3, 2022 and January 1, 2017, respectively.2, 2022.
The ABL Facility is subject to mandatory prepayments if the outstanding loans and letters of credit exceed either the aggregate revolving commitments or the current borrowing base, in an amount equal to such excess. Additionally, the ABL Facility is subject to various covenants, requiringincluding incurrence covenants that require the Company to meet minimum financial ratios, and additional borrowings and other corporate transactions may be limited by failure to meet these financial ratios. Failure to meet any of these covenants could result in an event of default under these agreements. If an event of default occurs, the lenders could elect to declare all amounts outstanding under these agreements to be immediately due and payable, enforce their interest in collateral pledged under the agreement, or restrict the Borrowers’ ability to obtain additional borrowings under these agreements. The ABL Facility is secured by a first lien security interest over inventory and receivables and a second lien security interest over all other assets pledged as collateral.
The ABL Facility contains customary representations and warranties and customary affirmative and negative covenants. The negative covenants consist of the following: financial condition, fundamental changes, dividends and distributions, acquisitions, dispositions of collateral, payments and modifications of restricted indebtedness, negative pledge clauses, changes in line of business, currency, commodity and other hedging transactions, transactions with affiliates, investments, limitations on indebtedness, and liens. The negative covenants are subject to the customary exceptions and also permit the payment of dividends and distributions, investments, permitted acquisitions and payments or redemptions of junior indebtedness upon satisfaction of a payment condition. As of October 1, 2017,April 3, 2022, the Company iswas in compliance with theseall of the ABL Facility covenants.
Term Loan FacilityLoans
The Borrowers entered into the Term Loan Facilitya syndicated senior term loan facility dated April 29, 2016, in the amount of $275.0 million, which was amended on November 23, 2016, and on May 24, 2017, (seeDecember 12, 2017, and August 14, 2018. On March 23, 2021, the Borrowers entered into the Fifth Amendment to the Amended and Restated Credit Agreement (the “Fifth Amendment”), in order to, among other things, incur $325.0 million of term loans (the “New Term Loan Facility Amendments below).Loans”) which were used in part to prepay all of the existing Tranche E Term Loans. The New Term Loan Facility isLoans are guaranteed by Bidco and each direct and indirect wholly-owned U.S. restricted subsidiary of Landscape. The PriorNew Term Loan Facility hasLoans are secured by a second lien security interest over inventory and receivables and a first lien security interest over all other assets pledged as collateral. The New Term Loans will mature on Property andMarch 23, 2028.
equipment, Intangibles, and equity interests of Landscape, and a second lien on ABL Facility assets. The final maturity dateAmendments of the Term Loan Facility is April 29, 2022.Loans
Refinancing
On April 29, 2016,The Company through its subsidiaries entered into the Company refinanced its then-existing term loan facility withFifth Amendment, dated as of March 23, 2021, by and among the Term Loan Facility.Borrowers, JPMorgan Chase Bank, N.A. (the “New Agent”), as administrative agent and collateral agent, the several banks and other financial institutions party thereto and certain other parties party thereto from time to time. The proceeds underFifth Amendment amends and restates the Term Loan Facility were used to repay all $60.3 million of borrowings outstanding under the Prior Term Loan Facility, repay $29.9 million of borrowings outstanding under the ABL Facility, pay a special cash dividend of $176.0 million to existing holders of the Company’s common stockAmended and Redeemable Convertible Preferred Stock (on an as-converted basis)Restated Credit Agreement, dated as of April 29, 2016, among the Borrowers, the lenders from time to time party thereto and pay feesUBS AG, Stamford Branch (the “Existing Agent”) as administrative agent and expenses associated withcollateral agent (as amended prior to March 23, 2021, the refinancing transaction.
Term Loan Facility Amendments
On November 23, 2016,“Existing Credit Agreement” and, as so amended and restated pursuant to the Company amendedFifth Amendment, the Term Loan Facility (the “First Amendment”“Second Amended and Restated Credit Agreement”) in order to, among other things, (i) add an additional credit facility under the Term Loan Facility consistingincur $325.0 million of additional term loans, (the “Tranche B Term Loans”)(ii) replace the Existing Agent as administrative and collateral agent with the New Agent, and (iii) make such other changes in an aggregate principal amount of $273.6 millionthe Second Amended and (ii) increaseRestated Credit Agreement as agreed among the aggregate principal amount of Tranche B Term Loans underBorrowers and the Term Loan Facility to $298.6 million pursuant to an increase supplement.lenders. Proceeds of the Tranche BNew Term Loans were used, to, among other things, (i) to repay in full the term loansTranche E Term Loans outstanding under the Term Loan FacilityExisting Credit Agreement immediately prior to effectiveness of the FirstFifth Amendment, and(ii) to pay fees and expenses associated withrelated to the transactionFifth Amendment and (ii) repay $21.0 million of borrowings outstanding under the ABL Facility.
On May 24, 2017, the Company amended the Term Loan Facility (the “Second Amendment”) to, among other things, add an additional credit facility under the Term Loan Facility consisting of additional term loans (the “Tranche C Term Loans”) in an aggregate principal amount of $299.5 million. Proceeds of the Tranche C Term Loans were used to, among other things, repay in full the Tranche B Term Loans outstanding under the Term Loan Facility immediately prior to effectiveness of the Second AmendmentAmended and pay feesRestated Credit Agreement, and expenses associated with the transaction.
(iii) for working capital and other general corporate purposes.
The Tranche CNew Term Loans bear interest, at Landscape Holding’s option, at either (i) an adjusted LIBOR (minimum of 1.0%)rate plus an applicable margin ranging from 3.25%equal to 3.50%2.00% (with a LIBOR floor of 0.50%) or (ii) an alternative base rate plus an applicable margin ranging from 2.25%equal to 2.50%1.00%. Tranche C Term Loans will mature on April 29, 2022. The other termsVoluntary prepayments of the Tranche CNew Term Loans are generallypermitted at any time, in minimum principal amounts, without premium or penalty, subject to a 1.00% premium payable in connection with certain repricing transactions within the same asfirst twelve months after the terms applicable todate of the Tranche Binitial funding of the New Term Loans. The interest rate on the outstanding balance of the New Terms Loans was 4.74%2.50% at October 1, 2017.April 3, 2022.
The Term Loan FacilitySecond Amended and Restated Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants. The negative covenants consist ofare limited to the following: limitations on indebtedness, restricted payments, restrictive agreements, sales of assets and subsidiary stock, transactions with affiliates, liens, fundamental changes, amendments, and lines of business. The negative covenants are subject to exceptions customary for transactions of the customary exceptions. As of October 1, 2017, the Company is in compliance with these covenants.type.
The New Term Loan Facility is alsoLoans are payable in consecutive quarterly installments equal to 0.25% of the aggregate initial principal amount of the New Term Loans until the maturity date. In addition, the New Term Loans are subject to annual mandatory prepayments in an amount equal to 50% of excess cash flow, as defined in the Second Amended and Restated Credit Agreement for the applicable fiscal year if 50% of excess cash flow exceeds $15.0 million and the secured leverage ratio is equal to or greater than 3.00 to 1.00. There are also mandatory prepayments with the proceeds of certain asset sales and from the issuance of debt not permitted to be incurred under the Second Amended and Restated Credit Agreement. As of April 3, 2022, the Company was in compliance with all of the Second Amended and Restated Credit Agreement covenants.
During the three and nine months ended October 1, 2017,April 3, 2022, the Company incurred total interest expense of $6.2 million and $19.0 million, respectively.$4.3 million. Of this total, $5.4 million and $16.4these totals, $3.6 million related to interest on the ABL Facility and the Term Loan Facilityterm loans. The debt issuance costs and discounts are amortized as interest expense over the life of the debt. Amortization expense related to debt issuance costs and discounts was $0.3 million for the three and nine months ended October 1, 2017, respectively.April 3, 2022. The remaining $0.4 million of interest expense is primarily related to interest attributable to finance leases for the three months ended April 3, 2022.
During the three months ended April 4, 2021, the Company incurred total interest expense of $5.5 million. Of this total, $3.9 million related to interest on the ABL Facility and the term loans. The debt issuance costs and discounts are amortized as interest expense over the life of the debt. As a result of the amendments of the Term Loan Facility,Fifth Amendment, unamortized debt issuance costs and discounts in the amount of $0.0 million and $0.1$0.8 million were written off to expense for the three and nine months October 1, 2017, respectively, and new debt fees and issuance costs of $0.0 million and $1.0$2.4 million were capitalized forduring the three months ended April 4, 2021, in accordance with ASC 470-50, “Debt Modifications and nine months October 1, 2017, respectively.Extinguishments”. No gain or loss was recorded as it related to all participating lenders. Amortization expense related to debt issuance costs and discounts were $0.7 million and $2.2was $0.4 million for the three and nine months ended October 1, 2017, respectively.April 4, 2021. The remaining $0.1$0.4 million and $0.3 millionof interest incurred for three and nine months ended October 1, 2017, respectively,expense primarily related to interest attributable to capital leases.
During the three and nine months ended October 2, 2016 the Company incurred total interest expense of $6.3 million and $15.4 million, respectively. Of this total, $5.6 million and $12.2 million related to interest on the ABL Facility and Term Loan Facilityfinance leases for the three and nine months endedOctober 2, 2016, respectively. The debt issuance costs and discounts are amortized as interest expense over the life April 4, 2021.
Hybrid Debt Instruments
As a result of the refinancingdetermination that the Interest rate swap arrangements executed on March 23, 2021 are hybrid debt instruments containing embedded at-market swap derivatives, the Company reclassified $5.9 million from Accrued liabilities and Other long-term liabilities to long-term debt with $1.5 million classified as Long-term debt, current portion and $4.4 million classified as Long-term debt, less current portion on its Consolidated Balance Sheets during the first quarter of 2021. As of April 3, 2022, approximately $1.5 million was classified as Long-term debt, current portion and approximately $2.9 million was classified as Long-term debt, less current portion on the Term Loan Facility, unamortizedCompany’s Consolidated Balance Sheets. Refer to “Note 4. Fair Value Measurement and Interest Rate Swaps” for additional information regarding interest rate swaps and hybrid debt issuance costs and discounts in the amount of $0.0 million and $1.2 million, were written off to expense for the three and nine months October 2, 2016, respectively, and new discounts and debt issuance costs of $0.0 million and $6.3 million, were capitalized for the three and nine months October 2, 2016, respectively. Amortization expense related to debt issuance costs and discounts were $0.6 million and $3.0 million for the three and nineinstruments.
months ended October 2, 2016, respectively. The remaining $0.1 million and $0.2 million interest incurred for the three and nine months ended October 2, 2016, respectively, related to interest attributable to capital leases.
Note 9.10. Income Taxes
The Company’s effective tax rate was approximately 36.8%12.5% for the ninethree months ended October 1, 2017April 3, 2022 and 41.2%approximately (51.0)% for the ninethree months ended October 2, 2016, respectively.April 4, 2021. The decreaseincrease in the effective rate was due primarily to (i) the adoption of ASU 2016-09an increase in Income before taxes, partially offset by an increase in the first quarter of 2017, which resulted in the recognitionamount of excess tax benefits from stock-based compensation recognized as a component of Income tax expense in the Company’s Consolidated Statements of Operations, and (ii) a reduction in nondeductible transaction costs incurred duringOperations. The Company recognized excess tax benefits of $5.0 million for the ninethree months ended October 1, 2017 as compared toApril 3, 2022, and $3.7 million for the ninethree months ended October 2, 2016.April 4, 2021. The Company’s effective tax rate differs from its statutory rate based on a variety of factors, including overall profitability, the geographical mix of income taxes, and the related tax rates in the jurisdictions in which it operates.
In accordance with the provisions of ASC Topic 740 Income Taxes, the
The Company provides a valuation allowance against deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The assessment considers all available positive and negative evidence and is measured quarterly. The Company maintains a valuation allowance against certain state deferred tax assets where sufficient negative evidence exists to require a valuation allowance. During the ninethree months ended October 1, 2017April 3, 2022 and October 2, 2016, respectively,April 4, 2021, the Company recorded no material increases or decreases to the valuation allowance against deferred tax assets.
Note 10. Related Party Transactions
In December 2013, CD&R Landscapes Holdings, L.P. (the “CD&R Investor”), an affiliate of Clayton Dubilier & Rice, LLC (“CD&R”), acquired a majority stake in the Company (the “CD&R Acquisition”). Prior to the CD&R Acquisition, Deere & Company (“Deere”) was the sole owner of the Company. Following consummation of the secondary offering on July 26, 2017 (as described in Note 1), CD&R and Deere no longer have an ownership interest in the Company. Transactions with customers and entities that were under the common ownership of CD&R and Deere through July 26, 2017 are considered related-party transactions and are discussed below.
In connection with the CD&R Acquisition, the Company entered into consulting agreements (the “Consulting Agreements”) with each of CD&R and Deere. CD&R and Deere each provided consulting services under the Consulting Agreements at an annual fee of $1.3 million plus expense reimbursement and $0.7 million plus expense reimbursement, respectively, for a 10-year term or earlier termination if CD&R’s or Deere’s ownership, respectively, of the Company was reduced below 10%. On May 17, 2016, the Company entered into termination agreements with CD&R and Deere pursuant to which the Company paid CD&R and Deere an aggregate fee of approximately $7.5 million to terminate the Consulting Agreements in connection with the IPO. See “Note 12. Redeemable Convertible Preferred Stock” for a discussion of dividends paid to the CD&R investor.
The Company offers a financing plan to its customers through John Deere Financial, a wholly-owned subsidiary of Deere. The Company paid John Deere Financial fees related to the financing offered of approximately $0.3 million from January 2, 2017 through July 26, 2017 and $0.4 million for the nine months ended October 2, 2016, respectively.
TruGreen is a customer under common ownership of CD&R and therefore became a related party at the time of the CD&R Acquisition. As provided above, TurGreen is no longer a related party as a result of the consummation of the secondary offering on July 26, 2017. Net sales included in the Company’s Consolidated Statement of Operations with TruGreen were $0.4 million from July 3, 2017 through July 26, 2017 and $4.3 million from January 2, 2017 through July 26, 2017, and $1.1 million and $3.2 million for the three and nine months ended October 2, 2016, respectively. Accounts receivable included in the Company’s consolidated balance sheets were $0.4 million at January 1, 2017.
Note 11. Commitments and Contingencies
Environmental liability: As part of the sale by LESCO, Inc. of its manufacturing assets in 2005, the Company retained the environmental liability associated with those assets. Remediation activities can vary substantially in duration and cost and it is difficult to develop precise estimates of future site remediation costs. The Company estimatedrecorded in accruedOther long-term liabilities the undiscounted cost estimate of future remediation efforts to be approximately $4.0of $3.9 million and $4.0$3.9 million as of October 1, 2017April 3, 2022 and January 1, 2017,2, 2022, respectively. As part of the CD&R Acquisition, Deere & Company agreed to pay the first $2.5 million of the liability and cap the Company’s exposure tois capped at $2.4 million. The Company has recorded an indemnification asset in Other Assets against the liability as a result of these actions of approximately $1.6$1.5 million and $1.6$1.5 million as of October 1, 2017April 3, 2022 and January 1, 2017,2, 2022, respectively.
Letters of credit: As of October 1, 2017April 3, 2022 and January 1, 2017,2, 2022, outstanding letters of credit were $4.5$13.9 million and $2.9$10.9 million, respectively. There were no0 amounts drawn on the letters of credit for either period presented.
Note 12. Redeemable Convertible Preferred Stock
The CD&R Equity Investment
In connection with the CD&R Acquisition, the Company issued Redeemable Convertible Preferred Stock to the CD&R Investor. On the day prior to the closing of the IPO, all of the then-outstanding Redeemable Convertible Preferred Stock converted into shares of common stock, resulting in the issuance by the Company of an additional 25,303,164 shares of common stock.
The initial issuance of Redeemable Convertible Preferred Stock did not include a beneficial conversion feature (“BCF”) because the conversion price used to set the conversion ratio at the time of issuance was greater than the initial common stock price. The Redeemable Convertible Preferred Stock was entitled to a 12% fixed, cumulative dividend payable quarterly in cash or in-kind. Dividends, to the extent paid-in-kind in the form of Redeemable Convertible Preferred Stock, contained the same conversion price as the original issuance and in certain cases did include a BCF as of the dividend payment date. Since the Redeemable Convertible Preferred Stock did not have a fixed or determinable redemption date and was freely convertible at any time, the Company immediately amortized any BCF recognized through retained earnings. As disclosed in Note 1, on May 2, 2016, the Company paid a one-time special cash dividend to all existing stockholders as of April 29, 2016. CD&R Investor received $112.4 million in accordance with its right to participate in all distributions to common stock on an as-converted basis, as provided by its right as a preferred stockholder. The Redeemable Convertible Preferred Stock converted to common stock in accordance with its terms on May 16, 2016. During the nine months ended October 2, 2016, the Company paid the cumulative dividends in cash; and accordingly, no BCF was recognized.
Note 13. Earnings (Loss) Per Share
BasicThe Company computes basic earnings (loss) per common share is computed(“EPS”) by dividing netNet income (loss) attributable to common shares by the weighted average number of common shares outstanding for the period. The Redeemable Convertible Preferred Stock had the right to participate in all distributions declared and paid on the Company’s common stock on an as-converted basis, and was therefore considered a participating security. The Company calculatesincludes vested DSUs and PSUs that have not been settled in common shares in the basic earnings (loss) per share using the “two-class” method, and for the period ended October 2, 2016 did not allocate the loss available toweighted average number of common stockholders to the Redeemable Convertible Preferred Stock as those holders did not have a contractual obligation to share in net losses. In periods with income available to common stockholders, the Company would reduce income available to common stockholders to reflect the hypothetical distribution of undistributed earnings to the Redeemable Convertible Preferred Stock in accordance with its contractual rights. The Company reduced income available to common stockholders and increased loss available to common stockholders to reflect the cumulative dividend on the Company’s Redeemable Convertible Preferred Stock whether or not declared or paid during the period. See Note 12 for a detailed description of the terms of the Redeemable Convertible Preferred Stock.
shares calculation. The Company’s computation of diluted EPS reflects the potential dilution that could occur if dilutive securities or other obligations to issue common stock were exercised or converted into common stock, which include in-the-money outstanding stock options and RSUs. PSUs are excluded from the calculation of dilutive potential common shares until the performance conditions have been achieved on the basis of the assumption that the end of the reporting period was the end of the contingency period, if such shares issuable are dilutive. Using the treasury stock method, the effect of dilutive securities includes the additional shares of common stock that would have been outstanding based on the assumption that these potentially dilutive securities had been issued. The calculation of the effect of dilutive securities excludes any derived excess tax benefits or deficiencies from assumed future proceeds. RSUs and stock options with exercise prices that are higher than the average market prices of the Company’s common stock for the periods presented are excluded from the diluted EPS calculation because the effect is anti-dilutive.
The following table sets forth the computation of the weighted average number of diluted common shares outstanding for the three months ended April 3, 2022 and April 4, 2021:
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | |
| | April 3, 2022 | | April 4, 2021 | | | | |
Shares used in the computation of basic earnings per share | | 44,935,765 | | | 44,381,174 | | | | | |
Effect of dilutive securities: | | | | | | | | |
Stock options | | 811,922 | | | 1,180,762 | | | | | |
RSUs and PSUs | | 96,833 | | | 84,596 | | | | | |
DSUs | | 6,082 | | | 8,639 | | | | | |
Shares used in the computation of diluted earnings per share | | 45,850,602 | | | 45,655,171 | | | | | |
The diluted earnings (loss) per common share includescalculation for the three months ended April 3, 2022 and April 4, 2021 excluded the effect of 151,642 and 81,766 potential shares of common stock, if dilutive. For the three and nine months ended October 1, 2017 and October 2, 2016,respectively, because the assumed exercises of a portion of the Company’s employee stock options and RSUs DSUs and the assumed conversion of all of the Redeemable Convertible Preferred Stock were anti-dilutive and, therefore, the following potential shares of common stock were not included in the diluted earnings (loss) per common share calculation:anti-dilutive.
|
| | | | | | | | | | | | |
| | For the three months ended | | For the nine months ended |
| | October 1, 2017 | | October 2, 2016 | | October 1, 2017 | | October 2, 2016 |
Weighted average potential common shares excluded because anti-dilutive | | | | | | | | |
Redeemable Convertible Preferred stock | | — |
| | — |
| | — |
| | 12,270,493 |
|
Employee stock options, RSUs and DSUs | | 18,548 |
| | 11,988 |
| | 6,632 |
| | 3,137,951 |
|
Certain of the Company’s employee stock options, RSUs and DSUs were dilutive and resulted in additional potential common shares included in the Company’s calculation of diluted earnings per common share of 1,593,523 and 1,533,647 for the three and nine months ended October 1, 2017, respectively, and 1,445,141 and 0 for the three and nine months ended October 2, 2016, respectively.
Note 14.13. Subsequent Events
On October 17, 2017,April 22, 2022, the Company acquired the assets and assumed the liabilities of Harmony Gardens,RTSB Enterprises, Inc., doing business as Bellstone Masonry Supply (“Harmony Gardens”Bellstone”). With two locations1 location in the metro Denver and Fort Collins, Colorado areas, Harmony GardensWorth, Texas, Bellstone is a leading wholesale nursery distributor of hardscapes and landscape supplies to landscape professionals.
On April 28, 2022, the Company acquired the assets and assumed the liabilities of Preferred Seed Company, Inc. (“Preferred Seed”). With 1 location in the state. The acquisitionBuffalo, New York, Preferred Seed is a wholesale distributor of Harmony Gardens is not materialseed and not expectedagronomic products to have a significant impact on the Company’s consolidated financial statements.landscape professionals.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following information should be read in conjunction with the unaudited consolidated financial statements and related notes included in this report.Quarterly Report on Form 10-Q. The following discussion may contain forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those factors discussed below and elsewhere in this report, particularly in “Forward-Looking Statements”“Special Note Regarding Forward-Looking Statements and Information” and the section entitled “Risk Factors” included herein and in the Annual Report on Form 10-K for the fiscal year ended January 1, 2017.2, 2022.
Overview
SiteOne Landscape Supply, Inc. (collectively with all of its subsidiaries referred to in this Quarterly Report on Form 10-Q as “SiteOne,” the “Company,” “we,” “us”“us,” and “our”) indirectly owns 100% of the membership interest in SiteOne Landscape Supply Holding, LLC (“Landscape Holding”). Landscape Holding is the parent and sole owner of SiteOne Landscape Supply, LLC (“Landscape”).
We are the largest and only national wholesale distributor of landscape supplies in the United States and have a growing presence in Canada. Our customers are primarily residential and commercial landscape professionals who specialize in the design, installation, and maintenance of lawns, gardens, golf courses, and other outdoor spaces. WeAs of April 3, 2022, we had over 600 branch locations in 45 U.S. states and six Canadian provinces. Through our expansive North American network, we offer a comprehensive selection of more than 135,000 SKUs, including irrigation supplies, fertilizer and control products (e.g.(e.g., herbicides), irrigation supplies, landscape accessories, nursery goods, hardscapes (including pavers, natural stone, and blocks), landscape accessories, nursery goods, outdoor lighting, and outdoor lighting.ice melt products to green industry professionals. We also provide value-added consultative services to complement our product offeringofferings and to help our customers operate and grow their businesses.
Initial Public OfferingBusiness Environment and Trends
On May 17, 2016,
Although our operations are focused in the United States and Canada with no locations in or direct exposure to Russia and Ukraine, we completedare monitoring the IPO at a pricegeopolitical situation following Russia’s invasion of Ukraine. We may experience shortages in materials and increased costs for transportation, energy, and raw material due in part to the publicnegative impact of $21.00 per share. In connectionthe Russia-Ukraine military conflict on the global economy. To date, the conflict between Russia and Ukraine has not had a material negative impact on our business, financial condition, or result of operations. However, the full impact of the conflict on our business operations and financial performance remains uncertain and will depend largely on the nature and duration of uncertain and unpredictable events, such as the severity and duration of further military action and its impact on regional and global economic conditions. See Part II, Item 1A. - “Risk Factors” below.
Despite rapid product cost inflation, certain supply shortages, ongoing freight and labor constraints, and overall economic uncertainty, we continue to experience a high demand for our products due primarily to the stay-at-home trends associated with the IPO,remote work environment and COVID-19. As consumers spend more time at home, they are upgrading their backyards and patios and investing in their outdoor living spaces. Homeowners are spending more on maintaining their yards, which has increased demand for agronomic products. The stay-at-home trend has also driven strong growth in the CD&R Investornew construction end market, which has resulted in increased demand for landscaping products. We achieved Net sales growth of 24% and Deere together sold an aggregateOrganic Daily Sales growth was 17% for the three months ended April 3, 2022.
During the three months ended April 3, 2022, significant price increases continued to impact the products we purchase and sell to our customers. To date, we have successfully mitigated the effects of 10,000,000 shares of common stock. The underwriters also exercised their optionproduct cost inflation by working with our suppliers and customers to purchase an additional 1,500,000 shares of common stock frompass through the CD&R Investorcost increases that have occurred in the market. As a result, price inflation contributed approximately 20% to our Organic Daily Sales growth in the three months ended April 3, 2022. Due to ongoing product constraints, rising manufacturer input costs, and Deere, at the public offering price less the underwriting discounts and commissions. The CD&R Investor and Deere received allcontinued solid demand, we expect inflation to remain elevated for most of the net proceeds2022 Fiscal Year.
We continued to experience negative impacts from broad-based supply chain disruptions during the three months ended April 3, 2022. To date, such impacts have been minimized mainly through our ongoing supply chain initiatives, as discussed further below in “Strategic Initiatives”. We have benefited from strategic inventory purchases resulting in increased safety stock which has allowed us to largely satisfy customer demand when products are not immediately available from our suppliers. In addition, rising fuel costs are further challenging the economic environment within our industry. To date, we have executed on our freight and bore all commissionslogistical initiatives which have allowed us to better manage disruptions and discounts frommitigate challenges in the saleshipping and trucking markets. These actions and the effective management of price inflation described above helped drive gross margin expansion of 240 basis points to 33.4% during the three months ended April 3, 2022.
As of the start of the 2022 Fiscal Year, we are operational in four distribution center facilities across the United States that have expanded our supply chain capabilities. These distribution centers are located in Hutchins, Texas (338,000 square feet), Palmetto, Georgia (335,000 square feet), Carlisle, Pennsylvania (201,000 square feet), and Colton, California (179,000 square feet). While we expect supply chain disruptions to continue, we believe we can significantly minimize the impact on our customers and our business operations through the execution of our common stock. We did not receive any proceeds fromsupply initiatives.
As we continue to navigate the IPO. On the day priorchallenges discussed above, we remain confident in our ability to the closingexecute our commercial and operational initiatives to meet our customer’s needs and drive further improvements in our business.
Impact of COVID-19 on Our Business
As a result of the IPO, allongoing COVID-19 global pandemic, we continue to keep the safety of our then-outstanding Redeemable Convertible Preferred Stock converted into sharesassociates, customers, and suppliers as a top priority while striving to deliver quality products and exceptional service to our customers and communities. We continue to monitor developments and follow appropriate recommendations from health and government authorities while proactively implementing safe behaviors, minimizing potential exposures, and facilitating safe and healthy environments in our branches and other facilities.
Although we have experienced operational and other challenges to date, there has been no material adverse impact as a result of common stock, resultingthe pandemic on our results of operations during the three months ended April 3, 2022. While we have not experienced significant disruptions in our operations during the first quarter of 2022, risks of future negative impacts due to transportation, logistical, or supply constraints and higher commodity costs for certain products remain present. We are continuing to address these challenges on our operations.
Uncertainty remains regarding the full impact and duration of the COVID-19 pandemic, including, the impact of new strains and variants of the coronavirus and the pandemic’s impact on the U.S. and global economies and supply chains. We will continue to monitor the ongoing COVID-19 pandemic and may take further actions that alter our business operations if required by federal, state, or local authorities or that we determine are in the issuance by us of an additional 25,303,164 sharesbest interests of our common stock. The conversion of Redeemable Convertible Preferred Stock was accounted for from the date of conversionassociates, customers, suppliers, and was not retroactively adjusted in our financial statements.shareholders.
Secondary Public Offerings
On November 29, 2016, we registered on behalf of certain stockholders the offering and sale of 9,000,000 shares of common stock, as well as 1,350,000 shares of common stock sold to the underwriters pursuant to an option to purchase additional shares. On December 6, 2016, the selling stockholders completed this offering of 10,350,000 shares of common stock at a price of $33.00 per share. We did not receive any of the proceeds from the aggregate 10,350,000 shares of common stock sold by the selling stockholders.
On April 25, 2017, we registered on behalf of certain stockholders the offering and sale of 10,000,000 shares of common stock, as well as 1,500,000 shares of common stock sold to the underwriters pursuant to an option to purchase additional shares. On May 1, 2017, the selling stockholders completed the offering of 11,500,000 shares of common stock at a price of $47.50 per share. We did not receive any of the proceeds from the aggregate 11,500,000 shares of common stock sold by the selling stockholders.
On July 20, 2017, we registered on behalf of certain stockholders the offering and sale from time to time of 5,437,502 shares of common stock. On July 26, 2017, the selling stockholders completed a secondary offering of all such shares at a price to the underwriter of $51.63 per share. We did not receive any proceeds from the aggregate 5,437,502 shares of common stock sold by the selling stockholders.
Presentation
Our financial statements included in this report have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). We use a 52/53 week fiscal year with the fiscal year ending on the Sunday
nearest to December 31 in each year. OurThe fiscal year ending January 1, 2023 and January 2, 2022 both include 52 weeks. Additionally, our fiscal quarters end on the Sunday nearest to March 31, June 30, and September 30, respectively. The three months ended April 3, 2022 and April 4, 2021 both include 13 weeks.
We manage our business as a single reportable segment. Within our organizational framework, the same operational resources support multiple geographic regions and performance is evaluated at a consolidated level. We also evaluate performance based on discrete financial information on a regional basis. Since all of our regions have similar operations and share similar economic characteristics, we aggregate regions into a single operating and reportable segment. These similarities include (i) long-term financial performance, (ii) the nature of products and services, (iii) the types of customers we sell to, and (iv) the distribution methods utilized. Further, all of our product categories have similar supply chain processes and classes of customers.
Key Business and Performance Metrics
We focus on a variety of indicators and key operating and financial metrics to monitor the financial condition and performance of our business. These metrics include:
Net sales. We generate netNet sales primarily through the sale of landscape supplies, including irrigation systems,supplies, fertilizer and control products, hardscapes, landscape accessories, nursery goods, hardscapesoutdoor lighting, and outdoor lightingice melt products to our customers who are primarily landscape contractors serving the residential and commercial construction sectors. Our netNet sales include billings for freight and handling charges, and commissions on the sale of control products that we sell as an agent. Net sales are presented net of any discounts, returns, customer rebates, and sales or other revenue-based tax.taxes.
Non-GAAP Organic Sales. In managing our business, we consider all growth, including the opening of new greenfield branches, to be organic growth unless it results from an acquisition. When we refer to Organic Sales growth, we include increases in growth from newly-opened greenfield branches and decreases in growth from closing existing branches but exclude increases in growth from acquired branches until they have been under our ownership for at least four full fiscal quarters at the start of the fiscal reporting period.
Non-GAAP Selling Days. Selling Days are defined as business days, excluding Saturdays, Sundays, and holidays, that our branches are open during the year. Depending upon the location and the season, our branches may be open on Saturdays and Sundays; however, for consistency, those days have been excluded from the calculation of Selling Days.
Non-GAAP Organic Daily Sales. We define Organic Daily Sales as Organic Sales divided by the number of Selling Days in the relevant reporting period. We believe Organic Sales growth and Organic Daily Sales growth are useful measures for evaluating our performance as we may choose to open or close branches in any given market depending upon the needs of our customers or our strategic growth opportunities. Refer to “Results of Operations – Quarterly Results of Operations Data” for a reconciliation of Organic Daily Sales to Net sales.
Cost of goods sold. Our costCost of goods sold includes all inventory costs, such as the purchase price paid to suppliers, net of any rebates received,volume-based incentives, as well as inbound freight and handling, and other costs associated with inventory. Our costCost of goods sold excludes the cost to deliver the products to our customers through our branches, which is included in selling,Selling, general and administrative expenses. Cost of goods sold is recognized primarily using the first-in, first-out method of accounting for the inventory sold.
Gross profit and gross margin. We believe that grossGross profit and gross margin are useful for evaluating our operating performance. We define grossGross profit as netNet sales less costCost of goods sold, exclusive of depreciation.sold. We define gross margin as grossGross profit divided by netNet sales.
Selling, general and administrative expenses (operating expenses). Our operating expenses are primarily comprised of selling,Selling, general and administrative costs, which include personnel expenses (salaries, wages, employee benefits, payroll taxes, stockstock-based compensation, and bonuses), rent, fuel, vehicle maintenance costs, insurance, utilities, repairs and maintenance, and professional fees. Operating expenses also include depreciation and amortization.
Non-GAAP Adjusted EBITDA. In addition to the metrics discussed above, we believe that Adjusted EBITDA is useful for evaluating the operating performance and efficiency of our business. EBITDA represents our netNet income (loss) plus the sum of income tax (benefit), depreciation and amortization and expense, interest expense, net of interest income.income, and depreciation and amortization. Adjusted EBITDA represents EBITDA as further adjusted for items such as stock-based compensation expense, related party advisory fees,(gain) loss (gain) on sale of assets and termination of finance leases not in the ordinary course of business, other non-cash items, financing fees, other fees and expenses related to acquisitions, and other non-recurring (income) loss. SeeRefer to “Results of Operations-QuarterlyOperations – Quarterly Results of Operations Data” for more information aboutregarding how we calculate EBITDA and Adjusted EBITDA and the limitations of those metrics.
Key Factors Affecting Our Operating Results
In addition to the metrics described above, a number of other important factors may affect our results of operations in any given period.
Weather Conditions and Seasonality
In a typical year, our operating results are impacted by seasonality. Historically, our netNet sales and netNet income have been higher in the second and third quarters of each fiscal year due to favorable weather and longer daylight conditions during these quarters. Our netNet sales have been significantly lower in the first and fourth quarters due to lower landscaping, irrigation, and turf maintenance activities in these quarters, and we have historically incurred net losses in these quarters. Seasonal variations in operating results may also be significantly impacted by inclement weather conditions, such as snow storms, wet weather, and hurricanes, which not only impact the demand for certain products like fertilizer and ice melt, but also may delay construction projects where our products are used.
Industry and Key Economic Conditions
Our business depends on demand from customers for landscape products and services. The landscape supply industry includes a significant amount of landscape products, such as irrigation systems, outdoor lighting, lawn care supplies, nursery goods, and landscape accessories, for use in the construction of newly built homes, commercial buildings, and recreational spaces. The landscape distributionsupply industry has historically grown in line with rates of growth in residential housing and commercial building. The industry is also affected by trends in home prices, home sales, and consumer spending. As general economic conditions improve or deteriorate, consumption of these products and services also tends to fluctuate. The landscape distributionsupply industry also includes a significant amount of landscapeagronomic products such as fertilizer, herbicides, and ice melt for use in maintaining existing landscapes or facilities. The use of these products is also tied to general economic activity, but levels of sales are not as closely correlated to construction markets.
Popular Consumer Trends
Preferences in housing, lifestyle, and environmental awareness can also impact the overall level of demand and mix for the products we offer. Examples of current trends we believe are important to our business include a heightened interest in professional landscape services inspired by the popularity of home and garden television shows and magazines;magazines, the increasingly popular concept of “outdoor living,” which has been a key driver of sales growth for our hardscapes and outdoor lighting products;products, and the social focus on eco-friendly products that promote water conservation, energy efficiency, and the adoption of “green” standards.
Acquisitions
In addition to our organic growth, we continue to grow our business through acquisitions in an effort to better service our existing customers and to attainattract new customers. These acquisitions have allowed us to further broaden our product lines and extend our geographic reach and leadership positions in local markets. In accordance with GAAP, the results of the acquisitions we have completed are reflected in our financial statements from the date of acquisition forward. WeAdditionally, we incur transaction costs in connection with identifying and completing acquisitions andas well as ongoing integration costs as we integrate acquired companies and seek to achieve synergies. WeAs of April 3, 2022, we completed the following acquisitions duringsince the nine months ended October 1, 2017start of the 2021 fiscal year:
•In March 2022, we acquired all of the outstanding stock of J K Enterprise, Inc., Culpeper Recycling Hauling LLC, Culpeper Recycling Transport LLC, Gateway Home & Garden Center, LLC, JK Enterprise Landscape Supply, Limited Liability Company, Madera Farm Transport, LLC, Saunders LS, LLC, and October 2, 2016:Tilden Farm Nursery, LLC, and also acquired the assets of Metro Landscape Supply, Limited and Culpeper Recycling, LLC (collectively, “JK Enterprise”). With six locations in Northern Virginia and one location in Maryland, JK Enterprise is a wholesale distributor of bulk and bagged mulches and soil, hardscapes, and nursery products to landscape professionals.
•In September 2017,December 2021, we acquired the assets and assumed the liabilities of Marshall Stone,Bothe Trucking, Inc., doing business as Seffner Rock and Davis Supply, LLC (collectively, “Marshall Stone”Gravel (“Seffner”). With two locationsone location in Greensboro, North Carolina and Roanoke, Virginia, Marshall StoneTampa, Florida, Seffner is a market leader in the distributionwholesale distributor of natural stone, bulk aggregates, mulch, soil, and hardscape materialsother landscape supplies to landscape professionals.
•In August 2017,November 2021, we acquired the assets and assumed the liabilities of Bondaze Enterprises,Semco Distributing, Inc., a California corporation doing business as South Coast Supply (“South Coast Supply”Semco”). With twofour locations in Orange County, California, South Coast SupplyOhio and Missouri, Semco is a market leader in the distributionwholesale distributor of hardscape, natural stone and related productslandscape supplies to landscape professionals.
•In May 2017,August 2021, we acquired the assets and assumed the liabilities of Evergreen PartnersGreen Brothers Earth Works and Southern Landscape Supply (“Green Brothers”). With four locations in the greater Atlanta, Georgia market, Green Brothers is a distributor of Raleigh, LLC, Evergreen Partnerslandscape supplies and hardscapes to landscape professionals.
•In May 2021, we acquired all of Myrtle Beach, LLC, and Evergreen Logistics, LLC (collectively, “Evergreen”the outstanding stock of Rodvold Enterprises, Inc., doing business as Rock & Block Hardscape Supply (“Rock & Block”). With two locations in Raleigh, North Carolinathe San Diego, Southern Orange County and Myrtle Beach, South Carolina, EvergreenInland Empire markets in California, Rock & Block is a market leader in the distributiondistributor of nurseryhardscapes, masonry, and landscape supplies to landscape professionals.
•In March 2017,April 2021, we acquired the assets and assumed the liabilities of Angelo’s Supplies, Inc. and Angelo’s Wholesale Supplies, Inc. (collectively, “Angelo’s”Melrose Supply & Sales Corp (“Melrose”) with two. With six locations in Wixom and Farmington Hills, Michigan, both suburbs of Detroit. Angelo’sthroughout Florida, Melrose is a hardscapedistributor of irrigation, lighting, and drainage products to landscape supply distributor, and has been a market leader since 1984.professionals.
•In March 2017,April 2021, we acquired all of the outstanding stock of American Builders Supply,Timberwall Landscape & Masonry Products, Inc. and MasonryClub, Inc. and subsidiary (collectively, “AB Supply”(“Timberwall”) with 10 locations. With one location in the greater Los Angeles, California area and two locations in Las Vegas, Nevada. AB SupplyVictoria, Minnesota, Timberwall is a market leader in the distributiondistributor of hardscape, natural stonehardscapes and related productslandscape supplies to landscape professionals.
•In February 2017,April 2021, we acquired the assets and assumed the liabilities of Arizona Stone Forest Materials, LLC& Architectural Products and Solstice Stone (“Arizona Stone Forest”and Solstice”) with one location. With seven locations throughout Arizona and two locations in Kennesaw, Georgia.the Las Vegas, Nevada market, Arizona Stone Forestand Solstice is a market leader in the distributiondistributor of hardscape productshardscapes, natural stone, and landscape supplies to landscape professionals.
•In January 2017,February 2021, we acquired the assets and assumed the liabilities of Aspen ValleyLucky Landscape Supply, Inc.LLC (“Aspen Valley”) with three locations. Headquartered in Homer Glen, Illinois, Aspen Valley is a market leader in the distribution of hardscapes and landscape supplies in the Chicago Metropolitan Area.
In September 2016, we acquired the assets and assumed liabilities of Glen Allen Nursery & Garden Center, Inc. (“Glen Allen”Lucky Landscape Supply”). With one location in Richmond, VA, Glen Allenthe greater Houston, Texas market, Lucky Landscape Supply is a leader in the distributiondistributor of nursery products to landscape professionals.
In August 2016, we acquired the assets and assumed liabilities of Bissett Nursery Corp. and acquired all of the outstanding stock of Bissett Equipment Corp. (collectively, “Bissett”). Headquartered in Holtsville, NY, Bissett is a leader in the distribution of nursery, hardscapes, landscape supplies as well as equipment sales, rental and repairs to landscape professionals with three locations serving customers throughout the New York City metropolitan area.
In April 2016, we acquired the assets of Blue Max Materials, Inc., Blue Max Materials of Charleston, Inc., Blue Max Materials of Columbia, Inc. and Blue Max Materials of the Grand Strand, Inc., which together comprise Blue Max Materials. Blue Max Materials includes five locations serving both North and South Carolina. The acquisition creates a leading position for SiteOne in the North and South Carolina hardscapes and landscape accessories markets.
In January 2016, we acquired all of the outstanding stock of Hydro-Scape Products, Inc. (“Hydro-Scape”), a leading provider of landscape products (irrigation, lighting, maintenance, outdoor living and hardscapes) with 17 locations serving customers throughout Southern California.
Volume-Based Pricing
We generally procure our products through purchase orders rather than under long-term contracts with firm commitments. We work to develop strong relationships with a select group of suppliers that we target based on a number of factors, including brand and market recognition, price, quality, product support, service levels, delivery terms, and their strategic positioning. We generallytypically have annual supplier agreements, and while they typicallygenerally do not provide for specific product pricing, many include volume-based financial incentives that we earn by meeting or exceeding target purchase volumes.volume targets. Our ability to earn these volume-based incentives is an important factor in our financial results. In limitedcertain cases, we have entered into supply contracts with terms that exceed one year for the manufacture of our LESCO® branded fertilizer, and some nursery stockgoods, and grass seed, which may require us to purchase products in the future.
Strategic Initiatives
We have undertaken significantcontinue to undertake operational initiatives, utilizing our scale to improve our profitability, enhance supply chain efficiency, strengthen our pricing and category management capabilities, streamline and refine our marketing process, and invest in more sophisticated information technology systems and data analytics. We are increasingly focusing on our procurement and supply chain management initiatives to better serve our customers and reduce sourcing costs. We are also implementing new inventory planning and stocking systemssystem functionalities and evaluating ways to further improve the freight and logistics processesnew transportation management systems in an effort to reduce costs as well as improve our reliability and level of service. In addition, we continue to enhance our website and B2B e-Commerce platform. We also work closely with our local branches to improve sales, delivery, and branch productivity. We believe we will continue to benefit from the following initiatives, among others:
•Category management initiatives, including the implementation of organic growth strategies, the development of our private label product strategy, the expansion of product lines, and the reorganization of brands and products by preferred suppliers.
•Supply chain initiatives, including the implementation of new inventory planning and stocking systems and functionalities, the installation of new distribution centers, local hubs in large markets, and local fleet utilization and cost improvements.
•Sales force performance initiatives, including the implementation of new compensation plans, the restructuring of our sales force, formal sales and product training for our sales force and sales force management, and the implementation of a comprehensive CRM.
•Marketing initiatives, including product marketing, customer strategy and analytics, Hispanic customer engagement, implementation of our digital marketing strategy, and the relaunch of our Partners Program.
•Digital initiatives, including increasing customer demand and adoption of our website and B2B e-Commerce platform SiteOne.com, which provides the convenience of an online sales channel, enhanced account management functionality, and industry specific productivity tools for our customers.
•Operational excellence initiatives, including the implementation of best practices in branch operations which encompasses safety, merchandising, stocking and assortment, customer engagement, delivery, labor management, as well as branch systems automation and enhancement including the rollout of barcoding.
Working Capital
Our business is characterized by a relatively high level of reported working capital, the effects of which can be compounded by changes in prices. In addition to affecting our netNet sales, fluctuations in prices of supplies tend to result in changes in our reported inventories, trade receivables, and trade payables, even when our sales volumes and our rate of turnover of these working capital items remain relatively constant. Our business is characterized by a relatively high level of reported working capital, the effects of which can be compounded by changes in prices. Our working capital needs are exposed to these price fluctuations, as well as to fluctuations
in our cost for transportation and distribution. We might not always be able to reflect these increases in our pricing. The strategic initiatives described above are designed to reduce our exposure to these fluctuations and maintain and improve our efficiency.
Results of Operations
In the following discussion of our results of operations, we make comparisons between the three and nine months endedOctober 1, 2017April 3, 2022 and October 2, 2016.April 4, 2021.
| | (In millions) | | | | | | | | | | | | |
Consolidated Statements of Operations | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended | |
| October 1, 2017 | | October 2, 2016 | | October 1, 2017 | | October 2, 2016 | | Consolidated Statements of Operations | |
| | | Three Months Ended | |
(In millions, except percentages) | | (In millions, except percentages) | April 3, 2022 | | April 4, 2021 | |
Net sales | $ | 502.4 |
| 100.0 | % | | $ | 444.5 |
| 100.0 | % | | $ | 1,446.0 |
| 100.0 | % | | $ | 1,286.5 |
| 100.0 | % | Net sales | $ | 805.3 | | 100.0 | % | | $ | 650.2 | | 100.0 | % | |
Cost of goods sold | 342.1 |
| 68.1 | % | | 306.1 |
| 68.9 | % | | 982.4 |
| 67.9 | % | | 882.5 |
| 68.6 | % | Cost of goods sold | 536.1 | | 66.6 | % | | 448.7 | | 69.0 | % | |
Gross profit | 160.3 |
| 31.9 | % | | 138.4 |
| 31.1 | % | | 463.6 |
| 32.1 | % | | 404.0 |
| 31.4 | % | Gross profit | 269.2 | | 33.4 | % | | 201.5 | | 31.0 | % | |
Selling, general and administrative expenses | 128.1 |
| 25.5 | % | | 107.7 |
| 24.2 | % | | 368.4 |
| 25.5 | % | | 330.3 |
| 25.7 | % | Selling, general and administrative expenses | 230.5 | | 28.6 | % | | 192.3 | | 29.6 | % | |
Other income | 1.6 |
| 0.3 | % | | 1.2 |
| 0.3 | % | | 3.8 |
| 0.3 | % | | 3.3 |
| 0.3 | % | Other income | 2.5 | | 0.3 | % | | 1.2 | | 0.2 | % | |
Operating income | 33.8 |
| 6.7 | % | | 31.9 |
| 7.2 | % | | 99.0 |
| 6.8 | % | | 77.0 |
| 6.0 | % | Operating income | 41.2 | | 5.1 | % | | 10.4 | | 1.6 | % | |
Interest and other non-operating expenses, net | 6.2 |
| 1.2 | % | | 6.3 |
| 1.4 | % | | 19.0 |
| 1.3 | % | | 15.4 |
| 1.2 | % | Interest and other non-operating expenses, net | 4.3 | | 0.5 | % | | 5.5 | | 0.8 | % | |
Income tax expense | 10.7 |
| 2.1 | % | | 10.7 |
| 2.4 | % | | 29.4 |
| 2.0 | % | | 25.4 |
| 2.0 | % | |
Income tax (benefit) expense | | Income tax (benefit) expense | 4.6 | | 0.6 | % | | (2.5) | | (0.4) | % | |
Net income | $ | 16.9 |
| 3.4 | % | | $ | 14.9 |
| 3.4 | % | | $ | 50.6 |
| 3.5 | % | | $ | 36.2 |
| 2.8 | % | Net income | $ | 32.3 | | 4.0 | % | | $ | 7.4 | | 1.1 | % | |
Net sales
Net sales increased 13%24% to $502.4$805.3 million for the three months ended October 1, 2017April 3, 2022 as compared to $444.5$650.2 million for the three months ended October 2, 2016,April 4, 2021 due to continued investment in outdoor living spaces as consumers spent more time at home, price inflation from rising product costs, and increased 12% to $1,446.0 million for the nine months ended October 1, 2017 compared with $1,286.5 million for the nine months ended October 2, 2016.contributions from acquisitions. Organic Daily Sales increased 5%17% in the thirdfirst quarter of 20172022 as a result of continued demand for landscape supplies and 5% for the nine months ended October 1, 2017.price inflation in response to rising product costs. Price inflation contributed approximately 20% to Organic Daily Sales growthgrowth. Organic Daily Sales for landscaping products (irrigation supplies, hardscapes, landscape accessories, nursery irrigation,goods, and outdoor lighting, hardscapeslighting) grew 20% due to price inflation and landscapes accessories grew 7% instrong demand from both the third quarter of 2017 and 7% for the nine months ended October 1, 2017 as the Company continued to benefit from strength in the residential and commercialnew construction and repair and remodel end markets. Organic Daily Sales for agronomic products (fertilizer, control products, ice melt, equipment, and other products) increased 2% in10% due to the third quarter of 2017stay-at-home trend and 2% forprice inflation, partially offset by a slower start to the nine months ended October 1, 2017.spring season and reduced sales through the retail home center channel. Acquisitions contributed $34.1$43.4 million, or 8%, to third quarter growth of 2017 and $104.3 million, or 8%7%, to the Net sales growth infor the nine months ended October 1, 2017.first quarter of 2022.
CostsCost of goods sold
Cost of goods sold increased 12%19% to $342.1$536.1 million for the three months ended October 1, 2017April 3, 2022 compared to $306.1$448.7 million for the three months ended October 2, 2016, and increased 11% to $982.4 million for the nine months ended October 1, 2017 compared to $882.5 million for the nine months ended October 2, 2016.April 4, 2021. The increase in Cost of goods sold for the third quarter of 2017 and the first nine months of 2017 was primarily driven by Net sales growth, includingattributable to acquisitions partially offset by lower material costs including manufacturer incentives.and product cost inflation.
Gross profit and gross margin
Gross profit increased 16%34% to $160.3$269.2 million for the three months ended October 1, 2017April 3, 2022 compared to $138.4$201.5 million for the three months ended October 2, 2016, and increased 15% to $463.6 million for the nine months ended October 1, 2017 compared to $404.0 million for the nine months ended October 2, 2016.April 4, 2021. Gross profit growth for the third quarter of 2017 was driven by the increase in Net sales growth, including acquisitions. Gross margin increased 80240 basis points to 31.9% for33.4% in the thirdfirst quarter of 2017 compared to 31.1% for the same period of 2016 primarily driven by our category management initiatives. For the nine months
ended October 1, 2017, gross margin increased 70 basis points to 32.1%2022 as compared to 31.4% for31.0% in the nine months ended October 2, 2016. Our category managementfirst quarter of 2021. The increase in gross margin reflects price realization and the benefit of supply chain initiatives, drove the majorityincluding strategic inventory purchases ahead of the increase.supplier cost increases.
Selling, general and administrative expenses
Selling, general and administrative expenses (operating expenses)
Operating expenses(“SG&A”) increased 19%20% to $128.1$230.5 million for the three months ended October 1, 2017 from $107.7April 3, 2022 compared to $192.3 million for the three months ended October 2, 2016, and increased 12% to $368.4 million for the nine months ended October 1, 2017 compared to $330.3 million for the nine months ended October 2, 2016.April 4, 2021. The increase in bothSG&A was primarily due to the third quarter and the first nine months of 2017 primarily reflected additional staff and operating expenses to supportsupporting our sales growth both organically and throughas well as contributions from acquisitions. Operating expenses expressedSG&A as a percentage of Net sales increaseddecreased 100 basis points to 25.5%28.6% for the three months ended October 1, 2017April 3, 2022 compared to 24.2%29.6% for the three months ended October 2, 2016,April 4, 2021 due to operating leverage resulting from our strong organic sales growth and decreased to 25.5% for the nine months ended October 1, 2017 compared to 25.7% for the nine months ended October 2, 2016. The increase in operating expenses as a percentage of sales for the last quarter reflected the impact of acquisitions and increases in labor and other operating expenses focused on building our capabilities to accelerate organic growth. The reduction in operating expenses expressed as a percentage of sales for the last nine months was primarily driven by the $11.2 million of costs incurred in the second quarter of 2016 related to the IPO and Refinancing.effective cost management. Depreciation and amortization expense increased $1.1$2.3 million to $10.8$21.7 million for the three months ended October 1, 2017April 3, 2022 compared to $9.7$19.4 million for the three months ended October 2, 2016, and increased $4.0 million to $31.4 million for the nine months ended October 1, 2017 compared to $27.4 million for the nine months ended October 2, 2016.April 4, 2021. The increase in depreciation and amortization in both the third quarter and the first nine months of 2017 was primarily caused byas a result of our acquisitions.
Interest and other non-operating expenses, net
Interest and other non-operating expenses, net decreased $0.1$1.2 million to $6.2$4.3 million for the three months ended October 1, 2017 from $6.3April 3, 2022 compared to $5.5 million for the three months ended October 2, 2016, and increased $3.6 million to $19.0 million for the nine months ended October 1, 2017 compared to $15.4 million for the nine months ended October 2, 2016.April 4, 2021. The decrease in interest expense forprimarily is due to the thirdloss on the extinguishment of debt in the first quarter reflectedof 2021 and a lower average interest rates on our Term Loan resulting from our Term Loan Facility Amendments. The increase in interest expense forrate during the last ninefirst three months primarily reflected higher debt levels following our Refinancing which occurred in April 29, 2016.of 2022 compared to the same period of 2021.
Income tax (benefit) expense
Income tax expense was $10.7$4.6 million for the three months ended October 1, 2017 asApril 3, 2022 compared to $10.7Income tax (benefit) of $2.5 million for the three months ended October 2, 2016. For the nine months ended October 1, 2017, income tax expense was $29.4 million as compared to $25.4 million for the nine months ended October 2, 2016.April 4, 2021. The effective tax rate was 38.8%12.5% for the three months ended October 1, 2017 asApril 3, 2022 compared to 41.8%(51.0)% for the three months ended October 2, 2016. For the nine months ended October 1, 2017, the effective tax rate was 36.8% as compared to 41.2% for the nine months ended October 2, 2016.April 4, 2021. The decreaseincrease in the effective rate was due primarily to (i) the adoption of ASU 2016-09an increase in Income before taxes, partially offset by an increase in the first quarter of 2017, which resulted in the recognitionamount of excess tax benefits from stock-based compensation recognized as a component of Income tax expense in the Company’s Consolidated Statements of Operations, and (ii) a reduction in nondeductible transaction costs incurred duringOperations. Excess tax benefits of $5.0 million were recognized for the ninethree months ended October 1, 2017 asApril 3, 2022 compared to the nine months ended October 2, 2016.
Net income (loss)
Net income increased $2.0 million to $16.9$3.7 million for the three months ended October 1, 2017 comparedApril 4, 2021.
Net income
Net income increased $24.9 million to $14.9$32.3 million for the three months ended October 2, 2016, and increased $14.4 millionApril 3, 2022 compared to $50.6$7.4 million for the ninethree months ended October 1, 2017 compared to $36.2 million for the nine months ended October 2, 2016.April 4, 2021. The increase in Net income for the third quarter was primarily attributabledue to ourstrong sales growth, and gross margin improvement.improvement, and SG&A leverage.
Quarterly Results of Operations Data
The following tables set forth certain financial data for each of the most recent eight fiscal quarters including our netunaudited Net sales, costCost of goods sold, grossGross profit, selling,Selling, general and administrative expenses, netNet income (loss), and Adjusted EBITDA data (including a reconciliation of Adjusted EBITDA to netNet income (loss)) for each of the most recent eight quarters in fiscal years 2017, 2016 and 2015.. We have prepared the quarterly data on a basis that is consistent with the financial statements included in this report.Quarterly Report on Form 10-Q. In the opinion of management, the financial information reflects all necessary adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of thethis data. This information is not a complete set of financial statements and should be read in conjunction with our financial statements and related notes included in this report.Quarterly Report on Form 10-Q. The results of historical periods are not necessarily indicative of the results of operations for a full year or any future period.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In millions) | | | | | | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
| Qtr 3 | | Qtr 2 | | Qtr 1 | | Qtr 4 | | Qtr 3 | | Qtr 2 | | Qtr 1 | | Qtr 4 |
| | | | | | | | | | | | | | | |
Net sales | $ | 502.4 |
| | $ | 608.6 |
| | $ | 335.0 |
| | $ | 361.8 |
| | $ | 444.5 |
| | $ | 513.4 |
| | $ | 328.5 |
| | $ | 339.8 |
|
Cost of goods sold | 342.1 |
| | 406.2 |
| | 234.1 |
| | 250.0 |
| | 306.1 |
| | 344.9 |
| | 231.5 |
| | 235.2 |
|
Gross profit | 160.3 |
| | 202.4 |
| | 100.9 |
| | 111.8 |
| | 138.4 |
| | 168.5 |
| | 97.0 |
| | 104.6 |
|
Selling, general and administrative expenses | 128.1 |
| | 126.6 |
| | 113.7 |
| | 116.2 |
| | 107.7 |
| | 118.0 |
| | 104.6 |
| | 110.7 |
|
Other income | 1.6 |
| | 1.3 |
| | 0.9 |
| | 1.4 |
| | 1.2 |
| | 1.0 |
| | 1.2 |
| | 1.2 |
|
Operating income (loss) | 33.8 |
| | 77.1 |
| | (11.9 | ) | | (3.0 | ) | | 31.9 |
| | 51.5 |
| | (6.4 | ) | | (4.9 | ) |
Interest and other non-operating expenses | 6.2 |
| | 6.6 |
| | 6.2 |
| | 6.7 |
| | 6.3 |
| | 6.5 |
| | 2.6 |
| | 3.7 |
|
Income tax (benefit) expense | 10.7 |
| | 26.3 |
| | (7.6 | ) | | (4.1 | ) | | 10.7 |
| | 18.1 |
| | (3.4 | ) | | (2.7 | ) |
Net income (loss) | $ | 16.9 |
| | $ | 44.2 |
| | $ | (10.5 | ) | | $ | (5.6 | ) | | $ | 14.9 |
| | $ | 26.9 |
| | $ | (5.6 | ) | | $ | (5.9 | ) |
Adjusted EBITDA(1) | $ | 48.4 |
| | $ | 92.3 |
| | $ | 1.2 |
| | $ | 11.2 |
| | $ | 43.7 |
| | $ | 74.9 |
| | $ | 4.5 |
| | $ | 11.9 |
|
Net sales as a percentage of annual net sales | | | | | | | 22.0 | % | | 27.0 | % | | 31.1 | % | | 19.9 | % | | 23.4 | % |
Gross profit as a percentage of annual gross profit | | | | | | | 21.7 | % | | 26.8 | % | | 32.7 | % | | 18.8 | % | | 24.4 | % |
Adjusted EBITDA as a percentage of annual Adjusted EBITDA | | | | | | | 8.3 | % | | 32.5 | % | | 55.8 | % | | 3.4 | % | | 11.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In millions, except per share information and percentages) |
| 2022 | | 2021 | | 2020 | | |
| Qtr 1 | | Qtr 4 | | Qtr 3 | | Qtr 2 | | Qtr 1 | | Qtr 4 | | Qtr 3 | | Qtr 2 | | | | | | |
Net sales | $ | 805.3 | | | $ | 805.2 | | | $ | 936.4 | | | $ | 1,083.9 | | | $ | 650.2 | | | $ | 675.1 | | $ | 751.9 | | $ | 817.7 | | | | | | | |
Cost of goods sold | 536.1 | | | 522.8 | | | 595.9 | | | 695.7 | | | 448.7 | | | 452.8 | | 501.8 | | 531.6 | | | | | | | |
Gross profit | 269.2 | | | 282.4 | | | 340.5 | | | 388.2 | | | 201.5 | | | 222.3 | | 250.1 | | 286.1 | | | | | | | |
Selling, general and administrative expenses | 230.5 | | | 247.2 | | | 235.3 | | | 225.8 | | | 192.3 | | | 202.8 | | 183.3 | | 175.0 | | | | | | | |
Other (income) expense, net | (2.5) | | | (0.1) | | | 1.8 | | | (2.2) | | | (1.2) | | | (2.7) | | | (1.8) | | | (1.2) | | | | | | | |
Operating income | 41.2 | | | 35.3 | | | 103.4 | | | 164.6 | | | 10.4 | | | 22.2 | | 68.6 | | 112.3 | | | | | | | |
Interest and other non-operating expenses, net | 4.3 | | | 5.1 | | | 4.3 | | | 4.3 | | | 5.5 | | | 9.1 | | 6.6 | | 7.6 | | | | | | | |
Income tax (benefit) expense | 4.6 | | | 2.7 | | | 19.1 | | | 36.8 | | | (2.5) | | | 1.6 | | 13.8 | | 25.6 | | | | | | | |
Net income | $ | 32.3 | | | $ | 27.5 | | | $ | 80.0 | | | $ | 123.5 | | | $ | 7.4 | | | $ | 11.5 | | $ | 48.2 | | $ | 79.1 | | | | | | | |
Net income per common share: | | | | | | | | | | | | | | | | | | | | | |
Basic | $ | 0.72 | | | $ | 0.61 | | | $ | 1.79 | | | $ | 2.77 | | | $ | 0.17 | | | $ | 0.26 | | $ | 1.11 | | $ | 1.89 | | | | | | |
Diluted | $ | 0.70 | | | $ | 0.60 | | | $ | 1.74 | | | $ | 2.70 | | | $ | 0.16 | | | $ | 0.25 | | $ | 1.08 | | $ | 1.83 | | | | | | |
Adjusted EBITDA(a) | $ | 67.8 | | | $ | 61.8 | | | $ | 128.2 | | | $ | 190.6 | | | $ | 34.5 | | | $ | 43.9 | | $ | 87.8 | | $ | 132.1 | | | | | | |
Net sales as a percentage of annual Net sales | | | 23.2 | % | | 26.9 | % | | 31.2 | % | | 18.7 | % | | 25.0 | % | | 27.8 | % | | 30.2 | % | | | | | | |
Gross profit as a percentage of annual Gross profit | | | 23.3 | % | | 28.1 | % | | 32.0 | % | | 16.6 | % | | 24.7 | % | | 27.8 | % | | 31.7 | % | | | | | | |
Adjusted EBITDA as a percentage of annual Adjusted EBITDA | | | 14.9 | % | | 30.9 | % | | 45.9 | % | | 8.3 | % | | 16.9 | % | | 33.7 | % | | 50.8 | % | | | | | | |
| |
(1) | In addition to our net income (loss) determined in accordance with GAAP, we present Adjusted EBITDA in this report to evaluate the operating performance and efficiency of the Company’s business. EBITDA represents our Net income (loss) plus the sum of Income tax (benefit), Depreciation and amortization and Interest expense, net of interest income. Adjusted EBITDA is further adjusted for stock-based compensation expense, related party advisory fees, loss (gain) on sale of assets, other non-cash items, other non-recurring (income) and loss. We believe that Adjusted EBITDA is an important supplemental measure of operating performance because: |
(a) In addition to our Net income (loss) determined in accordance with GAAP, we present Adjusted EBITDA in this Quarterly Report on Form 10-Q to evaluate the operating performance and efficiency of our business. EBITDA represents our Net income (loss) plus the sum of income tax (benefit) expense, interest expense, net of interest income, and depreciation and amortization. Adjusted EBITDA is further adjusted for stock-based compensation expense, (gain) loss on sale of assets, other non-cash items, financing fees, other fees, and expenses related to acquisitions and other non-recurring (income) loss. We believe that Adjusted EBITDA is an important supplemental measure of operating performance because:
•Adjusted EBITDA is used to test compliance with certain covenants under our long-term debt agreements;
we believe •Adjusted EBITDA is frequently used by securities analysts, investors, and other interested parties in their evaluation of companies, many of which present an Adjusted EBITDA measure when reporting their results;
we believe •Adjusted EBITDA is helpful in highlighting operating trends, because it excludes the results of decisions that are outside the control of operating management and that can differ significantly from company to company depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate, age and book depreciation of facilities, and capital investments;
•we consider (gain) loss(gains) losses on the acquisition, disposal, and impairment of assets as resulting from investing decisions rather than ongoing operations; and
•other significant non-recurring items, while periodically affecting our results, may vary significantly from period to period and have a disproportionate effect in a given period, which affects comparability of our results.
Adjusted EBITDA is not a measure of our liquidity or financial performance under GAAP and should not be considered as an alternative to netNet income, operating income, or any other performance measures derived in accordance with GAAP, or as an alternative to cash flow from operating activities as a measure of our liquidity. The use of Adjusted EBITDA instead of netNet income has limitations as an analytical tool. For example, this measure:
•does not reflect changes in, or cash requirements for, our working capital needs;
•does not reflect our interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;
•does not reflect our incomeIncome tax (benefit) expense or the cash requirements to pay our income taxes;
•does not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments; and
•although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and does not reflect any cash requirements for such replacements.
Management compensates for these limitations by relying primarily on ourthe GAAP results and by using Adjusted EBITDA only as a supplement to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone. Because not all companies use identical calculations, our presentation of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies limiting their usefulness as a comparative measure.
The following table presents a reconciliation of Adjusted EBITDA to Net income (loss)(in millions):
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| | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 | | |
| | Qtr 1 | | Qtr 4 | | Qtr 3 | | Qtr 2 | | Qtr 1 | | Qtr 4 | | Qtr 3 | | Qtr 2 | | | | |
Reported Net income | $ | 32.3 | | | $ | 27.5 | | | $ | 80.0 | | | $ | 123.5 | | | $ | 7.4 | | | $ | 11.5 | | | $ | 48.2 | | | $ | 79.1 | | | | | |
| Income tax (benefit) expense | 4.6 | | | 2.7 | | | 19.1 | | | 36.8 | | | (2.5) | | | 1.6 | | | 13.8 | | | 25.6 | | | | | |
| Interest expense, net | 4.3 | | | 5.1 | | | 4.3 | | | 4.3 | | | 5.5 | | | 9.1 | | | 6.6 | | | 7.6 | | | | | |
| Depreciation and amortization | 21.7 | | | 22.3 | | | 21.0 | | | 20.3 | | | 19.4 | | | 18.2 | | | 16.3 | | | 16.4 | | | | | |
EBITDA | 62.9 | | | 57.6 | | | 124.4 | | | 184.9 | | | 29.8 | | | 40.4 | | | 84.9 | | | 128.7 | | | | | |
| Stock-based compensation(a) | 3.7 | | | 3.1 | | | 3.5 | | | 4.6 | | | 3.1 | | | 2.7 | | | 2.6 | | | 2.8 | | | | | |
| (Gain) loss on sale of assets(b) | (0.1) | | | 0.2 | | | (0.2) | | | (0.2) | | | 0.1 | | | (0.2) | | | (0.4) | | | 0.1 | | | | | |
| Financing fees(c) | — | | | — | | | — | | | — | | | 0.7 | | | — | | | — | | | — | | | | | |
| Acquisitions and other adjustments(d) | 1.3 | | | 0.9 | | | 0.5 | | | 1.3 | | | 0.8 | | | 1.0 | | | 0.7 | | | 0.5 | | | | | |
Adjusted EBITDA(e) | $ | 67.8 | | | $ | 61.8 | | | $ | 128.2 | | | $ | 190.6 | | | $ | 34.5 | | | $ | 43.9 | | | $ | 87.8 | | | $ | 132.1 | | | | | |
| | | | | | | | | | | | | | | | | | | | |
(a) Represents stock-based compensation expense recorded during the period.
(b) Represents any gain or loss associated with the sale of assets and termination of finance leases not in the ordinary course of business.
(c) Represents fees associated with our debt refinancing and debt amendments.
(d) Represents professional fees, retention and severance payments, and performance bonuses related to historical acquisitions. Although we have incurred professional fees, retention and severance payments, and performance bonuses related to acquisitions in several historical periods and expect to incur such fees and payments for any future acquisitions, we cannot predict the timing or amount of any such fees or payments.
(e) Adjusted EBITDA excludes any earnings or loss of acquisitions prior to their respective acquisition dates for all periods presented.
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(In millions) | | | | | | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| | Qtr 3 | | Qtr 2 | | Qtr 1 | | Qtr 4 | | Qtr 3 | | Qtr 2 | | Qtr 1 | | Qtr 4 |
Net income (loss) | $ | 16.9 |
| | $ | 44.2 |
| | $ | (10.5 | ) | | $ | (5.6 | ) | | $ | 14.9 |
| | $ | 26.9 |
| | $ | (5.6 | ) | | $ | (5.9 | ) |
| Income tax (benefit) expense | 10.7 |
| | 26.3 |
| | (7.6 | ) | | (4.1 | ) | | 10.7 |
| | 18.1 |
| | (3.4 | ) | | (2.7 | ) |
| Interest expense, net | 6.2 |
| | 6.6 |
| | 6.2 |
| | 6.7 |
| | 6.3 |
| | 6.5 |
| | 2.6 |
| | 3.7 |
|
| Depreciation and amortization | 11.1 |
| | 10.8 |
| | 9.8 |
| | 9.6 |
| | 9.7 |
| | 9.1 |
| | 8.6 |
| | 8.7 |
|
EBITDA | 44.9 |
| | 87.9 |
| | (2.1 | ) | | 6.6 |
| | 41.6 |
| | 60.6 |
| | 2.2 |
| | 3.8 |
|
| Stock-based compensation(a) | 1.5 |
| | 1.6 |
| | 1.4 |
| | 1.3 |
| | 1.1 |
| | 2.2 |
| | 0.7 |
| | 0.7 |
|
| (Gain) loss on sale of assets(b) | — |
| | 0.1 |
| | 0.1 |
| | 0.1 |
| | — |
| | — |
| | (0.1 | ) | | 0.2 |
|
| Advisory fees(c) | — |
| | — |
| | — |
| | — |
| | — |
| | 8.0 |
| | 0.5 |
| | 0.5 |
|
| Financing fees(d) | 0.4 |
| | 1.1 |
| | — |
| | 1.1 |
| | 0.4 |
| | 3.1 |
| | — |
| | 3.5 |
|
| Rebranding, acquisitions and other adjustments(e) | 1.6 |
| | 1.6 |
| | 1.8 |
| | 2.1 |
| | 0.6 |
| | 1.0 |
| | 1.2 |
| | 3.2 |
|
Adjusted EBITDA(f) | $ | 48.4 |
| | $ | 92.3 |
| | $ | 1.2 |
| | $ | 11.2 |
| | $ | 43.7 |
| | $ | 74.9 |
| | $ | 4.5 |
| | $ | 11.9 |
|
| |
(a) | Represents stock-based compensation expense recorded during the period. |
| |
(b) | Represents any gain or loss associated with the sale or write-down of assets not in the ordinary course of business. |
| |
(c) | Represents fees paid to CD&R and Deere for consulting services. In connection with the IPO, we entered into termination agreements with CD&R and Deere pursuant to which the parties agreed to terminate the Consulting Agreements. |
| |
(d) | Represents fees associated with our debt refinancing and debt amendments, as well as fees incurred in connection with our IPO and secondary offerings. |
| |
(e) | Represents (i) expenses related to our rebranding to the name SiteOne and (ii) professional fees, retention and severance payments, and performance bonuses related to historical acquisitions. Although we have incurred professional fees, retention and severance payments, and performance bonuses related to acquisitions in several historical periods and expect to incur such fees and payments for any future acquisitions, we cannot predict the timing or amount of any such fees or payments. |
| |
(f) | Adjusted EBITDA excludes any earnings or loss of acquisitions prior to their respective acquisition dates for all periods presented. |
The following table presents a reconciliation of Organic Daily Sales to Net sales:sales (in millions, except Selling Days):
| | (In millions, except Selling Days) | | | | | | | | | | | |
| | 2017 | | 2016 | | | 2022 | | | 2021 |
| | Qtr 3 | | Qtr 2 | | Qtr 1 | | Qtr 3 | | Qtr 2 | | Qtr 1 | | | | Qtr 1 | | | | Qtr 1 |
Net sales | $ | 502.4 |
| | $ | 608.6 |
| | $ | 335.0 |
| | $ | 444.5 |
| | $ | 513.4 |
| | $ | 328.5 |
| |
Reported Net sales | | Reported Net sales | | | $ | 805.3 | | | | | $ | 650.2 | |
| Organic Sales | 457.4 |
| | 548.1 |
| | 318.5 |
| | 433.6 |
| | 506.6 |
| | 328.5 |
| | Organic Sales(a) | | | 760.1 | | | | | 648.4 | |
| Acquisition contribution(a) | 45.0 |
| | 60.5 |
| | 16.5 |
| | 10.9 |
| | 6.8 |
| | — |
| | Acquisition contribution(b) | | | 45.2 | | | | | 1.8 | |
Selling Days | Selling Days | 63 |
| | 64 |
| | 64 |
| | 63 |
| | 64 |
| | 65 |
| Selling Days | | | 65 | | | | | 65 | |
Organic Daily Sales | Organic Daily Sales | $ | 7.3 |
| | $ | 8.6 |
| | $ | 5.0 |
| | $ | 6.9 |
| | $ | 7.9 |
| | $ | 5.1 |
| Organic Daily Sales | | | $ | 11.7 | | | | | $ | 10.0 | |
| |
(a) | Represents Net Sales from acquired branches that have not been under our ownership for at least four full fiscal quarters at the start of the 2017 fiscal year. |
(a) Organic Sales equal Net sales less Net sales from branches acquired in 2021 and 2022.
(b) Represents Net sales from acquired branches that have not been under our ownership for at least four full fiscal quarters at the start of the 2022 Fiscal Year. Includes Net sales from branches acquired in 2021 and 2022.
Liquidity and Capital Resources
Our ongoingWe assess our liquidity needs are expected to be funded byin terms of our cash and cash equivalents on hand netand the ability to generate cash provided byto fund our operating and investing activities and as required,service our debt, taking into consideration available borrowings underand the ABL Facility.seasonal nature of our business. We expect that cash and cash equivalents on hand, cash provided from operations, and available capacity under the ABL Facility will provide sufficient funds to operate our business, make expected capital expenditures, complete acquisitions, and meet all of our liquidity requirements for the followingnext 12 months, including payment of interest and principal on our debt. Longer-term projects or significant investments in acquisitions may be financed through borrowings under our credit facilities or other forms of financing and will depend on then-existing conditions.
Our borrowing base capacity under the ABL Facility was $126.9$198.4 million as of October 1, 2017,April 3, 2022, after giving effect to approximately $193.7$162.7 million of revolving credit loans under the ABL Facility, an increase of $102.7 million from $91.0 million ofFacility. There were no revolving credit loans outstanding and our borrowing base capacity under the ABL Facility was $364.1 million as of January 1, 2017.2, 2022. As of October 1, 2017,April 3, 2022, we had total cash and cash equivalents of $24.1$45.1 million, total gross long-term debt of $479.5$421.9 million, and capital leasestotal finance lease obligations (excluding interest) of $12.8$44.5 million.
Working capital was $428.7$788.4 million as of October 1, 2017,April 3, 2022, an increase of $124.2$172.5 million as compared to $304.5$615.9 million as of January 1, 2017.2, 2022. The increasechange in working capital iswas primarily attributable to the seasonality of our businessbusiness.
The following table summarizes current and growthlong-term material cash requirements related to our long-term debt as of April 3, 2022 (in millions):
| | | | | | | | | | | | | | | | | |
| Total | | Next 12 Months | | Beyond 12 Months |
Long-term debt, including current maturities | $ | 421.9 | | | $ | 4.0 | | | $ | 417.9 | |
Interest on long-term debt | $ | 52.0 | | | $ | 14.2 | | | $ | 37.8 | |
Our gross long-term debt balance increased $161.7 million since January 2, 2022. This increase was primarily attributable to funding the seasonal increase in inventory from acquisitionsour working capital. We have current maturities on our long-term debt of $4.0 million, which includes $2.5 million related to the term loan facility and higher stocking levels.$1.5 million related to the hybrid debt instruments. The projected interest payments on our debt only pertain to obligations and agreements outstanding as of April 3, 2022 and expected payments for agent administration fees. The projected interest payments are calculated for future periods through maturity dates of our long-term debt using interest rates in effect as of April 3, 2022. Certain of these projected interest payments may differ in the future based on changes in floating interest rates or other factors and events, including our entry into amendments of the term loans and the ABL Facility. Refer to “Note 9. Long-Term Debt” in the notes to the consolidated financial statements for further information regarding our debt instruments.
Cash Flow Summary
Information about our cash flows, by category, is presented in our statements of cash flows and is summarized below:below (in millions):
| | (In millions) | | | | |
| Nine Months Ended | | Three Months Ended |
| October 1, 2017 | | October 2, 2016 | |
Net cash (used in) provided by: | | | | |
Net cash provided by (used in): | | Net cash provided by (used in): | | April 3, 2022 | | April 4, 2021 |
Operating activities | $ | (14.6 | ) | | $ | 9.2 |
| Operating activities | | $ | (118.3) | | | $ | (45.5) | |
Investing activities | $ | (76.9 | ) | | $ | (62.5 | ) | Investing activities | | $ | (41.0) | | | $ | (46.3) | |
Financing activities | $ | 99.1 |
| | $ | 59.0 |
| Financing activities | | $ | 150.6 | | | $ | 68.9 | |
Cash flow (used in) provided byused in operating activities
Net cash used in operating activities for the ninethree months ended October 1, 2017April 3, 2022 was $14.6$118.3 million compared to cash provided of $9.2$45.5 million for the ninethree months ended October 2, 2016. Net cash from operating activities during the first nine months of 2017April 4, 2021. The increase was lower than the first nine months of 2016 primarily due to the increase in net working capital.a larger seasonal inventory build reflecting supply chain uncertainly, cost inflation, and strategic purchases ahead of price increases from our suppliers.
Cash flow used in investing activities
Net cash used in investing activities was $76.9$41.0 million for the ninethree months ended October 1, 2017April 3, 2022 compared to $62.5$46.3 million for the ninethree months ended October 2, 2016.April 4, 2021. The increasedecrease reflects greater investment in acquisitionslower acquisition investments during the first nine
three months of 20172022 compared to the same period of 2016.2021. Capital expenditures were $10.3$7.5 million for the first ninethree months of 2017, up from $6.22022 compared to $7.2 million for the first ninethree months of 20162021 due to increased investmentsinvestment in information technology and store equipment.material handling equipment used in our branches.
Cash flow provided by financing activities
Net cash provided by financing activities was $99.1$150.6 million for the ninethree months ended October 1, 2017April 3, 2022 compared to cash provided of $59.0$68.9 million for the ninethree months ended October 2, 2016.April 4, 2021. The increase primarily reflects higher borrowings under the ABL Facility to fund investmentsthe seasonal increase in working capital and acquisitions.capital.
External Financing
Term Loan FacilityLoans
Landscape Holding and Landscape, as borrowers (collectively, the “Term Loan Borrower”“Borrowers”) are parties, entered into the Fifth Amendment to the Amended and Restated Term Loan Credit Agreement, the (“Fifth Amendment”), dated as of March 23, 2021, with JPMorgan Chase Bank, N.A. (the “Amended and Restated Term Loan Credit Agreement”“New Agent”) dated April 29, 2016, as amended on November 23, 2016 (providing for a senior secured term loan facility), with UBS AG, Stamford Branch as administrative agent and collateral agent, the several banks and the other financial institutions party thereto and certain other parties party thereto from time to time. The Fifth Amendment amends and restates the Amended and Restated Credit Agreement, dated as of April 29, 2016, among the Borrowers, the lenders from time to time party thereto.
Landscape Holdingthereto and Landscape areUBS AG, Stamford Branch (the “Existing Agent”) as administrative agent and collateral agent (as amended prior to March 23, 2021, the borrowers under“Existing Credit Agreement” and, as so amended and restated pursuant to the Term Loan Facility. The Term Loan Facility provides for a senior secured term loan credit facility inFifth Amendment, the amount of $275.0 million, as modified by the Refinancing described below.
The final maturity date of the Term Loan Facility is April 29, 2022. In addition, the“Second Amended and Restated Credit Agreement”) in order to, among other things, incur $325.0 million of term loans (the “New Term Loan Credit Agreement provides the right for individual lenders to extend the maturity date of their loans upon the request of theLoans”). The New Term Loan Borrower and without the consent of any other lender.Loans will mature on March 23, 2028.
Subject to certain conditions, without the consent of the then existing lenders (but subject to the receipt of commitments), the New Term Loan FacilityLoans may be expandedincreased (or a new term loan facility, revolving credit facility, or letter of credit facility added) by up to (i) $100.0the greater of (a) $275.0 million and (b) 100% of Consolidated EBITDA (as defined in the Second Amended and Restated Credit Agreement) for the trailing 12-month period plus (ii) an additional amount that will not cause the net secured leverage ratio after giving effect to the incurrence of thatsuch additional amount and any use of proceeds thereof to exceed 3.504.00 to 1.00.
The New Term Loan Facility isLoans are subject to mandatory prepayment provisions, covenants, and events of default. Failure to comply with these covenants and other provisions could result in an event of default under the Term Loan Facility.Second Amended and Restated Credit Agreement. If an event of default occurs, the lenders could elect to declare all amounts outstanding under the New Term Loan FacilityLoans to be immediately due and payable and enforce their interest in collateral pledged under the agreement.
Amendments of the Term Loans
On April 29, 2016, we refinanced our then-existing term loan facility, orMarch 23, 2021, the “Prior Term Loan Facility,” withBorrowers entered into the Term Loan Facility. We refer to this refinancing transaction as the “Refinancing.” We used borrowings under the Term Loan Facility to repay all $60.3 million of borrowings outstanding under the Prior Term Loan Facility, repay $29.9 million of borrowings outstanding under the ABL Facility, pay a special cash dividend of $176.0 million, or the “Special Cash Dividend,” to holders of our common stock and Preferred Stock as of April 29, 2016 and pay fees and expenses associated with the Refinancing.
Term Loan Facility Amendments
On November 23, 2016, we amended the Term Loan Facility (the “First Amendment”)Fifth Amendment in order to, among other things, (i) add an additional credit facility under the Term Loan Facility consistingincur $325.0 million of additional term loans, (the “Tranche B Term Loans”)(ii) replace the Existing Agent as administrative and collateral agent with the New Agent, and (iii) make such other changes in an aggregate principal amount of $273.6 millionthe Second Amended and (ii) increaseRestated Credit Agreement as agreed among the aggregate principal amount of Tranche B Term Loans underBorrowers and the Term Loan Facility to $298.6 million pursuant to an increase supplement.lenders. Proceeds of the Tranche BNew Term Loans were used to, among other things, (i) to repay in full the term loansTranche E Term Loans outstanding under the Term Loan FacilityExisting Credit Agreement immediately prior to effectiveness of the FirstFifth Amendment, and(ii) to pay fees and expenses associated withrelated to the transactionFifth Amendment and (ii) repay $21.0 million of borrowings outstanding under the ABL Facility.
On May 24, 2017, we amended the Term Loan Facility (the “Second Amendment”) to, among other things, add an additional credit facility under the Term Loan Facility consisting of additional term loans (the “Tranche C Term Loans”) in an aggregate principal amount of $299.5 million. Proceeds of the Tranche C Term Loans were used to, among other things, repay in full the Tranche B Term Loans outstanding under the Term Loan Facility immediately prior to effectiveness of the Second AmendmentAmended and pay feesRestated Credit Agreement, and expenses associated with the transaction.
(iii) for working capital and other general corporate purposes.
The Tranche CNew Term Loans bear interest, at Landscape Holding’s option, at either (i) an adjusted LIBOR (minimum of 1.0%)rate plus an applicable margin equal to 2.00% (with a LIBOR floor of 3.25% or 3.50%0.50%) or (ii) an alternative base rate plus an applicable margin ranging from 2.25%equal to 2.50%1.00%. Tranche C Term Loans will mature on April 29, 2022. The other termsVoluntary prepayments of the Tranche CNew Term Loans are generallypermitted at any time, in minimum principal amounts, without premium or penalty, subject to a 1.00% premium payable in connection with certain repricing transactions within the samefirst twelve months after the date of the initial funding of the New Term Loans. The interest rate on the outstanding balance was 2.50% as of April 3, 2022.
The Second Amended and Restated Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants. The negative covenants limit the terms applicableability of Landscape Holding and Landscape to:
•incur additional indebtedness;
•pay dividends, redeem stock, or make other distributions;
•repurchase, prepay, or redeem subordinated indebtedness;
•make investments;
•create restrictions on the ability of Landscape Holding’s restricted subsidiaries to the Tranche B Term Loans.pay dividends or make other intercompany transfers;
•create liens;
•transfer or sell assets;
•make negative pledges;
•consolidate, merge, sell, or otherwise dispose of all or substantially all of Landscape Holding’s assets;
•change lines of business; and
•enter into certain transactions with affiliates.
ABL Facility
Landscape Holding and Landscape (collectively, the “ABL Borrower”) are borrowers underparties to the credit agreement dated December 23, 2013 (as amended by the First Amendment to the Credit Agreement, dated June 13, 2014, the Second Amendment to the Credit Agreement, dated January 26, 2015, the Third Amendment to the Credit Agreement, dated February 13, 2015, the Fourth Amendment to the Credit Agreement, dated October 20, 2015, the Omnibus Amendment to the Credit Agreement, dated May 24, 2017, and the Sixth Amendment to the Credit Agreement, dated February 1, 2019, the “ABL Credit Agreement”) providing for an ABL Facility in the amount of up to $325.0$375.0 million subject to borrowing base availability.with a maturity date of February 1, 2024. The ABL Facility is secured by a first lien on the inventory and receivables of Landscape Holding and Landscape.the Borrowers. The ABL Facility is guaranteed by SiteOne Landscape Supply Bidco, Inc. (“Bidco”), an indirect wholly-owned subsidiary of the Company, and each direct and indirect wholly-owned U.S. restricted subsidiary of Landscape. Availability under the ABL Facility is determined using borrowing base calculations of eligible inventory and receivable balances. The interest rate on the ABL Facility is LIBOR (as defined in the ABL Credit Agreement) plus an applicable margin ranging from 1.25% to 2.00%1.75% or an alternate base rate for U.S. dollar-denominateddenominated borrowings plus an applicable margin ranging from 0.25% to 1.00%0.75%. The interest ratesrate on outstanding balances at October 1, 2017 range from 2.99% to 5.00%.under the ABL Facility was 3.75% as of April 3, 2022. There were no outstanding balances under the ABL Facility as of January 2, 2022. Additionally, the borrowersBorrowers paid a 0.25% and 0.375% commitment fee of 0.25% on the unfunded amount as of October 1, 2017April 3, 2022 and January 1, 2017, respectively. As2, 2022.
The ABL Facility iscontains customary representations and warranties and customary affirmative and negative covenants. The negative covenants are limited to the following: financial condition, fundamental changes, dividends and distributions, acquisitions, dispositions of collateral, payments and modifications of restricted indebtedness, negative pledge clauses, changes in line of business, currency, commodity and other hedging transactions, transactions with affiliates, investments, indebtedness, and liens. The negative covenants are subject to mandatory prepayments ifcustomary exceptions and also permit the outstanding loanspayment of dividends and lettersdistributions, investments, permitted acquisitions, payments or redemptions of credit exceed eitherindebtedness under the aggregate revolving commitmentsSecond Amended and Restated Credit Agreement, asset sales and mergers, consolidations, and sales of all or substantially all assets involving subsidiaries upon satisfaction of a “payment condition.” The payment condition is deemed satisfied upon 30-day specified excess availability and specified availability exceeding agreed upon thresholds and, in certain cases, the current borrowing base, in an amount equalabsence of specified events of default or known events of default and pro forma compliance with a consolidated fixed charge coverage ratio of 1.00 to such excess. Additionally,1.00.
Subject to certain conditions, without the consent of the then existing lenders (but subject to the receipt of commitments), the ABL Facility is subject to various covenants requiring minimum financial ratios, and additional borrowings may be limitedincreased (or a new term loan facility added) by these financial ratios. The ABL Facility is also subjectup to other covenants(i) the greater of (a) $175.0 million and events(b) 100% of default. Consolidated EBITDA (as defined in the Amended and Restated Term Loan Credit Agreement) for the trailing 12-month period plus (ii) an additional amount that will not cause the net secured leverage ratio after giving effect to the incurrence of such additional amount and any use of proceeds thereof to exceed 5.00 to 1.00.
There are no financial covenants included in the ABL Credit Agreement, other than a springing minimum consolidated fixed charge coverage ratio of at least 1.00 to 1.00, which is tested only when specified availability is less than 7.5%10.0% of the lesser of (x) the then applicable borrowing base and (y) the then aggregate effective commitments under the ABL Facility, and continuing until such time as specified availability has been in excess of such threshold for a period of 30 consecutive calendar days.
Failure to comply with the covenants and other provisions included in the ABL Credit Agreement could result in an event of default under the ABL Facility. If an event of default occurs, the lenders could elect to declare all amounts outstanding under the ABL Facility to be immediately due and payable, enforce their interest in collateral pledged under the agreement, or restrict the borrowers’ ability to obtain additional borrowings thereunder.
Limitations on Distributions and Dividends by Subsidiaries
The ability of our subsidiaries to make distributions and dividends to us depends on their operating results, cash requirements, financial condition, and general business conditions, as well as restrictions under the laws of our subsidiaries’ jurisdictions.
The agreements governing the Second Amended and Restated Credit Agreement and the ABL Facility restrict the ability of our subsidiaries to pay dividends, make loans, or otherwise transfer assets to us. Further, our subsidiaries are permitted under the terms of the Second Amended and Restated Credit Agreement and the ABL Facility and other indebtedness to incur additional indebtedness that may restrict or prohibit the making of distributions, the payment of dividends, or the making of loans to us.
Interest Rate Swaps
We are subject to interest rate risk with regard to existing and future issuances of debt. We utilize interest rate swap contracts to reduce our exposure to fluctuations in variable interest rates for future interest payments on our unsecured syndicated senior Term Loan Facility. In July 2017, we entered into twoexisting debt. We are party to a forward-starting interest rate swap contract and interest rate swap contracts to convert the variable interest rate to a fixed interest rate on portions of the borrowings under the Term Loan Facility. Theterm loans. During the first quarter of 2021, we amended and restructured certain of our interest rate swap contracts become effective on March 11, 2019using a strategy commonly referred to as a “blend and terminate on June 11, 2021.extend”. In a blend and extend arrangement, the liability position of the existing interest rate swap arrangement is blended into the amended or new interest rate swap arrangement and the term to maturity of the hedged position is extended.
We will recognize any differences between the variable interest rate payments and the fixed interest rate settlements from the swap counterparties as an adjustment to interest expense over the life of the swaps. We have designated these swaps as cash flow hedges and will record the changes in the estimated fair value of the swaps to Accumulated other comprehensive income(loss)income (loss) (“AOCI”) on our Consolidated Balance Sheets. If it becomes probable that the forecasted transaction will not occur, the hedge relationship will be de-designated and amounts accumulated in AOCI will be reclassified to Interest and other non-operating expenses, net in the current period. To the extent the interest rate swaps are determined to be ineffective, we will recognize the changes in the estimated fair value of the swaps in earnings.
Failure of the swap counterparties to make payments would result in the loss of any potential benefit to us under the swap agreements. In this case, we would still be obligated to pay the variable interest payments underlying the debt agreements. Additionally, failure of the swap counterparties would not eliminate our obligation to continue to make payments under the existing swap agreements if it continues to be in a net pay position.
Limitations on Distributions and Dividends by Subsidiaries
The ability of our subsidiaries to make distributions and dividends to us depends on their operating results, cash requirements and financial condition and general business conditions, as well as restrictions under the laws of our subsidiaries’ jurisdictions.
The agreements governing the Term Loan Facility and the ABL Facility (collectively, the “Credit Facilities”) restrict the ability of our subsidiaries to pay dividends, make loans or otherwise transfer assets to us. Further, our subsidiaries are permitted under the terms of the Credit Facilities and other indebtedness to incur additional indebtedness that may restrict or prohibit the making of distributions, the payment of dividends or the making of loans to us.
Contractual Obligations and Commitments
The following table summarizes material changes to our contractual obligations as of October 1, 2017, resulting from the changes in our long term debt. The changes during the three months ended October 1, 2017 were primarily theAs a result of the refinancingdetermination that the Interest rate swap arrangements executed on March 23, 2021 are hybrid debt instruments containing embedded at-market swap derivatives, we reclassified $5.9 million from Accrued liabilities and Other long-term liabilities to long-term debt with $1.5 million classified as Long-term debt, current portion and $4.4 million classified as Long-term debt, less current portion on our Consolidated Balance Sheets. As of April 3, 2022, approximately $1.5 million was classified as Long-term debt, current portion and approximately $2.9 million was classified as Long-term debt, less current portion on our Consolidated Balance Sheets. For additional information, refer to “Note 4. Fair Value Measurement and Interest Rate Swaps” and “Note 9. Long-Term Debt” in the Prior Term Loan Facility and increased borrowing undernotes to the ABL Facility.
|
| | | | | | | | | | | | | | | |
(In millions) | | | | | |
| Payments Due by Period |
| | Less than |
| | | More than |
|
| Total |
| 1 Year |
| 1-3 Years |
| 3-5 Years |
| 5 Years |
|
| | | | | |
Long term debt, including current maturities(1) | $ | 491.7 |
| $ | 3.0 |
| $ | 5.2 |
| $ | 483.5 |
| $ | — |
|
Interest on long term debt(2) | 86.9 |
| 19.6 |
| 43.2 |
| 24.1 |
| — |
|
| |
(1) | For additional information see “Note 8. Long-Term Debt” in the notes to the consolidated financial statements. In addition, the table excludes the debt issuance costs and debt discounts of $12.2 million. |
| |
(2) | Interest payments on debt are calculated for future periods using interest rates in effect as of October 1, 2017. Certain of these projected interest payments may differ in the future based on changes in floating interest rates or other factors and events. The projected interest payments only pertain to obligations and agreements outstanding as of October 1, 2017. See “Note 8. Long-Term Debt” in the notes to the consolidated financial statements for further information regarding our debt instruments. |
consolidated financial statements.
Critical Accounting Estimates
There were no material changes in our criticalThe accounting estimates sincethat we believe to be most sensitive due to their significance to the filingfinancial statements and the possibility that future events may be significantly different from our expectations are: inventory valuation, acquisitions, and goodwill. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended January 1, 2017.2, 2022 for additional detail and discussion of these critical accounting estimates. There have been no material changes to our critical accounting estimates as described in our most recent Annual Report.
Recently Issued and Adopted Accounting Pronouncements
See “Note 1.Refer to “Note 1. Nature of Business and Significant Accounting Policies” in the notes to the consolidated financial statements.Accounting Pronouncements Issued But Not Yet Adopted
See “Note 1.Refer to “Note 1. Nature of Business and Significant Accounting Policies” in the notes to the consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes from the information provided onin our Annual Report on Form 10-K for the fiscal year ended January 1, 2017.2, 2022.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officerChief Executive Officer and chief financial officer,Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”))Act), as of the end of the period covered by this report. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Based on that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were designed at a reasonable assurance level and were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our chief executive officerChief Executive Officer and chief financial officer,Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Additionally, baseddisclosure as of the end of the period covered by this Quarterly Report on the most recent evaluation, we have concluded thatForm 10-Q.
Changes in Internal Control over Financial Reporting
There were no significant changechanges in our disclosure controls and procedures occurredinternal control over financial reporting during the last fiscal quarter that hashave materially affected, or isare reasonably likely to materially affect, our disclosure controls and procedures.internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are not currently involved in any material litigation or arbitration. We anticipate that similar to the rest of the landscape supply industry, we will be subject to litigation and arbitration from time to time in the ordinary course of business. At this time, we do not expect any of these proceedings to have a material effect on our reputation, business, financial position, results of operations, or cash flows. However, we can give no assurance that the results of any such proceedings will not materially affect our reputation, business, financial position, results of operations, andor cash flows.
Item 1A. Risk Factors
There have been no material changesThe significant factors known to the risk factorsus that could materially adversely affect our business, financial condition, or operating results are disclosed in our Annual Report on Form 10-K for the fiscal year ended January 1, 2017.2, 2022, except as follows:
Inflation could cause our Cost of goods sold and operating costs to grow more rapidly than Net sales, which could result in lower Gross profit and gross margin as well as lower Net income.
Market variables, such as inflation of product costs, labor rates and fuel, freight and energy costs, as well as geopolitical events could potentially cause us to be unable to manage our Cost of goods sold and operating costs in a way that would enable us to leverage our Net sales growth into higher Net income. For example, Russia’s invasion of Ukraine and other geopolitical conflicts, as well as the related international response, has and may continue to worsen inflationary pressures, including causing increases in fuel and other energy costs. In addition, our inability to pass on such increases in costs to customers in a timely manner, or at all, could cause our Cost of goods sold and operating costs to grow, which could result in lower Gross profit and gross margin as well as lower Net income.
Item 6. Exhibits.
| | | | | | | | |
Exhibit Number | | Description |
| | |
Exhibit
Number 10.1† | | | | Description
|
| | |
31.1 | | |
31.1# | | |
| | |
31.2#31.2 | | |
| | |
32.1#32.1 | | |
| | |
32.2#32.2 | | |
| | |
101.INS#101 | | The following unaudited financial information from this Quarterly Report on Form 10-Q for the quarter ended April 3, 2022 is formatted in Inline XBRL Instance Document(Inline Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Equity, (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements. |
| | |
101.SCH#104 | | Cover Page Interactive Data File (formatted in Inline XBRL Taxonomy Extension Schema |
| | |
101.CAL# | | XBRL Taxonomy Extension Calculation Linkbase |
| | |
101.DEF# | | XBRL Taxonomy Extension Definition Linkbase |
| | |
101.LAB# | | XBRL Taxonomy Extension Label Linkbase |
| | |
101.PRE# | | XBRL Extension Presentation Linkbase |
| | with applicable taxonomy extension information contained in Exhibit 101). |
# Filed herewith.† Denotes management contract or compensatory plan or arrangement.
SIGNATURESSIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | | | | |
| | SITEONE LANDSCAPE SUPPLY, INC. |
| | | |
| | | |
Date: | May 4, 2022 | SITEONE LANDSCAPE SUPPLY, INC. |
By: | | | |
Date: | November 8, 2017 | By: | /s/ John T. Guthrie |
| | | John T. Guthrie |
| | | Executive Vice President, Chief Financial Officer and Assistant Secretary |
| | | (Principal Financial and Principal Accounting Officer) |