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$3.8 million and $5.0$8.2 million for the three and ninesix months ended October 1, 2017,July 3, 2022, and $1.3$3.0 million and $4.3$6.3 million for the three and ninesix months ended October 2, 2016,July 4, 2021, respectively.
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$178.1 million and $164.5$364.1 million as of October 1, 2017July 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.
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 rangeunder the ABL Facility ranged from 2.99%2.62% to 5.00% and 2.49% to 4.50%5.25% as of October 1, 2017 andJuly 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, 2017July 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,July 3, 2022, the Company iswas in compliance with theseall of the ABL Facility covenants.
In December 2013, CD&R Landscapes Holdings, L.P. (the “CD&R Investor”), an affiliate
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, 2017July 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, 2017July 3, 2022 and January 1, 2017,2, 2022, respectively.
Letters of credit: As of October 1, 2017July 3, 2022 and January 1, 2017,2, 2022, outstanding letters of credit were $4.5$10.9 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 and six months ended July 3, 2022 and July 4, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | July 3, 2022 | | July 4, 2021 | | July 3, 2022 | | July 4, 2021 |
Shares used in the computation of basic earnings per share | | 45,034,633 | | | 44,508,725 | | | 44,985,199 | | | 44,444,950 | |
Effect of dilutive securities: | | | | | | | | |
Stock options | | 635,974 | | | 1,109,000 | | | 723,948 | | | 1,144,881 | |
RSUs and PSUs | | 96,983 | | | 164,217 | | | 96,908 | | | 124,406 | |
DSUs | | 11,583 | | | 7,319 | | | 7,999 | | | 6,392 | |
Shares used in the computation of diluted earnings per share | | 45,779,173 | | | 45,789,261 | | | 45,814,054 | | | 45,720,629 | |
The diluted earnings (loss) per common share includescalculation for the three months ended July 3, 2022 and July 4, 2021 excluded the effect of 269,177 and 72,627 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 DSUswere anti-dilutive. In addition, the diluted earnings per common share calculation for the six months ended July 3, 2022 and July 4, 2021 excluded the assumed conversionanti-dilutive effect of all of the Redeemable Convertible Preferred Stock were anti-dilutive246,083 and therefore, the following59,979 potential shares of common stock, were not included in the diluted earnings (loss) per common share calculation:respectively.
|
| | | | | | | | | | | | |
| | 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,July 22, 2022, the Company, through its subsidiaries, entered into the Seventh Amendment to the Credit Agreement (the “Seventh Amendment”), by and among Landscape Holding and Landscape as borrowers (collectively, the “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 Seventh Amendment amends and restates the Credit Agreement, dated as of December 23, 2013, among the Borrowers, the lenders and other financial institutions from time to time party thereto and UBS AG, Stamford Branch (the “Existing Agent”) as administrative agent and collateral agent (as amended prior to July 22, 2022, the “Existing Credit Agreement” and, as so amended and restated pursuant to the Seventh Amendment, the “Amended and Restated Credit Agreement”) in order to, among other things, (i) increase the aggregate principal amount of the commitments under the Existing Credit Agreement to $600.0 million, (ii) extend the final scheduled maturity of the revolving credit facility under the Existing Credit Agreement to July 22, 2027, (iii) establish an alternate rate of interest to the LIBOR rate under the Existing Credit Agreement, (iv) replace the Existing Agent as administrative and collateral agent with the New Agent, and (v) make such other changes to the Existing Credit Agreement as agreed among the Borrowers and the lenders. Proceeds of the initial borrowings under the Amended and Restated Credit Agreement on the closing date were used, among other things, (i) to repay in full the loans outstanding under the Existing Credit Agreement immediately prior to effectiveness of the Seventh Amendment, (ii) to pay fees and expenses related to the Seventh Amendment and the Amended and Restated Credit Agreement, and (iii) for working capital and other general corporate purposes.
Loans under the Amended and Restated Credit Agreement will bear interest, at Landscape Holding’s option, at either (i) an adjusted term SOFR rate equal to term SOFR plus 0.10% (subject to a floor of 0.00%) plus an applicable margin of 1.25% or 1.50% or (ii) an alternate base rate plus an applicable margin of 0.25% or 0.50%, in each case depending on average daily excess availability under the Amended and Restated Credit Agreement, and in each case subject to a 0.125% reduction when the Consolidated Total Leverage Ratio (as defined in the Amended and Restated Credit Agreement) is less than 1.50:1.00. Additionally, undrawn commitments under the Amended and Restated Credit Agreement bear a commitment fee of 0.20% or 0.25%, depending on the average daily undrawn portion of the commitments under the Amended and Restated Credit Agreement.
On July 22, 2022, the Company acquired the assets and assumed the liabilities of Harmony Gardens,River Valley Horticultural Products, Inc. (“Harmony Gardens”and River Valley Equipment Rental and Sales, LLC (collectively, “River Valley”). With two locations1 location in the metro Denver and Fort Collins, Colorado areas, Harmony GardensLittle Rock, Arkansas, River Valley is a leading wholesale distributor of nursery distributor in the state. The acquisitionproducts, hardscapes, and landscape supplies to 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” included herein and the section entitled “Risk Factors” included in the Annual Report on Form 10-K for the fiscal year ended January 1, 2017.2, 2022 and the Quarterly Report on Form 10-Q for the fiscal quarter ended April 3, 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 July 3, 2022, we had over 620 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,
Despite rapid product cost inflation, certain supply shortages, ongoing freight and labor constraints, and overall economic uncertainty, we completed the IPO at a pricecontinue to experience solid demand for our products due primarily to the public of $21.00 per share. In connectionstay-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 which has resulted in continued demand for landscaping and agronomic products. For the CD&R Investorthree and Deere together sold an aggregatesix months ended July 3, 2022, we achieved Net sales growth of 10,000,000 shares12% and 17%, respectively, while Organic Daily Sales grew 8% and 12%, respectively.
During the three and six months ended July 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 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. Based upon year-over-year price increases in our highest selling SKUs, we estimate price inflation contributed approximately 19% and Deere, at20% to our Organic Daily Sales growth in the public offering price less the underwriting discountsthree and commissions. The CD&R Investorsix months ended July 3, 2022, respectively. Due to ongoing product constraints, rising manufacturer input costs, 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 and bore all commissionssix months ended July 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 discounts fromlogistical initiatives which have allowed us to better manage disruptions and mitigate challenges in the saleshipping and trucking markets. These actions and the effective management of price inflation described above helped drive gross margin expansion of 210 basis points to 37.9% during the three months ended July 3, 2022, and 210 basis points to 36.1% during the six months ended July 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.supply initiatives.
In addition, 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. Although we have experienced operational and other challenges to date, and may again in the future, there has been no material adverse impact as a result of the pandemic on our results of operations during the three and six months ended July 3, 2022. Throughout the pandemic, the safety of our associates, customers, and suppliers has remained a top priority while we strive to deliver quality products and exceptional service to our customers and communities. We did not receive any proceeds fromwill continue to monitor the IPO. Onongoing 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 day priorbest interests of our associates, customers, suppliers, and shareholders.
Although our operations are focused in the United States and Canada with no locations in or direct exposure to Russia and Ukraine, we are monitoring the geopolitical 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 closingnegative impact of the IPO, allRussia-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 results of operations. However, the full impact of the conflict on our then-outstanding Redeemable Convertible Preferred Stock converted into sharesbusiness operations and financial performance remains uncertain and will depend largely on the nature and duration of common stock, resulting inuncertain and unpredictable events, such as the issuance by usseverity and duration of an additional 25,303,164 shares of our common stock. The conversion of Redeemable Convertible Preferred Stock was accounted for fromfurther military action, and its impact on regional and global economic conditions.
As we continue to navigate the date of conversionchallenges and was not retroactively adjusteduncertainties discussed above, we remain confident in our financial statements.ability to execute our commercial and operational initiatives to meet our customer’s needs and drive further improvements in our business.
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 July 3, 2022 and July 4, 2021 both included 13 weeks. The six months ended July 3, 2022 and July 4, 2021 both included 26 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 netOur Net 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 historically, 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 July 3, 2022, we completed the following acquisitions duringsince the nine months ended October 1, 2017start of the 2021 fiscal year:
•In July 2022, we acquired all of the outstanding stock of A&A Stepping Stone Manufacturing, Inc. (“A&A Stepping Stone”). With four locations in Sacramento, California, A&A Stepping Stone is a wholesale distributor of hardscapes and October 2, 2016:landscape supplies to landscape professionals.
•In September 2017,June 2022, we acquired the assets and assumed the liabilities of Marshall Stone, Inc. and Davis Supply,Prescott Dirt, LLC (collectively, “Marshall Stone”(“Prescott Dirt”). With two locations in Greensboro, North CarolinaPrescott and Roanoke, Virginia, Marshall StonePrescott Valley, Arizona, Prescott Dirt is a market leader in the distributionwholesale distributor of natural stone and hardscape materialslandscape supplies to landscape professionals.
•In August 2017,June 2022, we acquired the assets and assumed the liabilities of Bondaze Enterprises, Inc., a California corporation doing business as South Coast SupplyYard Works, LLC (“South Coast Supply”Yard Works”). With two13 locations in Orange County, California, South Coast SupplyCentral Virginia, Yard Works is a market leader in the distributionwholesale distributor of hardscape, natural stone and related productsbulk landscape supplies to landscape professionals.
•In May 2017,June 2022, we acquired the assets and assumed the liabilities of Evergreen Partners of Raleigh, LLC, Evergreen Partners of Myrtle Beach, LLC, and Evergreen Logistics, LLC (collectively, “Evergreen”Across the Pond, Inc. (“Across the Pond”). With two locationsone location in Raleigh, North Carolina and Myrtle Beach, South Carolina, EvergreenHuntsville, Alabama, Across the Pond is a market leader in the distributionwholesale distributor of nurseryhardscapes and bulk landscape supplies to landscape professionals.
•In March 2017,April 2022, we acquired the assets and assumed the liabilities of Angelo’s Supplies,Preferred Seed Company, Inc. and Angelo’s Wholesale Supplies, Inc. (collectively, “Angelo’s”(“Preferred Seed”) with two locations. With one location in Wixom and Farmington Hills, Michigan, both suburbs of Detroit. Angelo’sBuffalo, New York, Preferred Seed is a hardscapewholesale distributor of seed and landscape supply distributor, and has been a market leader since 1984.
In March 2017, we acquired all of the outstanding stock of American Builders Supply, Inc. and MasonryClub, Inc. and subsidiary (collectively, “AB Supply”) with 10 locations in the greater Los Angeles, California area and two locations in Las Vegas, Nevada. AB Supply is a market leader in the distribution of hardscape, natural stone and relatedagronomic products to landscape professionals.
•In February 2017,April 2022, we acquired the assets and assumed the liabilities of Stone Forest Materials, LLCRTSB Enterprises, Inc., doing business as Bellstone Masonry Supply (“Stone Forest”Bellstone”) with. With one location in Kennesaw, Georgia. Stone ForestFort Worth, Texas, Bellstone is a market leaderwholesale distributor of hardscapes and landscape supplies to landscape professionals.
•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 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 the distributionNorthern Virginia and one location in Maryland, JK Enterprise is a wholesale distributor of hardscapebulk and bagged mulches and soil, hardscapes, and nursery products to landscape professionals.
•In January 2017,December 2021, we acquired the assets and assumed the liabilities of Aspen Valley Landscape Supply,Bothe Trucking, Inc., doing business as Seffner Rock and Gravel (“Aspen Valley”Seffner”) with three locations. Headquartered. With one location in Homer Glen, Illinois, Aspen ValleyTampa, Florida, Seffner is a market leader in the distributionwholesale distributor of hardscapesnatural stone, bulk aggregates, mulch, soil, and other landscape supplies in the Chicago Metropolitan Area.to landscape professionals.
•In September 2016,November 2021, we acquired the assets and assumed the liabilities of Glen Allen Nursery & Garden Center,Semco Distributing, Inc. (“Glen Allen”Semco”). With one locationfour locations in Richmond, VA, Glen AllenOhio and Missouri, Semco is a leader in the distributionwholesale distributor of nursery productsnatural stone and landscape supplies to landscape professionals.
•In August 2016,2021, we acquired the assets and assumed the liabilities of Bissett Nursery Corp.Green Brothers Earth Works and acquired all ofSouthern Landscape Supply (“Green Brothers”). With four locations in the outstanding stock of Bissett Equipment Corp. (collectively, “Bissett”). Headquartered in Holtsville, NY, Bissettgreater Atlanta, Georgia market, Green Brothers is a leader in the distributiondistributor of nursery, hardscapes, landscape supplies as well as equipment sales, rental and repairshardscapes to landscape professionals with three locations serving customers throughout the New York City metropolitan area.professionals.
•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,May 2021, we acquired all of the outstanding stock of Hydro-ScapeRodvold Enterprises, Inc., doing business as Rock & Block Hardscape Supply (“Rock & Block”). With two locations in the San Diego, Southern Orange County and Inland Empire markets in California, Rock & Block is a distributor of hardscapes, masonry, and landscape supplies to landscape professionals.
•In April 2021, we acquired the assets and assumed the liabilities of Melrose Supply & Sales Corp (“Melrose”). With six locations throughout Florida, Melrose is a distributor of irrigation, lighting, and drainage products to landscape professionals.
•In April 2021, we acquired all of the outstanding stock of Timberwall Landscape & Masonry Products, Inc. (“Hydro-Scape”Timberwall”),. With one location in Victoria, Minnesota, Timberwall is a leading providerdistributor of hardscapes and landscape supplies to landscape professionals.
•In April 2021, we acquired the assets and assumed the liabilities of Arizona Stone & Architectural Products and Solstice Stone (“Arizona Stone and Solstice”). With seven locations throughout Arizona and two locations in the Las Vegas, Nevada market, Arizona Stone and Solstice is a distributor of hardscapes, natural stone, and landscape supplies to landscape professionals.
•In February 2021, we acquired the assets and assumed the liabilities of Lucky Landscape Supply, LLC (“Lucky Landscape Supply”). With one location in the greater Houston, Texas market, Lucky Landscape Supply is a distributor of nursery products (irrigation, lighting, maintenance, outdoor living and hardscapes) with 17 locations serving customers throughout Southern California.to landscape professionals.
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 the additional automation and enhancement of branch systems, 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 ninesix months endedOctober 1, 2017July 3, 2022 and October 2, 2016.July 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 | | Six Months Ended |
(In millions, except percentages) | | (In millions, except percentages) | July 3, 2022 | | July 4, 2021 | | July 3, 2022 | | July 4, 2021 |
Net sales | $ | 502.4 |
| 100.0 | % | | $ | 444.5 |
| 100.0 | % | | $ | 1,446.0 |
| 100.0 | % | | $ | 1,286.5 |
| 100.0 | % | Net sales | $ | 1,216.6 | | 100.0 | % | | $ | 1,083.9 | | 100.0 | % | | $ | 2,021.9 | | 100.0 | % | | $ | 1,734.1 | | 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 | 755.5 | | 62.1 | % | | 695.7 | | 64.2 | % | | 1,291.6 | | 63.9 | % | | 1,144.4 | | 66.0 | % |
Gross profit | 160.3 |
| 31.9 | % | | 138.4 |
| 31.1 | % | | 463.6 |
| 32.1 | % | | 404.0 |
| 31.4 | % | Gross profit | 461.1 | | 37.9 | % | | 388.2 | | 35.8 | % | | 730.3 | | 36.1 | % | | 589.7 | | 34.0 | % |
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 | 272.7 | | 22.4 | % | | 225.8 | | 20.8 | % | | 503.2 | | 24.9 | % | | 418.1 | | 24.1 | % |
Other income | 1.6 |
| 0.3 | % | | 1.2 |
| 0.3 | % | | 3.8 |
| 0.3 | % | | 3.3 |
| 0.3 | % | Other income | 1.7 | | 0.1 | % | | 2.2 | | 0.2 | % | | 4.2 | | 0.2 | % | | 3.4 | | 0.2 | % |
Operating income | 33.8 |
| 6.7 | % | | 31.9 |
| 7.2 | % | | 99.0 |
| 6.8 | % | | 77.0 |
| 6.0 | % | Operating income | 190.1 | | 15.6 | % | | 164.6 | | 15.2 | % | | 231.3 | | 11.4 | % | | 175.0 | | 10.1 | % |
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 | 4.6 | | 0.4 | % | | 4.3 | | 0.4 | % | | 8.9 | | 0.4 | % | | 9.8 | | 0.6 | % |
Income tax expense | 10.7 |
| 2.1 | % | | 10.7 |
| 2.4 | % | | 29.4 |
| 2.0 | % | | 25.4 |
| 2.0 | % | Income tax expense | 44.8 | | 3.7 | % | | 36.8 | | 3.4 | % | | 49.4 | | 2.4 | % | | 34.3 | | 2.0 | % |
Net income | $ | 16.9 |
| 3.4 | % | | $ | 14.9 |
| 3.4 | % | | $ | 50.6 |
| 3.5 | % | | $ | 36.2 |
| 2.8 | % | Net income | $ | 140.7 | | 11.6 | % | | $ | 123.5 | | 11.4 | % | | $ | 173.0 | | 8.6 | % | | $ | 130.9 | | 7.5 | % |
Net sales
Net sales increased 13%12% to $502.4$1,216.6 million for the three months ended October 1, 2017July 3, 2022 compared to $444.5$1,083.9 million for the three months ended October 2, 2016,July 4, 2021, and increased 12%17% to $1,446.0$2,021.9 million for the ninesix months ended October 1, 2017July 3, 2022 compared with $1,286.5to $1,734.1 million for the ninesix months ended October 2, 2016.July 4, 2021. These increases were primarily due to price inflation from rising product costs and contributions from acquisitions. Organic Daily Sales increased 5%8% in the thirdsecond quarter of 20172022 and 5%12% for the ninesix months ended October 1, 2017.July 3, 2022, compared to the prior year periods. Organic Daily Sales benefited from price inflation in response to rising product costs, partially offset by dampened volumes resulting from higher prices, moderating economic conditions, and unfavorable weather in northern markets. Based upon year-over-year price increases in our highest selling SKUs, we estimate price inflation contributed approximately 19% and 20% to our Organic Daily Sales growth for the three and six months ended July 3, 2022, respectively. Organic Daily Sales for landscaping products (irrigation supplies, hardscapes, landscape accessories, nursery irrigation,goods, and outdoor lighting, hardscapes and landscapes accessorieslighting) grew 7%9% in the thirdsecond quarter of 20172022 and 7%13% for the ninesix months ended October 1, 2017 asJuly 3, 2022, compared to the Company continued to benefit from strength in the residential and commercial construction and repair and remodel end markets.prior year periods. Organic Daily Sales for agronomic products (fertilizer, control products, ice melt, equipment, and other products) increased 2%7% in the thirdsecond quarter of 20172022 and 2%8% for the ninesix months ended October 1, 2017.July 3, 2022, compared to the prior year periods. The increases for both landscaping products and agronomic products were primarily due to price inflation as the costs for certain products such as PVC pipe, fertilizer, and grass seed have increased dramatically in response to strong demand and supply chain disruptions. Acquisitions contributed $34.1$44.9 million, or 8%, to third quarter growth of 2017 and $104.3 million, or 8%4%, to the Net sales growth infor the ninesecond quarter of 2022, and $88.3 million, or 5%, to the Net sales growth for the six months ended October 1, 2017.July 3, 2022.
CostsCost of goods sold
Cost of goods sold increased 12%9% to $342.1$755.5 million for the three months ended October 1, 2017July 3, 2022 compared to $306.1$695.7 million for the three months ended October 2, 2016,July 4, 2021, and increased 11%13% to $982.4$1,291.6 million for the ninesix months ended October 1, 2017July 3, 2022 compared to $882.5$1,144.4 million for the ninesix months ended October 2, 2016.July 4, 2021. The increase in Cost of goods sold for the third quarter of 2017three and the first ninesix months of 2017ended July 3, 2022 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%19% to $160.3$461.1 million for the three months ended October 1, 2017July 3, 2022 compared to $138.4$388.2 million for the three months ended October 2, 2016,July 4, 2021, and increased 15%24% to $463.6$730.3 million for the ninesix months ended October 1, 2017July 3, 2022 compared to $404.0$589.7 million for the ninesix months ended October 2, 2016.July 4, 2021. Gross profit growth for the third quarter of 2017three and six months ended July 3, 2022 was driven by the increase in Net sales growth, including acquisitions. Gross margin increased 80210 basis points to 31.9% for37.9% in the thirdsecond 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%35.8% in the second quarter of 2021, and increased 210 basis point to 36.1% for the ninesix months ended October 2, 2016. Our category managementJuly 3, 2022 compared to 34.0% for the six months ended July 4, 2021. The increase in gross margin reflects price realization, contributions from acquisitions, 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%21% to $128.1$272.7 million for the three months ended October 1, 2017 from $107.7July 3, 2022 compared to $225.8 million for the three months ended October 2, 2016,July 4, 2021, and increased 12%20% to $368.4$503.2 million for the ninesix months ended October 1, 2017July 3, 2022 compared to $330.3$418.1 million for the ninesix months ended October 2, 2016.July 4, 2021. The increase in bothSG&A for the third quarterthree and six months ended July 3, 2022 was primarily due to 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 increased 160 basis points to 25.5%22.4% for the three months ended October 1, 2017July 3, 2022 compared to 24.2%20.8% for the three months ended October 2, 2016,July 4, 2021, and decreasedincreased 80 basis point to 25.5%24.9% for the ninesix months ended October 1, 2017July 3, 2022 compared to 25.7%24.1% for the ninesix months ended October 2, 2016. The increase inJuly 4, 2021. These increases were primarily due to additional operating expenses as a percentage ofexpense supporting our sales for the last quarter reflected the impact of acquisitionsgrowth, cost inflation, 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.contributions from acquisitions. Depreciation and amortization expense increased $1.1$2.8 million to $10.8$23.1 million for the three months ended October 1, 2017July 3, 2022 compared to $9.7$20.3 million for the three months ended October 2, 2016,July 4, 2021, and increased $4.0$5.1 million to $31.4$44.8 million for the ninesix months ended October 1, 2017July 3, 2022 compared to $27.4$39.7 million for the ninesix months ended October 2, 2016.July 4, 2021. The increase in depreciation and amortization in both the third quarter and the first nine months of 2017 was primarily caused byattributable to our acquisitions.
Interest and other non-operating expenses, net
Interest and other non-operating expenses, decreased $0.1net increased $0.3 million to $6.2$4.6 million for the three months ended October 1, 2017 from $6.3July 3, 2022 compared to $4.3 million for three months ended July 4, 2021, and decreased $0.9 million to $8.9 million for the six months ended July 3, 2022 compared to $9.8 million for the six months ended July 4, 2021. The increase in interest expense for the three months ended October 2, 2016, andJuly 3, 2022 was primarily due to increased $3.6 million to $19.0 million forborrowings during the nine months ended October 1, 2017second quarter of 2022 compared to $15.4 million for the nine months ended October 2, 2016.same period of 2021. The decrease in interest expense for the thirdsix months ended July 3, 2022 was primarily due to the loss on the extinguishment of debt recorded in the first quarter reflected lower interest rates on our Term Loan resulting from our Term Loan Facility Amendments. The increase in interest expense for the last nine months primarily reflected higher debt levels following our Refinancing which occurred in April 29, 2016.of 2021.
Income tax (benefit) expense
Income tax expense was $10.7$44.8 million for the three months ended October 1, 2017 asJuly 3, 2022 compared to $10.7$36.8 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.July 4, 2021. The effective tax rate was 38.8%24.2% for the three months ended October 1, 2017 asJuly 3, 2022 compared to 41.8%23.0% 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.July 4, 2021. The decreaseincrease in the effective rate was due primarily to (i) the adoption of ASU 2016-09a decrease 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 $2.4 million were recognized for the ninethree months ended October 1, 2017 asJuly 3, 2022 compared to the nine months ended October 2, 2016.
Net income (loss)
Net income increased $2.0 million to $16.9$4.8 million for the three months ended October 1, 2017July 4, 2021.
Income tax expense was $49.4 million for the six months ended July 3, 2022 compared to $14.9$34.3 million for the six months ended July 4, 2021. The effective tax rate was 22.2% for the six months ended July 3, 2022 compared to 20.8% for the six months ended July 4, 2021. The increase in the effective rate was due primarily to a decrease in the amount of excess tax benefits from stock-based compensation recognized as a component of Income tax expense in the Consolidated Statements of Operations. Excess tax benefits of $7.4 million were recognized for the six months ended July 3, 2022 compared to $8.5 million for the six months ended July 4, 2021.
Net income
Net income increased $17.2 million to $140.7 million for the three months ended October 2, 2016, and increased $14.4 millionJuly 3, 2022 compared to $50.6$123.5 million for the ninethree months ended October 1, 2017 comparedJuly 4, 2021, and increased $42.1 million to $36.2$173.0 million for the ninesix months ended October 2, 2016.July 3, 2022 compared to $130.9 million for the six months ended July 4, 2021 The increase in Net income for the third quarter was primarily attributabledue to ourstrong sales growth and gross margin improvement.
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 2 | | Qtr 1 | | Qtr 4 | | Qtr 3 | | Qtr 2 | | Qtr 1 | | Qtr 4 | | Qtr 3 | | | | | | | | |
Net sales | $ | 1,216.6 | | | $ | 805.3 | | | $ | 805.2 | | | $ | 936.4 | | | $ | 1,083.9 | | | $ | 650.2 | | | $ | 675.1 | | $ | 751.9 | | | | | | | | |
Cost of goods sold | 755.5 | | | 536.1 | | | 522.8 | | | 595.9 | | | 695.7 | | | 448.7 | | | 452.8 | | 501.8 | | | | | | | | |
Gross profit | 461.1 | | | 269.2 | | | 282.4 | | | 340.5 | | | 388.2 | | | 201.5 | | | 222.3 | | 250.1 | | | | | | | | |
Selling, general and administrative expenses | 272.7 | | | 230.5 | | | 247.2 | | | 235.3 | | | 225.8 | | | 192.3 | | | 202.8 | | 183.3 | | | | | | | | |
Other (income) expense, net | (1.7) | | | (2.5) | | | (0.1) | | | 1.8 | | | (2.2) | | | (1.2) | | | (2.7) | | | (1.8) | | | | | | | | | |
Operating income | 190.1 | | | 41.2 | | | 35.3 | | | 103.4 | | | 164.6 | | | 10.4 | | | 22.2 | | 68.6 | | | | | | | | |
Interest and other non-operating expenses, net | 4.6 | | | 4.3 | | | 5.1 | | | 4.3 | | | 4.3 | | | 5.5 | | | 9.1 | | 6.6 | | | | | | | | |
Income tax (benefit) expense | 44.8 | | | 4.6 | | | 2.7 | | | 19.1 | | | 36.8 | | | (2.5) | | | 1.6 | | 13.8 | | | | | | | | |
Net income | $ | 140.7 | | | $ | 32.3 | | | $ | 27.5 | | | $ | 80.0 | | | $ | 123.5 | | | $ | 7.4 | | | $ | 11.5 | | $ | 48.2 | | | | | | | | |
Net income per common share: | | | | | | | | | | | | | | | | | | | | | | | |
Basic | $ | 3.12 | | | $ | 0.72 | | | $ | 0.61 | | | $ | 1.79 | | | $ | 2.77 | | | $ | 0.17 | | | $ | 0.26 | | $ | 1.11 | | | | | | | | |
Diluted | $ | 3.07 | | | $ | 0.70 | | | $ | 0.60 | | | $ | 1.74 | | | $ | 2.70 | | | $ | 0.16 | | | $ | 0.25 | | $ | 1.08 | | | | | | | | |
Adjusted EBITDA(a) | $ | 222.0 | | | $ | 67.8 | | | $ | 61.8 | | | $ | 128.2 | | | $ | 190.6 | | | $ | 34.5 | | | $ | 43.9 | | $ | 87.8 | | | | | | | | |
Net sales as a percentage of annual Net sales | | | | | 23.2 | % | | 26.9 | % | | 31.2 | % | | 18.7 | % | | 25.0 | % | | 27.8 | % | | | | | | | | |
Gross profit as a percentage of annual Gross profit | | | | | 23.3 | % | | 28.1 | % | | 32.0 | % | | 16.6 | % | | 24.7 | % | | 27.8 | % | | | | | | | | |
Adjusted EBITDA as a percentage of annual Adjusted EBITDA | | | | | 14.9 | % | | 30.9 | % | | 45.9 | % | | 8.3 | % | | 16.9 | % | | 33.7 | % | | | | | | | | |
| |
(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):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 | | |
| | Qtr 2 | | Qtr 1 | | Qtr 4 | | Qtr 3 | | Qtr 2 | | Qtr 1 | | Qtr 4 | | Qtr 3 | | | | | | |
Reported Net income | $ | 140.7 | | | $ | 32.3 | | | $ | 27.5 | | | $ | 80.0 | | | $ | 123.5 | | | $ | 7.4 | | | $ | 11.5 | | | $ | 48.2 | | | | | | | |
| Income tax (benefit) expense | 44.8 | | | 4.6 | | | 2.7 | | | 19.1 | | | 36.8 | | | (2.5) | | | 1.6 | | | 13.8 | | | | | | | |
| Interest expense, net | 4.6 | | | 4.3 | | | 5.1 | | | 4.3 | | | 4.3 | | | 5.5 | | | 9.1 | | | 6.6 | | | | | | | |
| Depreciation and amortization | 23.1 | | | 21.7 | | | 22.3 | | | 21.0 | | | 20.3 | | | 19.4 | | | 18.2 | | | 16.3 | | | | | | | |
EBITDA | 213.2 | | | 62.9 | | | 57.6 | | | 124.4 | | | 184.9 | | | 29.8 | | | 40.4 | | | 84.9 | | | | | | | |
| Stock-based compensation(a) | 5.8 | | | 3.7 | | | 3.1 | | | 3.5 | | | 4.6 | | | 3.1 | | | 2.7 | | | 2.6 | | | | | | | |
| (Gain) loss on sale of assets(b) | (0.2) | | | (0.1) | | | 0.2 | | | (0.2) | | | (0.2) | | | 0.1 | | | (0.2) | | | (0.4) | | | | | | | |
| Financing fees(c) | 0.2 | | | — | | | — | | | — | | | — | | | 0.7 | | | — | | | — | | | | | | | |
| Acquisitions and other adjustments(d) | 3.0 | | | 1.3 | | | 0.9 | | | 0.5 | | | 1.3 | | | 0.8 | | | 1.0 | | | 0.7 | | | | | | | |
Adjusted EBITDA(e) | $ | 222.0 | | | $ | 67.8 | | | $ | 61.8 | | | $ | 128.2 | | | $ | 190.6 | | | $ | 34.5 | | | $ | 43.9 | | | $ | 87.8 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
(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.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(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 2 | | Qtr 1 | | | Qtr 2 | | Qtr 1 |
Net sales | $ | 502.4 |
| | $ | 608.6 |
| | $ | 335.0 |
| | $ | 444.5 |
| | $ | 513.4 |
| | $ | 328.5 |
| |
Reported Net sales | | Reported Net sales | | $ | 1,216.6 | | | $ | 805.3 | | | | $ | 1,083.9 | | | $ | 650.2 | |
| Organic Sales | 457.4 |
| | 548.1 |
| | 318.5 |
| | 433.6 |
| | 506.6 |
| | 328.5 |
| | Organic Sales(a) | | 1,145.5 | | | 760.1 | | | | 1,057.7 | | | 648.4 | |
| Acquisition contribution(a) | 45.0 |
| | 60.5 |
| | 16.5 |
| | 10.9 |
| | 6.8 |
| | — |
| | Acquisition contribution(b) | | 71.1 | | | 45.2 | | | | 26.2 | | | 1.8 | |
Selling Days | Selling Days | 63 |
| | 64 |
| | 64 |
| | 63 |
| | 64 |
| | 65 |
| Selling Days | | 64 | | | 65 | | | | 64 | | | 65 | |
Organic Daily Sales | Organic Daily Sales | $ | 7.3 |
| | $ | 8.6 |
| | $ | 5.0 |
| | $ | 6.9 |
| | $ | 7.9 |
| | $ | 5.1 |
| Organic Daily Sales | | $ | 17.9 | | | $ | 11.7 | | | | $ | 16.5 | | | $ | 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$178.1 million as of October 1, 2017,July 3, 2022, after giving effect to approximately $193.7$186.0 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,July 3, 2022, we had total cash and cash equivalents of $24.1$50.1 million, total gross long-term debt of $479.5$444.2 million, and capital leasestotal finance lease obligations (excluding interest) of $12.8$46.6 million.
Working capital was $428.7$885.1 million as of October 1, 2017,July 3, 2022, an increase of $124.2$269.2 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 July 3, 2022 (in millions):
| | | | | | | | | | | | | | | | | |
| Total | | Next 12 Months | | Beyond 12 Months |
Long-term debt, including current maturities | $ | 444.2 | | | $ | 4.0 | | | $ | 440.2 | |
Interest on long-term debt | $ | 57.8 | | | $ | 14.4 | | | $ | 43.4 | |
Our gross long-term debt balance increased $184.0 million since January 2, 2022. This increase was primarily attributable to funding the seasonal increase in inventory from acquisitionsour working capital and higher stocking levels.our acquisition investments. 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 $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 July 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 July 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 | |
| October 1, 2017 | | October 2, 2016 | | Six Months Ended |
Net cash (used in) provided by: | | | | Net cash (used in) provided by: | | July 3, 2022 | | July 4, 2021 |
Operating activities | $ | (14.6 | ) | | $ | 9.2 |
| Operating activities | | $ | (23.6) | | | $ | 92.2 | |
Investing activities | $ | (76.9 | ) | | $ | (62.5 | ) | Investing activities | | $ | (144.7) | | | $ | (82.0) | |
Financing activities | $ | 99.1 |
| | $ | 59.0 |
| Financing activities | | $ | 164.9 | | | $ | 41.9 | |
Cash flow (used in) provided by operating activities
Net cash used in operating activities for the ninesix months ended October 1, 2017July 3, 2022 was $14.6$23.6 million compared to net cash provided by operating activities of $9.2$92.2 million for the ninesix months ended October 2, 2016. NetJuly 4, 2021. The increase in cash fromused in operating activities during the first nine months of 2017 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 expected price increases from our suppliers.
Cash flow used in investing activities
Net cash used in investing activities was $76.9$144.7 million for the ninesix months ended October 1, 2017July 3, 2022 compared to $62.5$82.0 million for the ninesix months ended October 2, 2016.July 4, 2021. The increase reflects greater investment in acquisitionshigher acquisition investments during the first nine
six months of 20172022 compared to the same period of 2016.2021. Capital expenditures were $10.3of $16.6 million for the first ninesix months of 2017, up from $6.2 million for2022 were unchanged compared to the first nine monthssame period of 2016 due to increased investments in information technology and store equipment.2021.
Cash flow provided by financing activities
Net cash provided by financing activities was $99.1$164.9 million for the ninesix months ended October 1, 2017July 3, 2022 compared to cash provided of $59.0$41.9 million for the ninesix months ended October 2, 2016.July 4, 2021. The increase primarily reflects higher borrowings under the ABL Facility to fund investmentsthe larger seasonal increase in working capital and acquisitions.our acquisition investments described above.
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 of the New Term Loans was 3.67% as of July 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 rangeunder the ABL Facility ranged from 2.99%2.62% to 5.00%.5.25% as of July 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, 2017July 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.
Subsequent Events
On July 22, 2022, Landscape Holding and Landscape, as borrowers (collectively, the “Borrowers”), entered into the Seventh Amendment to the Credit Agreement (the “Seventh Amendment”) with 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 Seventh Amendment amends and restates the Credit Agreement, dated as of December 23, 2013, among the Borrowers, the lenders and other financial institutions from time to time party thereto and UBS AG, Stamford Branch (the “Existing Agent”) as administrative agent and collateral agent (as amended prior to July 22, 2022, the “Existing Credit Agreement” and, as so amended and restated pursuant to the Seventh Amendment, the “Amended and Restated Credit Agreement”) in order to, among other things, (i) increase the aggregate principal amount of the commitments under the Existing Credit Agreement to $600.0 million, (ii) extend the final scheduled maturity of the revolving credit facility under the Existing Credit Agreement to July 22, 2027, (iii) establish an alternate rate of interest to the LIBOR rate under the Existing Credit Agreement, (iv) replace the Existing Agent as administrative and collateral agent with the New Agent, and (v) make such other changes to the Existing Credit Agreement as agreed among the Borrowers and the lenders. Proceeds of the initial borrowings under the Amended and Restated Credit Agreement on the closing date were used, among other things, (i) to repay in full the loans outstanding under the Existing Credit Agreement immediately prior to effectiveness of the Seventh Amendment, (ii) to pay fees and expenses related to the Seventh Amendment and the Amended and Restated Credit Agreement, and (iii) for working capital and other general corporate purposes.
Loans under the Amended and Restated Credit Agreement will bear interest, at Landscape Holding’s option, at either (i) an adjusted term SOFR rate equal to term SOFR plus 0.10% (subject to a floor of 0.00%) plus an applicable margin of 1.25% or 1.50% or (ii) an alternate base rate plus an applicable margin of 0.25% or 0.50%, in each case depending on average daily excess availability under the Amended and Restated Credit Agreement, and in each case subject to a 0.125% reduction when the Consolidated Total Leverage Ratio (as defined in the Amended and Restated Credit Agreement) is less than 1.50:1.00. Additionally, undrawn commitments under the Amended and Restated Credit Agreement bear a commitment fee of 0.20% or 0.25%, depending on the average daily undrawn portion of the commitments under the Amended and Restated Credit Agreement.
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 July 3, 2022, approximately $1.5 million was classified as Long-term debt, current portion and approximately $2.6 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.
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(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. |
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(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 and our Quarterly Report on Form 10-Q for the fiscal quarter ended April 3, 2022.
Item 6. Exhibits.
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Exhibit Number | | Description |
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Exhibit
Number 10.1 | | Description
Seventh Amendment to the Credit Agreement, dated as of July 22, 2022, by and among SiteOne Landscape Supply Holding, LLC, SiteOne Landscape Supply, LLC, JPMorgan Chase Bank, N.A., as administrative agent and collateral agent, and the several banks and other financial institutions party thereto, is incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of SiteOne Landscape Supply, Inc. filed July 25, 2022. |
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31.1 | | |
31.1# | | |
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31.2#31.2 | | |
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32.1#32.1 | | |
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32.2#32.2 | | |
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101.INS#101 | | The following unaudited financial information from this Quarterly Report on Form 10-Q for the quarter ended July 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. |
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101.SCH#104 | | Cover Page Interactive Data File (formatted in Inline XBRL Taxonomy Extension Schema |
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101.CAL# | | XBRL Taxonomy Extension Calculation Linkbase |
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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). |
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.
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| | SITEONE LANDSCAPE SUPPLY, INC. |
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Date: | August 3, 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) |