Earnings Call: Q2 2020

Jul 29, 2020

Greetings, and welcome to the SiteOne Landscape Supply Second Quarter 2020 Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, John Guthrie, Executive Vice President and Chief Financial Officer. Please go ahead. Thank you, and good morning, everyone. We issued our Q2 2020 earnings press release this morning and posted a slide presentation to the Investor Relations portion of our website, investors. Siteone.com. I'm joined today by Doug Black, our Chairman and Chief Executive Officer and Scott Sullen, Executive Vice President, Strategy and Development. Before we begin, I would like to remind everyone that today's press release, slide presentation and the statements made during the call include forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Such risks and uncertainties include the factors set forth in the earnings release and in our filings with the Securities and Exchange Commission. Additionally, during today's call, we will discuss non GAAP measures, which we believe can be useful in evaluating our performance. A reconciliation of these measures can be found in our earnings release and in the slide presentation. I would now like to turn the call over to Doug Black. Thank you, John. Good morning and thank you for joining us today. Overall, we are very pleased with our results for the quarter and for the year thus far. I am so proud of our tremendous SiteOne team as they have continued to deliver outstanding results for all our stakeholders in the face of extraordinary challenges related to COVID-nineteen. Our strong culture of teamwork, service and commitment to excellence is shining during this time of crisis and we are gaining strength versus our competition we build our capabilities and execute our strategy. Accordingly, we are well positioned to deliver outstanding performance and growth for the long term and achieve our vision of excellence for our associates, customers, suppliers, shareholders and communities. I will start the call by updating you on developments since our Q1 call and discussing our actions to successfully navigate the rest of the year and beyond. John Guthrie will then walk you through our Q2 financial results in more detail and provide additional information on our balance sheet and liquidity position. Scott Solomon will discuss our acquisition strategy and then I will come back review some of the trends that we are seeing in our end markets and address our outlook before taking your questions. Before I talk about developments and actions, let me first say that our thoughts and prayers continue to go out to all those who have been impacted by COVID-nineteen. With the recent surge in positive cases, we are well aware that this pandemic is far from over and is still resulting in tragic loss of life, social isolation and significant economic hardship for many. While we have certainly not escaped the many challenges associated with this pandemic, we feel very fortunate to be here at SiteOne. We are a financially strong industry leader and as it turns out, our industry is benefiting from the renewed focus on the home due to COVID-nineteen. As a reminder, residential maintenance, repair and upgrade and new construction comprise about 2 thirds of the industry and our business. Despite the drag created by high unemployment, the broad social distancing requirements designed to stop the spreading of COVID-nineteen has spurred homeowners to invest in their homes and in particular in their outdoor living spaces. At the same time, new residential construction has recovered strongly with low interest rates and increased demand from young couples and families who are seeking a home. All in all, we have been pleasantly surprised by the strong and seemingly sustained resurgence of demand in the residential market. Further, I cannot tell you how proud I am of the SiteOne team. As I mentioned during our last call, our team adapted very quickly in March April and stepped up to achieve our 4 near term operational goals, which were to keep everyone safe in the COVID-nineteen environment, serve our customers better than anyone else, manage our business to a lower demand and take care of each other along the way. The stress of this challenge soon transformed into the stress of serving customers during a very busy and compressed spring season in May June. To add to this challenge, some of our key suppliers, including our irrigation suppliers have struggled to keep up with market demand as COVID-nineteen affected their operations in Mexico as well as their global supply chains for key components. This has caused our supply chain associates and branch teams to work overtime to ensure that our customers are served well. Taken all together, it has been a tough year, but the SiteOne team has worked stronger together with our suppliers and customers to overcome all challenges and deliver excellent results. I have never felt better about our team and our ability to compete in the landscape industry than I do right now. Slide 5 summarizes our actions, trends and highlights from the Q2. As COVID-nineteen continues spreading in our communities, we keep evolving our operations in order to operate safely and successfully. In addition to implementing the CDC guidelines, we have added screening processes in our branches designed to prevent associates who are sick from coming to work. We continue to allow all associates who are sick to stay home and be paid without using their paid time off or PTO. We have also required all associates to wear face coverings in our branches and offices to better protect each other and our customers. Finally, we continue to restrict travel, meetings, events, supplier visits and we continue to have our field support associates work from home. In summary, we are now well groomed into operating safely in a COVID-nineteen environment, while also adopting new measures that can help to prevent the spreading of this virus. As I mentioned, our markets have recovered across the country with the lifting of stay at home restrictions. Additionally, the strong outdoor living demand has added to our customer backlogs and has enabled us to achieve strong growth with our small and midsized customers. At this point, the market is now being constrained by the lack of labor availability to our customers and by supplier product shortages. Most severe product shortages are in the irrigation product line. Fortunately, our supply chain team proactively anticipated shortages and leveraged our distribution centers to mitigate the situation as much as possible. Once again, our size and scale coupled with our 3 large distribution centers and excellent supply chain team provided important competitive advantage to SiteOne during a tough time. Our suppliers are working very hard to recover and meet the current market demand and we expect the supply situation to improve significantly over the next 2 months. Taking May June together, we achieved double digit organic daily sales growth when combined with the negative 8% organic daily sales growth in April resulted in 3% organic daily sales growth for the quarter and 4% year to date. We have seen strong organic daily sales growth continue in July with positive growth across all regions and all product categories. With the solid organic sales growth, we are seeing good improvement in gross margin as we continue to execute our operational initiatives in supply chain, category management and pricing. During the quarter, we benefited from lower freight costs and excellent growth in our private label products. Additionally, our recent acquisitions operate at a higher gross margin than the base business, which contributed to our improvement. On the SG and A side, we achieved excellent operating leverage as we tightly managed our business, avoided discretionary travel and expenses and benefited from the COVID-nineteen related trends such as lower healthcare costs. Keep in mind that we continue to invest in our operational initiatives during the Q2, including investments in siteone.com, MobilePro and our new transportation management system or TMS. As I mentioned during the last call, MobilePro has been extremely useful in facilitating social distancing at our branches and getting our customers in and out of branches faster. We have also seen the strong pickup in the usage of siteone.com which further improves our safe interactions with our customers. Our implementation of TMS was slow due to COVID-nineteen travel restrictions, but the benefit from our prior work was evident in our favorable freight cost outcome in the quarter and for the year. Overall, I was very pleased that our team was able to achieve strong leverage despite these ongoing investments and the fact that recent acquisitions operate at a higher SG and A than our base business. Our acquisitions performed very well during the Q2 and for the first half of the year contributing strongly to our adjusted EBITDA growth and margin improvement. Many of our recent acquisitions have been in hardscapes and bulk landscape supplies as we fill in our capabilities in these product categories across the U. S. And Canada. These companies have benefited from the strong outdoor living trends. Lastly, we achieved record cash flow in the quarter with strong profits combined with good working capital management. Our supply chain strategy is focused not only on freight and logistics cost reduction, but also on inventory productivity. During the first half of the year, we have continued to improve our stock terms as we reduced slow moving inventory and maximize the utilization of our distribution centers. That said, part of our working capital gain is due to product shortages, which will hopefully be reversed in the 3rd quarter. Overall, we are pleased with our fundamental underlying improvement in inventory productivity so far this year. Our strong cash flow resulted in a meaningful improvement in our liquidity and a good reduction in our net debt to adjusted EBITDA ratio, moving from 3.3x in the prior year period to 2.2x at the end of the quarter. Maintaining the strong balance sheet is critical to our strategy to invest in our capabilities and grow through acquisitions. In terms of acquisitions, we had suspended our activities in April in order to better understand the impact of COVID-nineteen and the direction of the economy and our end market. There is still a considerable amount of uncertainty in the second half of twenty twenty and going into 2021. Some of the key questions are how fast will COVID-nineteen continue to spread, when will a proven vaccine be available and will we enter into an economic recession in 2021. That said, we do take comfort in the current positive trends in residential and we believe that our end market risk is manageable in the near to mid term. Accordingly, we have made the decision to resume our acquisition activities. Scott Thalmann and the development team have done a terrific job of maintaining discussions with potential targets and we anticipate being able to close additional deals in the coming months, while continuing to build our backlog of excellent companies who may wish to join SiteOne in 2021 beyond. To summarize, I am very proud of how our team has performed in this extraordinary environment to keep everyone safe, serve and support our customers, manage our business and take care of each other along the way. We still have a long way to go in building the full set of capabilities at SiteOne and achieving consistent excellence for all our stakeholders. However, we have made great progress in building our company this year even as we have battled the short term challenges. We are closely monitoring the trends and adjusting as necessary to perform in the short term, while continuing to build our company of excellence for the long term. Now, John will walk you through the quarter in more detail. John? Thanks, Doug. I'll begin with some highlights from our Q2 results on Slide 6. We reported a net sales increase of 9% to $818,000,000 in the 2nd quarter. During the quarter, we had 64 selling days, which were unchanged compared to the prior year period. Organic daily sales increased 3% in the 2nd quarter. Organic daily sales started the quarter slowly, declining 8% in April as a result of the adverse market impact from COVID-nineteen. Organic daily sales recovered during May June as many state and local in the quarter with only those regions hardest hit by the COVID-nineteen shutdown not able to pull themselves out of the hole. Organic daily sales for landscaping products, which includes irrigation, nursery, hardscapes, outdoor lighting and landscape accessories grew 4% during the quarter due to strong demand in our end markets and drier weather compared to the Q2 of 2019. We saw strong growth in hardscapes as consumers are spending more time at home and choosing to upgrade their backyards and patios. Organic daily sales for agronomic products, which includes fertilizer, control products, ice melt and equipment were up 1% for the quarter due to the negative impact of COVID-nineteen shutdowns in some key agronomic markets during the critical spring selling season. As Doug mentioned, the positive trend for organic daily sales has continued into the 3rd quarter. It should be noted, however, that that organic daily sales comp in the Q2 of 2019 was only 1%, whereas the organic daily sales comps in the 3rd and 4th quarters are 7% 8% respectively. Prices were up 1% in the quarter and 1% year to date compared to the prior year period. For 2020, we are expecting price inflation between 0% 2%. Acquisition sales, which reflects the sales attributable to acquisitions completed in both 2019 2020, contributed $43,000,000 or 6% to the overall 2nd quarter growth rate. Scott will provide more details regarding our acquisition strategy in the current environment. Gross profit increased 11% to $286,000,000 in the 2nd quarter and gross margin expanded 70 basis points to 35.0%. The increase in gross margin for the quarter was driven by lower freight costs and the contributions from acquisitions, which carried higher gross margin. Selling, general and administrative expense or SG and A increased 5% to $175,000,000 in the second quarter. SG and A as a percentage of net sales decreased 80 basis points to 21.4%. The reduction in SG and A as a percentage of net sales reflects operating leverage resulting from the combination of our solid organic sales growth combined with tight cost management. Last quarter, we highlighted a number of actions taken to align our cost structure with our sales volume, including a hiring freeze, furloughs of associates and cutbacks in discretionary spending. Those actions benefited our 2nd quarter results, but as sales have rebounded, our branches have gotten very busy and we brought associates back from furlough and started hiring new associates to meet the increased demand. For the Q2 of 2020, we recorded an income tax expense of $25,600,000 compared to $19,300,000 in the prior year period. The effective tax rate for the quarter was 24.5% compared to 23.0% for the prior year period. The increase in the effective tax rate was primarily due to a decrease in excess tax benefits attributable to stock based compensation. We recorded net income for the Q2 of $79,000,000 compared to $65,000,000 during the prior year period. The improvement was primarily driven by the strong sales growth, SG and A leverage and gross margin improvement. Our weighted average diluted share count was 43,100,000 for the 2nd quarter compared to 42,700,000 for the same period last year. Adjusted EBITDA for the Q2 improved by 16 percent to $132,000,000 compared to $114,000,000 for the same period in the prior year. The improvement reflects our solid top line growth, gross margin improvement and SG and A leverage. Now like to provide a brief update on our balance sheet and cash flow statement as shown on Slide 7. Net working capital at the end of the quarter was $584,000,000 compared to $536,000,000 at the end of the Q2 2019. Attributable to our decision to increase our cash on hand to enhance our financial flexibility in response to the market uncertainty brought on by COVID-nineteen. Markets have stabilized. We have started the process of reducing our cash on hand and paying down our outstanding debt. Excluding the cash on hand, net working capital decreased 18% to $420,000,000 compared to the prior year period. Receivable collections have held up well in this challenging environment and inventory levels are lower than last year due in part to some supply challenges caused by this COVID-nineteen pandemic. Our supplier partners are working tirelessly to reduce the outstanding order backlog, and we expect these supply disruptions to resolve themselves in the second half of the year. Cash provided by operations increased to $185,000,000 in 2nd quarter compared to $37,000,000 in the prior year period. The increase was primarily attributable to our management of working capital. Because we expect to catch up on our inventory purchases in the second half of the year, we expect some of the operating cash flow improvement in the second quarter will reverse itself in the second half. We made cash investments of $5,000,000 during the quarter compared to $29,000,000 for the same quarter last year. The decrease in cash investments reflects our decision to postpone acquisition activity in response to the uncertainty brought on by COVID-nineteen. Net debt at the end of the quarter was $477,000,000 compared to $622,000,000 at the end of the Q2 in 2019. Leverage decreased to 2.2 times of trailing 12 months adjusted EBITDA compared to 3.3 times at the end of the Q2 of 2019. The lower leverage primarily reflects our increased profitability and strong cash flow. As a reminder, we have no debt maturities until 2024. At the end of the second quarter, we had liquidity of $351,000,000 made up of approximately 164,000,000 cash on hand and $187,000,000 in available capacity under our ABL facility. In summary, our priority from a balance sheet perspective is to maximize our financial strength and flexibility during this uncertain time without sacrificing long term growth or market opportunity. I will now turn the call over to Scott for an update on our 2020 acquisition strategy. Thanks, John. As we explained on our last earnings call, COVID-nineteen brought about significant uncertainty in terms of the economy, our customers' ability to operate and our end market demand. Accordingly, we took the necessary steps to reduce our near term capital spending, which included temporarily pausing the closing of any acquisitions. We were transparent and communicated this to the owners of each company we were in negotiations with at the time. They appreciated our direct and honest style, which also respected their need to focus on leading their own businesses through the uncertainty, while reaffirming our strong desire to eventually join forces within. Our strategy and development teams took advantage of the pause to conduct a review of many of our past deals. The objective was to identify consistent themes, best practices and lessons learned and then modify our supporting cross functional acquisition processes as needed. We also standardized and enhanced the documentation of our processes from end to end to better communicate and train new leaders on our robust approach. With this important objective achieved, we are now restarting our due diligence activities and anticipate closing acquisitions again sometime in Q3. Thankfully, because we have over 80 associates continually connecting with potential acquisitions, we could seamlessly restart our acquisition engine without delay. Pipeline is deep and our commitment is steadfast to execute our M and A strategy and build upon the strong growth history shown on Slide 8. While we obviously didn't close any deals in Q2, I want to thank our field and functional support associates for demonstrating the power of our SiteOne teamwork in our local markets every day. Their excellent leadership, passion for SiteOne and obsession with helping our customers succeed really shines through and sets our company apart. This makes SiteOne easily the most attractive option in our industry for entrepreneurs who want to ensure a legacy of excellence for their associates. Summarizing on Slide 9, we are confident in our strategy, our teams, our acquisition pipeline and our approach. We are looking forward to once again bringing on new dynamic partners who will make the SiteOne team stronger, expand our product capability and support further performance and growth. I will now turn the call back to Doug. Thanks, Scott. I'll wrap up on Slide 10. 1st and foremost, we will continue to ensure the safety of our associates, customers, suppliers and communities as we operate in the coronavirus environment. This is a fiercely contagious virus and we are monitoring the trends and implementing best practices as they are developed. As our country works to overcome this pandemic, we believe that our ability and the ability of our customers and suppliers to operate safely will be critical to us all having a successful 2020. In framing our outlook for the remainder of the year, let me remind you of the trends from last year. We had a very weather affected spring season last year with negative organic growth in May June and only 2% organic growth at the half year. Then as John mentioned, we achieved 7% 8% organic daily sales growth in the 3rd and 4th quarters respectively to end the year at 5% organic growth. Our big months for growth last year were September, October November at 8% 10% growth. July, August December were in the 5% to 6% growth range. So we had some big months last year in the fall where we caught up from earlier weakness. Accordingly, though we are seeing strong sales growth in July, we will not likely see strong growth during September through November even if the underlying markets are positive. Overall, we are cautiously optimistic for the second half and would expect organic daily sales growth to be similar or slightly lower than our first half given the trends from last year. In terms of end markets, assuming significant stay at home restrictions are not reintroduced in the second half, we would expect maintenance, which comprises 42% of our business to remain steady with low single digit growth. Residential new construction, which comprises 26% of our business, looks to be solid in the second half as builders work to create new home inventory to meet demand. As we mentioned, repair and upgrade, which is 17% of our business, is very strong with significant backlogs to carry our customers through the end of the year and on into 2021. Finally, we expect the commercial end market to be steady in the near term with some weakness going into 2021 as businesses and commercial builders pare back projects to adjust to the impacts in the restaurant, entertainment, retail and hospitality sectors. Taking all these factors together, we would expect the market to support solid organic growth in the second half of the year. Against this backdrop, we will continue to operate safely and efficiently with tight management of our discretionary expenses until we get past the COVID-nineteen pandemic. We will also continue to drive our commercial and operational initiatives in supply chain, category management, pricing, sales force performance, marketing and operational excellence. We expect these initiatives to allow us to gain market share in support of organic growth and improve our gross margin. We will also continue to make investments in key capabilities for the future to include siteone.com and TMS. Considering all of these factors, we expect to achieve good progress in our adjusted EBITDA margin this year. In terms of acquisitions, as Scott mentioned, we have restarted due diligence on active deals and resumed conversations with potential prospects who are interested in exploring the sale of their company at this time. We expect to add additional companies to SiteOne in the second half and are excited about our ability to fill in our product portfolio, add terrific talent and help build our company through acquisitions going forward. Keep in mind that acquisitions added in the second half of the year will not contribute meaningfully to our adjusted EBITDA growth this year, but we believe will set us up for strong growth in 2021 beyond. With the increased visibility that we have on our end markets, we are pleased to reintroduce our adjusted EBITDA guidance range for 2020. We would expect adjusted EBITDA for 2020 to be in the range of $205,000,000 to $225,000,000 This is a wider range than typical due to the considerable uncertainty associated with the development of COVID-nineteen and the corresponding impact on our end markets. Keep in mind, this range includes an extra loss making week in December as compared to 2019, which Additionally, while our range includes economic uncertainty, it does not include any broad reinstatement of stay at home restrictions that would limit landscaping services. Overall, we are cautiously optimistic that 2020 will end up being a tough year, but also a year of tremendous success for SiteOne as we pressure test our strategy and take our company to the next level in terms of performance and growth for all holders. In closing, I would like to sincerely thank all our SiteOne associates who continue to amaze me with their passion, commitment, teamwork and selfless service. We have a tremendous team and it is an honor to be joined with them as we overcome adversity and deliver value for all our stakeholders. I would also like to thank our supplier partners for supporting us so strongly and our customers for allowing us to be their partner. Our tagline is stronger together and this has proven to be a tremendous strategy during these challenging times. Operator, please open the line for questions. Thank you. At this time, we will be conducting a question and answer Your first question comes from line of Ryan Merkel with William Blair. Please proceed with your question. Hey, thanks. Good morning, all. Good morning. So first off, second half guidance, low single digit organic growth, it feels a little conservative just given the outdoor living trend. So what organic levels did you see in June July? And then just clarify, is it primarily the tough comps in September through November that gives you the pause? Because it sounds like you think the industry will still grow during the second half. Yes. I mean that characterizes it. I mean we're seeing strong growth in July as we did in May June. However, as we outlined, we've got some tough comps. We were really catching up last year in September, October, which is the heart of our fall season. There weren't any hurricanes, meaningful hurricanes. So we had a good year from that standpoint. And so the combination of tough comparables and the fact that there's just a lot of uncertainty, right? I mean COVID-nineteen is still spreading. We still don't know how this is going to go. So yes, we're enjoying the strong trends today. We don't think those outdoor living trends by the way will change. So we think that strength will carry through. But we think it's better to be cautious in an environment where you've got so much uncertainty. Yes. Makes sense. Okay. So it's both comps and just an uncertain outlook. Might as well keep it conservative. Makes sense. Okay. And then second, margins were better than I was thinking this quarter. The outlook seems to be for more flattish EBITDA margins during the second half. I don't know if you said this, but well, I think you said SG and A you're going to be adding back. Is there anything else that hits the margins in the second half? We think on the gross margin line, it will be flattish from the perspective of we don't have necessarily built in into some of the strong growth we saw in margin in the Q1 and the Q2, I should say. And then as you mentioned, SG and A, as long as we're continuing to be as busy as we are, we expect to be at full labor. We're also expecting items like we benefited from lower healthcare costs in the first half. We would expect those to potentially normalize in the second half. And there were some deferrals, some expenditures that we did that we expect to probably happen in the second half. So we'll be managing it, looking to continue to improve our EBITDA margins, But those are the things that we have built into our outlook. And if I could just follow-up, why the flat gross margins? Is the TMS not going to continue or is there anything else? We would expect the benefit on freight to continue. We would also expect some of the benefit from acquisitions to continue. We think incentives may be slightly lower as because we're trying to catch up on the full year numbers. And then we've also kind of built and just in pricing and selling margin flattish numbers, where we were up slightly in the first half of the year. But the 2 big drivers will continue, but I would say incentives may offset some of that, given the lower sales volume. Got it. Makes sense. All right. Thanks. I'll pass it on. Thanks, Ryan. Your next question comes from the line of Steven Volkmann with Jefferies. Please proceed with your question. Hi, good morning guys. Good morning. I'm wondering if we can talk a little bit more about the M and A pipeline. It's good to see that restarting. And I'm curious, maybe Scott, is there a scenario where there's some pent up demand, some deals that were closed that can get done fairly quickly? Or does this restart kind of more slowly, I guess, as we go through year end? Yes. I would say, we've got a good pipeline that we paused on. So as we restart the engine, I think I feel good about our prospects. I wouldn't expect a flurry per se, but I also don't think it's going to take a significant amount of time to restart acquisition activities. And like I said, we did have some in progress. So hopefully, we can move forward with those. And any commentary around what you're seeing relative to valuation expectations? Yes. No real change at this point. I think most people are probably discounting the last several months as sort of one off. There's so many factors that have occurred with COVID that I don't think too much weight is being placed on the near term. Your next question comes from the line of David Manthey with Baird. Please proceed with your question. Thank you. Good morning, guys. Good morning, Dave. The first question back to the guidance and what it implies for second half EBITDA. The midpoint is, if my math is correct, down 7%. And that sounds a little harsh relative to low single digit growth that you seem to be assuming. And when I look at the type of contribution margins you've been putting up lately, 19% in the first half, it seems a little low. I mean, if you assume sort of a 15% or even a 10% contribution margin in the Q4, you'd probably be at the high end or above your guidance range. So I'm just trying to divide any color we can get here as it relates to cost expectations. John, I think you mentioned a couple of things, but just any additional color that will give us some information relative to the outlook, which seems again a little bit on the low side? Right. Well, I think first off, I want to make sure everybody considers the extra week. As Doug mentioned, that is a $2,000,000 to $3,000,000 loss and it actually impacts organic sales growth for the full year by almost 100 basis points because we are picking up a week when we really don't have that much sales in this period. But with regards to expenses going forward and gross margins, I mean, there's still a lot of unknowns out there from that perspective. I would say from on the upside, if the trend continue to go last couple months, we would be doing very well, but we are going to face some tough headwinds with strong sales in the Q4 that's driving that. On the SG and A side, we are going to add full labor. There will be probably some pickup in incentive costs. And then as we build out our outlook, as I mentioned, there are some costs that we have that were deferred in the first half that we expect to maybe continue into the second half. So those are the numbers from our perspective. We hope to exceed them from that perspective also. Yes. Just to add on to that, I mean, we're still full steam ahead with our initiatives, right? And so we think we'll continue to benefit from the TMS. We worked prior to this year and early this year on the inbound side of our transportation management system and that's paying off this year. We'll continue obviously, we'll continue to work on in category management, our Pro Trade brand is growing quite well. Our LESCO brand is growing quite well. So we have some nice upsides that we're mining. They just have to be balanced with the fact that we're up against some pretty significant comps and there's just a lot of uncertainty coming at us and that combined with the extra week and other things cause us to be more flattish. Got it. Okay. And is it correct that April normally represents 40% to 45% of your 2nd quarter revenues, but July, August September are more evenly split? Well, historically, I mean July is a big month for us. It would be similar to June on a like for like basis. August, September are slightly less than July from that perspective. Actually, if you look on a weekly basis, July has 5 weeks, it's about the same September being slightly more than August. So, I guess we have 5 weeks in July as opposed to 4 in August September. If you look on a weekly basis, they're relatively similar. Okay. But April is your the biggest month of the year? It is significantly higher than every other month, yes. Okay, great. Thanks a lot guys. Thank you. Thanks, Dave. Your next question comes from the line of Matthew Bouley with Barclays. Please proceed with your question. Hey, good morning, everyone. Thanks for taking the questions. Doug, any more color on the impacts of the supply chain disruptions you mentioned? Should we expect that the suppliers would actually raise prices as a result? Or is this more of just a temporary volume issue? No, this is a temporary volume issue. I mean, they and it really has impacted our irrigation suppliers, although we have a few other suppliers that have run tight. It's in one way, it's a good problem to have because volume is very strong, right? So first of all, we have very strong demand in irrigation. But those suppliers, all 3 of them really have operations in Mexico that were disrupted with COVID, that employee issues and the plants capacity was lowered pretty significantly. The other thing is they have components that are sourced around the world that there's been some shortages in those component supply chains. We're in very close communication with our suppliers. They're working hard on it. Their capacity is increasing. And so they're catching back up. We feel like it'll probably be tight for the next couple of months, but there won't be any long term, I guess, results from this. And certainly, this would not be a great time to come in and raise prices. So we don't expect that. Got it. Okay. That's helpful. And then secondly, just back on the M and A side. I know you mentioned what you're seeing on the multiples earlier. But is, I guess, the size of the pipeline kind of status quo versus pre pandemic or is it changed at all in terms of availability of targets? And honestly, given how residential and commercial markets are evolving, from your perspective, has it changed at all the type of product focuses that you guys are looking for in your pipeline? Thank you. I'll answer the second part first, I guess. I think just given our market share, you'll continue to see a predominance of landscape supply and hardscapes, possibly some nursery as well deals as we go forward. And then as far as the pipeline size, I mean, it's continued to grow. As Doug mentioned, we continued our contacts of potential targets throughout our pause. And just through the normal course of events, new companies are willing to sell. I wouldn't say it exploded as some had projected that there'd be a lot of financial distress pushing people to sell, but it did continue to grow. So new interest, I'd say, has continued at a historically normal pace. Yes. Let me just play on top of that. Strategically, just to remind you that we have we're working to fill out our product line across the country. We have about 200 or so MSAs that we're interested in. And we only have a full product line and about 50 of those. So we have a long way to go. And what we're missing the most is nursery and hardscapes. And so those there'll be a lot of hardscapes and nursery deals. There are still terrific irrigation companies that we'd love to join us and great agronomic companies as well. But the mix would obviously be biased toward hardscapes and nursery. And it's in today's day and age with the outdoor living trend being revved up, if you will, those especially the hardscapes and landscape supplies, those are companies that are going to do well in the near term. And obviously, we feel they'll do it's a great product line for us for the long term. Got it. Thanks for the details. Thank you. Your next question comes from the line of Keith Hughes with SunTrust Robinson Humphrey. Please proceed with your question. Yes. You talked about some labor restrictions. I think they were referring to your labor restrictions. But more generally question about your contractors. Where do they stand now with labor and as the particularly on larger jobs involving irrigation landscapes, has the quote process been elongated from lack of labor due to virus or just not enough bodies around? Yes. Well, as you know, before this pandemic labor was tight. There's obviously been a lot of people kind of laid off in the process of the pandemic, but it doesn't seem to be a large supply that are looking to get into the landscaping. And as you implied, with coronavirus, you're constantly you have people that may that are sick that you need to stay home and you're quarantined people, etcetera. So it does actually affect the supply of labor. That being said, our customers are very innovative. They're fighting through it as they always do. Obviously, they're growing. And you can see that in our numbers and in their numbers. And there's new landscapers that get into the business every year. And so, we're able to turn out some growth, but it has, I guess, exasperated the situation that already existed before now that we have coronavirus. On top of that, we and the industry are being very aggressive at attracting people to the landscape industry, etcetera. So you take all that together, it's tight. I wouldn't say it's net substantially tighter than it was before, but it remains very tight. In terms of delay of jobs, I really don't think we've seen that. I mean, we've seen some commercial jobs delayed because owners or developers are cautious, but not necessarily due to any significant additional shortages to the trade. Okay. Thank you. Your next question comes from the line of Mike Dahl with RBC Capital Markets. Please proceed with your question. Hi, thanks for taking my questions. First comment, I guess, just touching on that commercial comment and what you talked about at the in the opening remarks as well. Talking about commercial steady, but some weakness into 2021 on some of these delays. Just wondering, can you just kind of size up the impact that you're seeing on your backlog or hearing from your customers and whether that shows up also in 4Q as you're contemplating the guide. And tied into that on the maintenance component that would be related to commercial as the work from home environment continues to kind of push out? Are you seeing any slippage on that side? Yes, I'll take the last one first. On the main, it tends to be very steady, both residential and commercial. Of course, it's kind of 2 thirds residential, but the commercial maintenance will continue. I mean, folks that have offices even without employees coming to work in the short term are going to maintain their landscaping around those offices. So that's been steady. In terms of what we see in terms of jobs, we have seen some job delays and we have certainly seen the growth dampen. We have a project services group that bid for our contractors. It's the service we provide and we'll take the bid and do the takeoff and provide it to them so that they can go bid and get the work. So that project services team had been had seen a steady improvement in bidding kind of last year and coming into this year. That has flattened out. And if you take really May, June, July, their bidding activity has been flattish. And so that gives you so it's certainly a slowdown. You can look at the ABI index, and that's below 50%, though it's improving from the significant fall off. So those put together and just talking to our customers, they're seeing less projects to bid. So we don't anticipate that it will heavily affect 2020, but going into 2021, it feels like the commercial is going to be dampened next year. And so that's what we're seeing. Keep in mind that we lag the trends. Landscaping is the last thing to go in, in a commercial project. And so we're a lagging indicator of what's going on. Okay. On the cost side, I think it's important. Our expectation is that residential, though, will be stronger next year, and that's obviously a bigger part of our business. Right. Yes, given that we're 2 thirds residential, if we had our choice, we'd have the current trend, which is commercial weakening, but residential looks like it's kind of gaining strength. And certainly outdoor living is very strong and will continue to be strong. So kind of some balancing trends there. Okay. And then second question, just on back on the SG and A, understand that some costs that came out in 2Q were kind of temporary in nature and come back in the second half. But then presumably some things like T and E and certain things that would be normal course of business pre pandemic may not come back, maybe not even next year, I guess depending on how things play out. But in terms of that potential support from an SG and A standpoint, any quantification you could provide on what like T and A and some other components that may continue to remain subdued would represent? So, yes, that's true. T and E is down so far this year from that perspective. It was reflected in our Q2 numbers from that perspective. I guess we're not talking a huge dollar amount though. We're talking probably $1,000,000 to $2,000,000 reduction year over year from that perspective. So that would be the positive what we've seen and what will continue going forward. Got it. Thanks. Your next question comes from the line of Seldon Clarke with Deutsche Bank. Please proceed with your question. Seldon Clarke, your line is now live. Please proceed with your question. Hey, good morning. Thanks for the question. Just piggyback on the last question, have you identified any structural costs in the recent months that you mentioned T and E, but anything else that could potentially help you run a little bit more efficiently going forward, whether it be from site consolidation or procurement or anything along those lines? And then in that same context, are there any temporary costs that you're seeing as it relates to either PPE or COVID related cleaning costs that might reverse next year as well? Obviously, those items, we would expect. So on the positive side, I think some items that will reverse themselves from the first half to the second half or maybe next year, I think health insurance costs are probably one item that will probably as people haven't gone to the hospital, that will be one item that would reverse itself next year or and potentially in the second half. Travel and expenses, as I mentioned, is running lower. I don't know if that's on the positive side, may reverse itself. But there are other options. We think we've become much leaner as an organization on the positive side and obviously labor and efficiency there is one of the critical items that we would have been able to operate and we think that will be a carry forward going forward. In addition, I would say just kind of our utilization of our fleet has become much more efficient from that perspective on a go forward basis and that's another one of our larger costs that. So we're learning throughout here and we expect to come out of this a lean organization going forward and more efficient. Yes. Keep in mind, we also have initiatives around, for instance, sales force performance, which should make our we have a large sales force, over 400 sellers and to make them more productive is a significant aid to SG and A leverage. And then also our branch operational excellence, we're kind of hitting starting to hit a new stride in that initiative, which is also focused on efficiency. And we've certainly gained in this pandemic. It's been kind of forced, if you will, as we you end up shorthanded in the branch and you figure out how to serve your customers. And we've got Mobile Pro that's now almost fully deployed across the network. That's our barcoding system and that's made our associates more efficient. So, underlying there are some good underlying trends and initiatives that we're certainly pushing hard to try to beat what we put out there. All those are on the come, but we're excited about them to offset some of these others like healthcare, etcetera, that could come back against us that were lower than normal due to COVID. Okay, got it. That's helpful. And I know there are a lot of moving pieces here, but your updated guidance for EBITDA at the midpoint is only about 3% below pre COVID guidance, which clearly incorporated the same comp issues in 2019. But obviously, we're in a little bit of a different place than we were 6 months ago. So can you just help us bridge the delta here as it relates to either revenue and profitability and maybe where first half results came in versus your initial expectations or where you expect 2Q 2 H to shake out, just relative to where you thought things would progress back in January? Yes. Well, if you I'll take a stab at that and John can follow-up. As you look at last year, last year, we had a very weather constrained first half and then we had a very strong second half. So our plan would have been to have significant growth in the first half and then more tempered growth in the second half. We're sitting at the half year at 4%. So it is tied to organic growth. We would have expected to have higher given the way last year shaped out. And so going into the second half, the question is, is the outdoor living trend, which is clearly stronger than we would have thought it would have been and is really carrying us right now. How powerful is that going to continue to be as we go into that 2nd year comp? So that's how I broadly describe it. We expected higher growth in the first half and lower growth in the second half given the way last year worked out. What we're saying now is the growth in the second half is going to be about the same as the first half, which is different and we'll see how it goes. John, do you want to add anything? Yes. I would say if you look over the course of the where we were before and where we're after, I think probably the largest delta is still in revenue because and we've been able to, through what we've done in the Q2, to make up for that through primarily SG and A and also a little bit gross margin has come in higher. We don't have right now in our outlook necessarily that continued outperformance on SG and A because we are building some of that back in and gross margin. We're cautious on both of those in the outlook and the segment. Certainly, there's opportunities there. We're going to try to do that on both the revenue side and the margin side. But that's what the primary difference is going into. If I were to bridge it, I would say for the full year, it would be revenue would be the biggest decrease relative to that forecast. Your next question comes from the line of Damian Karas with UBS. Please proceed with your question. Good morning, gentlemen. Very solid execution during this challenging time. Thank you. Thank you. Yes. So you mentioned that you saw positive sales growth during the quarter in 7 of your 10 regions. Similar to how you had done last quarter, I was just wondering if you could maybe put a range around that, the three regions where you were declining versus where you were experiencing higher growth. Could you maybe just put the numbers around the range that you saw? Sure. Go continue on. And I was going to say in specifics I was going to ask you also specifically, just thinking about Florida and Texas, 2 key regions, wondering if you saw any fluctuation in your activity, given that there has been a little bit of a resurgence there in the cases or do you see strong consistent demand in those two regions? With regards to the quarter, I think what we gave the in prior quarter in Q1 responses is really kind of the story. We saw weakness, negative sales both those three regions, I would say, starting kind of from Delaware to Boston and then you go over to the Midwest, those regions were heavily impacted by the COVID and the restriction and actually had negative sales growth in the quarter. We continue to see strength in the Southeast and all the way through to Texas. With regards to going forward, we have not necessarily seen a huge drop off as a result of the increase in COVID cases. I mean, obviously, we're here in Georgia, which is kind of a hotspot with it and work continues. But obviously, everybody, including our associates and our customers are being much more cautious with regards to that. Yes. I would just to pile on to that, I would the results we're seeing in say July are strong pretty much across the board. Across the board. I mean, and across regions and across product categories, which would include Texas and Florida and those that are struggling current and Georgia that are struggling with COVID right now. Yes. If you look at June July, we would expect all regions to be showing positive growth. Okay, great to hear. That's very helpful. And then Doug, you mentioned earlier you're gaining strength versus the competition. Just curious, if you look at the 3% daily organic sales growth in the quarter, just wondering if you guys have a sense, how did that compare to kind of your underlying markets? And Doug, maybe anything else that you might add that just gives you conviction that you are indeed gaining strength? Yes. Well, we're continuing even through the pandemic. When I say we're gaining strength, I mean, we feel good about our performance. We talk to our suppliers all the time and that's primarily where we get the best information about how our competitors are doing and we feel good really across all our product lines that we are gaining strength. We're picking up talent, nice talent in the field. Even though we've been obviously managing our expenses tightly. When talented people in this industry want to join SiteOne, we bring them on. And we've been picking up talent. There was a recent pool obviously in the Horizon reported. We benchmarked that. We performed slightly better than them in those markets. So, we feel good about that. So, any kind of benchmarks that we can find tell us that we're performing well in the toughest times. So, that's how we get our information and we feel pretty good about that. Okay, great. Thanks for the time. Good luck, gentlemen. Thank you. Ladies and gentlemen, we have reached the end of the question and answer session. And I would like to turn the call back to Doug Black for closing remarks. Okay, great. Well, I'd like to thank everybody today. We really appreciate your interest in SiteOne. We feel great about our company and our team. I'd like to thank the SiteOne associates one more time and also our suppliers and customers. Together, we're making it through this pandemic and we feel good about the rest of 2020 and building our company for the future. All our thoughts go out to anyone that's affected by COVID-nineteen and we look forward to updating you after our Q3. Thank you.