Earnings Call: Q4 2019

Feb 18, 2020

Greetings. Welcome to the SiteOne Landscape Supply 4th Quarter and Full Year 2019 Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to John Gunthery, Executive Vice President and Chief Financial Officer. Thank you. You may begin. Thank you, and good morning, everyone. We issued our 4th quarter and full year earnings press release this morning and posted a slide presentation to the Investor Relations portion of our website at investors. Siteone.com. I am joined today by Doug Black, our Chairman and Chief Executive Officer and Scott Salmon, 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 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. Thanks, John. Good morning and thank you for joining us today. I will start today's call with a brief review of our unique market position, our strategy to deliver long term performance and growth and some highlights from 2019. John Guthrie will then walk you through our Q4 and full year financial results in more detail and Scott Solomon will cover our acquisition strategy. At the end of the call, I will discuss some trends that we are seeing in our markets and address our outlook for 2020 before taking your questions. As shown on Slide 4 of the earnings presentation, of the earnings presentation, we have grown our footprint to more than 550 branches and 3 major distribution centers across 45 U. S. States and 6 Canadian provinces. At the end of 2019, we estimate that we had approximately 12% share of the wholesale landscaping products distribution market. We are 4x larger than our nearest competitor and larger than 2 through 10 combined. We have a very balanced mix of business with 59% focused on maintenance, repair and upgrade, 26% focused on new residential construction and 15% on new commercial construction. We are also the only national full product line wholesale distributor in the market. Our balanced end market mix, broad product portfolio and geographic spread give us multiple avenues to grow and provide important resiliency in softer markets. Turning to Slide 5. Our large and local strategy combines the scale, resources and capabilities of a large world class company with the passion, deep knowledge and entrepreneurialism of our local teams in order to deliver superior value to our customers and suppliers. It is important to note, however, that we are still in the early to middle innings of building our company and still have a long way to go in order to fully execute our strategy and reach our full potential. Accordingly, we remain highly focused on our commercial and operational initiatives to build our capabilities and improve the value that we deliver to our customers and suppliers. These initiatives are complemented by our acquisition strategy, which fills in our product portfolio, moves us into new geographic markets and adds terrific new talent to SiteOne. Taken altogether, our strategy creates superior value for our shareholders through organic growth, EBITDA margin expansion and acquisition growth. Slide 6 shows SiteOne's history and the results from our strategy over the past 6 years. Over this period, we have been able to deliver consistent organic growth, strong acquisition growth and solid EBITDA margin expansion while investing heavily in SG and A to build our IT, category management, marketing, supply chain, finance, operational excellence and acquisition teams as well as our underlying systems infrastructure, including e commerce. While we have not finished building our systems infrastructure, our field support teams are firmly established and we will continue to leverage these teams to accelerate the irrigation, agronomics, nursery and hardscapes product lines during the last 6 years with 10 of these added in 2019. Through these acquisitions, we have added significant capability and developed many lessons learned, which now can be applied to feature acquisitions. Our acquisition pipeline remains very robust and with only 12% market share, we have significant potential to continue growing through acquisition in the years to come. Finally, you will note that we regained our EBITDA margin expansion momentum in 2019. With fully staffed field support teams, several new systems in place and significant muscle added through acquisition, we are more confident than ever in our ability to achieve 10% plus adjusted EBITDA margin in the medium term. I will now discuss some performance highlights for our full year 2019 as shown on Slide 8. We delivered 12% sales growth in 2019 with a very healthy balance of 5% organic daily sales growth and 7% contribution from acquisitions. Given the very unfavorable weather in the first half of twenty nineteen yielding only 2% and achieving the 5% organic daily sales growth. This is also a good example of how the weather can move demand from quarter to quarter, but in most cases will even out during the full year. Organic growth during the year benefited from strength across our product portfolio led by our Hardscape and Landscape Supplies product segments. Adjusted EBITDA grew 14% in 2019 to $201,100,000 and adjusted EBITDA margin increased 20 basis points to 8.5% compared to the prior year. Our gross margin improved by 70 basis points with 50 basis points of this improvement coming from acquisitions. Our acquisitions, which were comprised largely of hardscapes and landscape supply businesses, also increased our SG and A as a percent of sales. Overall, we were pleased to move our EBITDA margin forward in 2019, although we would expect a higher pace of improvement in the coming years towards our 10% milestone. From a balance sheet perspective, we began to reap the benefits of our distribution centers and JDA replenishment system as we reduced slow moving inventory and improved our inventory turns from 3.5x to 3.7x based on the year end inventory. We also did a great job managing our trade receivables during the year. Accordingly, our cash provided by operating activities improved 67% to a record 131,000,000 allowing us to reduce our net debt to adjusted EBITDA ratio from 3.2x at the end of 2018 to 2.6x at the end of 2019. We expect to make continued progress increasing our inventory turns over the next 2 to 3 years. On the operations front, we made a lot of progress to siteone.com in 2019. Based on our customers' feedback, we have improved our product data and our search capability while also adding the ability for customers to pay their accounts online. Finally, we have created a Spanish version of siteone.com. With these improvements and others in process, we expect to accelerate our customer adoption of siteone.com in 2020. We made significant investments in 2019 to improve our customer experience and get our customers in and out of our branches faster. We now have barcoding and counter scanners in over 500 branches. Additionally, we have rolled out our associate mobility platform, MobilePro, to over 100 branches, allowing our associates to input orders and check out our customers anywhere in the branch or in the material yard. This is particularly helpful in our larger nursery and hardscapes branches. We plan to have MobilePro in 250 branches by the spring selling season this year. We expect MobilePro will help us increase our associate productivity while also allowing us to gain market share with a superior customer experience. We continue to make good progress with our management system or TMS during the second half of twenty nineteen. We have already begun to achieve savings on our inbound freight to the branches and we expect TMS to contribute to our gross margin expansion in 2020. Additionally, we are underway with the pilot of our new local customer delivery system, which will allow us to more effectively coordinate and manage customer deliveries across branches. We are very excited about the potential cost savings and customer service benefits from TMS, which will give us yet another advantage over our competitors. Altogether, 2019 was a great year of progress in building the foundation SiteOne. On the acquisition front, we continue to add terrific companies to SiteOne with 10 companies comprising approximately 100,000,000 and trailing 12 month sales added in 2019 and 3 more so far this year. Our acquisitions are performing well and we continue to have a strong pipeline of potential deals as we move into 2020. Finally, in 2019, we were able to further strengthen our leadership team. We brought on Scott Salmon to lead our acquisition team and then consolidated our pricing and category teams under Greg Weller, who also runs our supply chain. As we announced on Friday, we are thrilled to welcome Shannon Persagy, who is our new Chief Marketing Officer. Shannon comes to us with a terrific track record in all aspects of marketing from Lowe's and adds critical expertise and experience as we more fully leverage our digital capability and seek to further build out our brand and enhance our customer experience. I am personally very excited about the strength of our leadership as we move into 2020. In summary, 2019 was a year in which we continued to execute our strategy and demonstrated the momentum of our long term growth story. We improved our results, strengthened our team and balance sheet and made meaningful progress on our systems infrastructure. Accordingly, we are in great position to continue our momentum and increase the value that we deliver for all of our stakeholders in 2020. Now, John will walk you through the quarter and the full year in more detail. John? Thanks, Doug. I'll begin on Slide 9 with the income statement for our 4th quarter results. We reported a net sales increase of 13% to $535,000,000 in the 4th quarter. For the full year, net sales increased 12% to $2,360,000,000 During the quarter, we had 61 selling days, which was unchanged compared to the prior year period. For the full year, we had 252 selling days, which was also unchanged from the prior year. In 2020, we will pick up a 53rd week in fiscal December and our selling dailies will increase to 256. Organic daily sales increased 8% in the quarter and 5% for the full year. Geographically, 10 out of 11 regions had positive sales growth in the quarter with their strongest sales growth occurring in the South. Organic daily sales for landscaping products, which includes irrigation, hardscapes, nursery and landscape accessories, finished strong, growing 10% during the quarter and 5% for the year. Landscaping product sales in the quarter benefited in part from pent up demand that resulted from the challenging weather we had in the first half of the year. Organic daily sales for agronomic products, which includes fertilizer, control products, feed, ice melt and equipment, remained steady, growing 5% for the quarter and 4% for the year. Prices increased 1% in the quarter and 3% for the year compared to the same period in 2018 as cost increases from suppliers were passed through by the market. A number of price increases were put in place in the Q4 of 2018 and as a result, price inflation for the quarter was less than the full year. For 2020, we are forecasting moderate price inflation of 1% to 2%. Acquisition sales growth, which reflects the sales growth attributable to the acquisitions completed in 2018 2019 was $25,000,000 or 5 percent of the overall 4th quarter growth rate. For the full year, acquisition sales growth was $152,000,000 or 7 percent of the overall growth rate. Gross profit increased 14% to $170,000,000 in the 4th quarter and gross margin increased 50 basis points to 31.8%. The improvement in gross margin for the quarter is primarily attributable to higher supplier incentives and product mix, which positively impacted margin by 20 basis points. Both of these areas benefited from our strong growth in landscaping products compared to the prior year period. For the year, gross profit increased 14% and gross margin increased 70 basis points to 32.8%. The improvement in gross margin for the year reflects the contribution from acquisitions and strategic inventory purchases ahead of price increases. Selling, general and administrative expense, or SG and A, increased 11% to $167,000,000 in the 4th quarter. SG and A as a percentage of sales decreased 40 basis points to 31.2%. The reduction in SG and A as a percentage of sales reflects operating leverage and a reduced impact of acquisitions. For the full year, SG and A increased 13% to $654,000,000 and SG and A as a percentage of sales increased 40 basis points to 27.8%. The increase primarily reflects the impact of acquisitions with higher SG and A as a percentage of sales. For the Q4 of 2019, we recorded an income tax benefit of $5,600,000 which was the same as the prior year period. For the full year, income tax expense was $13,800,000 compared to 1,300,000 dollars for the 2018 fiscal year, and our effective tax rate was 15.1% compared to 1.7% for the prior year. The increase in effective tax rate was primarily due to a decrease in the amount of excess tax benefits from ASU 20 sixteen-nine. Excess tax benefits of $9,600,000 were recognized for the 2019 fiscal year as compared to $16,300,000 for the 2018 fiscal year. Net income for the Q4 was $2,500,000 compared to a net loss of $2,100,000 during the prior year period. Our net income improvement this quarter was primarily attributable to our strong sales growth. Our weighted average diluted share count was 42,800,000 for the fiscal 2019 compared to 42,600,000 for fiscal year 2018. Adjusted EBITDA increased by 23% to $22,200,000 for the Q4 compared to $18,100,000 for the same period in the prior year. For the full year, adjusted EBITDA increased 14 percent to $201,100,000 compared to $176,000,000 for the prior year. The improvement reflects solid top line growth and improved margin. Now I'd like to provide an update on our balance sheet and cash flow statement as shown on Slide 10. As a reminder, we adopted the new lease accounting standard during the Q1 of 2019. Total operating lease liabilities at the end of the year were approximately $235,000,000 with corresponding right of use assets. Of the total operating lease liabilities, dollars 49,000,000 are reported as current liabilities and are reflected in net working capital. Net working capital at the end of the year was $455,000,000 compared to 4 $83,000,000 at the end of 2018. Excluding the current lease liabilities, working capital for the quarter would have been $504,000,000 a 4% increase over 2018. The increase is attributable to the working capital added with our 2019 acquisition. Cash flow from operations increased 82 percent to $66,000,000 for the quarter and 67 percent to $131,000,000 for the full year 2019, an improvement of $53,000,000 over 2018. The increase was primarily attributable to improved terms of inventory and receivables. We were especially pleased with our team's accomplishments in reducing working capital tied up in our supply chain and in improving the asset efficiency of the company. We made cash investments of $28,000,000 for the quarter compared to $24,000,000 for the same quarter last year and $92,000,000 for the 2019 fiscal year compared to $164,000,000 in 2018. The decrease for the full fiscal year reflects less acquisition investment in 2019 compared to 2018 due in part to a reduction in the size of the completed deals. Net debt at the end of the year was $529,000,000 which is down from $556,000,000 at the end of last year. Net debt decreased to 2.6x our trailing 12 month adjusted EBITDA compared to 3.2 times at the end of 2018. The lower leverage reflects our increased profitability combined with a reduced year over year debt levels driven by our strong cash flows and reduced investment in acquisitions. We are pleased to be comfortably within our long term year end leverage target of 2x to 3x net debt to adjusted EBITDA. In summary, our capital structure continues to provide us with the flexibility to execute our growth strategy, including the funding of our acquisitions. I will now turn the call over to Scott for an update on SiteOne's acquisition strategy. Thank you, John. As shown on Slide 11, 48 companies have joined the SiteOne family since the beginning of 2014. They added 230 branches to SiteOne and represent approximately $915,000,000 in sales on a TTM basis. In 2019, we acquired 10 outstanding companies, bringing approximately $100,000,000 in TTM sales as we continue to be the 1st choice for entrepreneurs seeking a fair valuation, excellent opportunities for their associates and a long term partnership with the industry leader. Now as we turn to Slide 12 through 17, you will be able to find information on our 6 most recent acquisitions. On September 30, we acquired Design Outdoor Incorporated, which serves the Greater Reno Lake Tahoe market from a single location focused on the distribution of Hardscape's products to landscape professionals. The Reno Lake Tahoe market is a new market for us and we are very excited to add the Design Outdoor team as part of the SiteOne family. On December 20, we acquired DIRTT Doctors, a leading New England distributor of hardscapes and landscaping products with 3 locations. This acquisition expands upon our 2018 2019 acquisitions of Landscape Express and Landscape Depot. On December 27, we acquired Daniel Stone Incorporated, which serves the Greater Austin, Texas market from a single location. Daniel Stone represents the 3rd Hardscape and Landscape Supplies acquisition we've made in Texas since July 2018. We've continued our momentum into 2020 by adding 3 more excellent companies: Woodcroft, Landscape Supplies, Empire Supplies and the Garden Department. These acquisitions have allowed us to extend our Hardscapes product offerings into both the Greater Spokane Valley area in Washington as well as the Newark Union Metro area of New Jersey. In addition, we significantly expanded our already leading nursery and landscape supplies presence in Long Island. As we turn to Slide 18, we continue to see a significant opportunity to grow profitably through acquisitions, which allow us to move into new markets, expand our presence in existing ones, broaden our product offering and add outstanding talent to our team. Our pipeline remains very deep, thanks to the strong efforts of our development professionals, field leaders and the leaders of previously acquired companies. Together, they have earned an outstanding reputation for helping newly acquired teams to successfully join the SiteOne family of companies. 95% of our deal activity in 2019 involved exclusive negotiations with sellers. With nearly 50 companies added since 2014, we have a growing number of successful entrepreneurs who have joined the SiteOne family. Many of these leaders have stayed on to help drive our success and act as terrific ambassadors for SiteOne. We would like to thank all of our SiteOne associates for helping us to attract the best companies to join us in the future. While the timing of our acquisitions cannot be fully predicted, we are pleased with our current pipeline of deals and confident that we will continue to add strong companies to SiteOne in 2020 beyond. Thanks, Scott. I'll wrap up on Slide 19. We are optimistic about 2020 as we see steady markets providing another year for SiteOne to continue to execute our strategy and achieve good performance and growth. With a stronger team, new system capabilities and good momentum on our initiatives, we expect to accelerate our market share gains and adjusted EBITDA margin expansion while continuing to produce excellent cash flow in 2020. We will also continue to add companies to SiteOne through acquisition. Before we get into our 2020 guidance, I would like to provide an update on the trends we are seeing across our end markets and how those trends impact our organic sales growth prospects for 2020. The maintenance end market represents 42% of our business and we are seeing good growth in this segment due to a strong economy, steady price inflation and our improved ability to gain market share. As mentioned, our agronomics business, which is primarily maintenance, grew 4% last year and we would expect similar growth in 2020. Similarly, the repair and upgrade end market, which comprises approximately 17% of our business, is still benefiting from a strong economy, low unemployment and good consumer spending. Additionally, we benefit from 2 trends in repair and upgrade. First, there is the ongoing focus on outdoor living, which involves making the backyard a living space, particularly with hardscapes and lighting. 2nd, there is the increased scrutiny on stormwater management, which is driving double digit growth in our drainage and stormwater categories. We expect these two trends to continue for many years. Accordingly, we expect growth in repair and upgrade to remain healthy in the mid single digits in 2020. The new commercial construction market, which is approximately 15% of our business, has been very strong now for several years. While our current customer backlogs are solid, we would expect growth in this market to moderate to low single digits during the full year 2020. The new residential construction end market accounts for 26% of our business. Right now, builders are very bullish about 2020 and we have seen a tick up in new residential backlogs with our customers. Overall, we expect this market to be solid with mid single digit growth in 2020. Lastly, we would expect overall price inflation to be in the 1% to 2% range, down from 3% in 2019. Taken altogether, we would expect to achieve mid single digit growth again in 2020 with slightly lower price inflation and slightly higher volume growth. In terms of acquisitions, Scott and his team along with our field leaders have done an excellent job in building and converting our pipeline of high quality companies. As he mentioned, we currently have a strong backlog of deals and feel good about our ability to add more companies during the remainder of 2020. Turning to our guidance for 2020, we expect adjusted EBITDA to be in the range of $213,000,000 $228,000,000 which represents year over year growth of 6% to 13%. This range does not factor any contribution from unannounced acquisitions. Furthermore, this range incorporates an extra week that we will have in 2020 versus 2019. Unfortunately, this extra week occurs fiscal December during a very slow sales period and as a result will reduce our daily organic sales growth rate by approximately 100 basis points and will reduce our adjusted EBITDA by $2,000,000 to $3,000,000 with the extra week of SG and A. Overall, we feel very good about our momentum going into 2020 as we continue to realize the benefits from our initiatives and leverage our stronger company to deliver performance and growth. In closing, I would like to acknowledge all of the SiteOne associates who continue to create significant value for our customers and suppliers. We have a tremendous team and it is an honor to be joined with them as we build a company of excellence for all of our stakeholders. Operator, please open the line for questions. Thank Our first question is from David Manthey with Baird. Please proceed. Hi, good morning. Thank you. Doug, you said you expect a higher pace of adjusted EBITDA margin improvement in coming years. But when we look at the midpoint of the range for 2020, it's looking like maybe 10 basis points of improvement, which is in line or less than what we've seen since the IPO. Could you talk about the major cost factors or mix factors that are preventing you from getting more EBITDA margin expansion in 2020 specifically? Yes. Thanks, David. So we craft the range around a myriad of scenarios in terms of sales and performance. But overall, our expectation would be that we would see more improvement in 2020 than we saw in 2019. And we've got a bit of a headwind on the gross margin side with the we had the early buys in 2018 helping us in 2019. But we've got plenty of initiatives to overcome that and still achieve some margin improvement. We've got the blocking and tackling in category. We've got privately we've got some excellent private label initiatives that are well advanced. We talked about the TMS and we would expect freight and logistics savings. And then we're still growing faster with the small and medium customer than we are overall. So those all give us good avenues to improve gross margin. And then on the SG and A side, our team is more fully built and with good organic growth and some of our initiatives, associated mobility and some of our efficiency initiatives and lack of some one time hits that hit us in 2019, we think we'll have good SG and A leverage as well. So put those together, we think we're in a stronger position this year to achieve EBITDA margin expansion in 2020 than we were in 2019. And acquisitions will affect that, but they seem to be coming in at the same EBITDA percent level as we are. And of course, we're getting some synergies there. So all told, range aside, we expect to get some more EBITDA margin improvement in 2020 than in 2019. Okay. Thank you for that. That's helpful. Could you characterize 2019 just to baseline us on weather quickly. I know Q2 was really tough for you, but Q3 seemed nearly perfect. And I know it's always a combination of factors that lead you to the mid single digit growth. But how would you characterize 2019 as a year? I mean, with those two quarters, would you say it was roughly normal? And then as you mentioned, you got non res maybe coming off a bit, price coming off a little bit and maybe weather a little bit better to get you back to the mid single digit. Is that how you're thinking about the comparison with last year? Yes. You got it. The second quarter was tough. And so we were at 2% organic growth at the half year last year. The fall was a good season, right? Weather was good. We didn't have any major hurricanes interrupt us in the South. And so weather does tend to balance and in 2019 we saw some of that balance come through. We've got less price inflation than we had going into last year. But we feel better, quite frankly, if you remember last year, the residential market was a bit stalled and there's some question marks there. Residential is 2 thirds of our business and the residential market feels stronger. The builders are more bullish this year and even our customers we've seen a tick up in projects that they've had there. So we think all together it balances and we'll get a similar market in 2020 altogether than we had in 2019 and we're more advanced on our organic growth initiatives than we were last year. So that all brings us back to about the same place, which is that mid single digit growth and that assumes kind of a balancing year in 2020. We don't know which season will be effective. We know probably one of them will. If we have very, very terrible weather, it could be lower than that. If we have great weather through the year, it could be higher than that. That. Our next question is from Ryan Merkel with William Blair. Please proceed. Hey, good morning and nice quarter. Good morning, Ryan. Good morning. Good morning. So I just want to follow-up on weather, if I could. We had pretty mild weather in the Q4 and even in January. And I just want to get better understanding of how much this helps you or is the impact more muted because we're in the off season? Just some context there. The impact is somewhat muted. I would say, in Q3, weather had a bigger impact on the business than in Q4. But it was a positive, it was a tailwind. I would say in Q1, the weather has less of an impact until you really get to March when spring breaks. So I would say it was a nice tailwind of this year, but obviously relative to the beginning of the year, we had a backlog of work that was out there that the weather allowed us to move forward with. Okay. That's kind of what I thought. And then secondly, you mentioned an increased ability to take market share in 2020. I know you've listed a bunch of the initiatives, but can you just tell us how much do you aim to outgrow the market or put some numbers or context to that comment, please? Yes. We would hope to outperform the market kind of 1% to 2%, if you will. And we've probably been on the lower end of that range. And in 2020, we feel like we should have a stronger chance to be on the higher end of that range. But that would be roughly what we expect to get at this point in our development. Okay. And then just lastly, if I can sneak this in, the outlook for moderating commercial construction, I don't know if you hit on it, but what metrics are you looking at? Or what conversations are you having that shape that view? Well, yes, our primary metrics, we have 2 sources of, let's say, data on that. One is our customers themselves and what kind of backlogs they have. Our customers do have solid backlogs, but they're not as long as they used to be. I mean, this time last year, they had all of 2019 locked up. This year, they just have a little less, right? So chances are they'll pick more backlog up, but it just feels a little less strong than it did going into last year. The other lens we have is our project services group. We have a group that bids commercial jobs ourselves and assists our customers in doing takeoffs. And that group is looking out forward. And the same, they're still seeing a steady flow of projects, but it seems to just be a tick lower than what they had seen in the past. So those are the reasons we'd be a bit cautious there. We're not raising red flags, but we're just we're cautious, especially given the strength of commercial over the last several years that that has some likelihood of slowing down and then particularly in the back half of 2020. Our next question is from Steven Volkmann with Jefferies. Please proceed. I'm sorry, Steven, you're breaking up on Yes, we couldn't catch that. Could you try to get a better connection? Okay. Our next question will be from Mike Dahl with RBC Capital Markets. Please proceed. Hi. This is actually Chris on for Mike. Thanks for taking my questions. So first, it looks like pricing in this quarter came in at the low end of your guidance, it's just up one percent and your outlook has been moderating through 2020. So I was wondering if you could just touch on, has anything changed in the market as far as your pricing power or customers' willingness to take on additional price increases? And then I'll follow-up. I think it's more of a reflection of what's going on with our suppliers in the markets in general. Going into this year and really in the back half of 2018, we had some impact from tariffs. In addition, there was strong pricing coming from our suppliers and a lot of year over year, a lot of those price increases went into place in Q4 of 2018. So we were comping against the price increases. What we're seeing with regards to 2020, we're seeing some prices increases coming from suppliers, but they're much more modest compared to what we saw going into 2019. So I don't think necessarily it's a backlash relative to kind of where the market is at, but just kind of issues like tariffs, etcetera, are not on the board this year compared to last year. Got it. Thanks for that. And then just my second question, could you just give an update on your M and A backlog currently? I know deal sizes were a little bit smaller this year or last year versus the average. So how does how the current average deal sizes look for you guys? Yes, you're right. Our 2019 deal size at $10,000,000 was below our average over the last 4 years, which would be more around $17,000,000 But if I look at the backlog, we definitely have a significant number of medium and larger sized companies as well. So we would anticipate kind of reverting back to the norm somewhere probably between the $15,000,000 to $20,000,000 average. Got it. Appreciate the color. Our next question is from Matthew Bouley with Barclays. Please proceed. This is Christina Chiu on for Matt. I'm just wondering in addition to what was already said in the prepared comments, how did organic growth break out between your 2 products groups in agronomics and landscaping? Landscaping products grew 10% for the quarter and agronomics grew 5% for the quarter. Got you. And then also can you help quantify some of the benefits that you've seen thus far from some of these operational investments in delivery and transportation, IT and marketing and how customers kind of been receiving some of these upgrades? Yes. Going back, we made a lot of progress just in the overall customer experience in terms of being consistent with our customers, having the right product assortment, having the right pricing, having the associates kind of trained and able to serve them. We've augmented that with siteone.com. So we have customers that are adopting our new online portal in order to not only do quotes and bids, but also order their product in advance so that when they come in, it's already formed. And then recently, we've rolled the barcoding and associate mobility mobile pro, which allows our associates in our larger facilities, the nursery and hardscape centers, to check customers out in the yard, to be able to scan and get pricing out in the yard and around the branch. And this dramatically improves the speed at which the customers can get in and out of our facilities and therefore improve their customer experience. On the transportation side, we're still early on in that. Most of our transportation work to date has been on inbound freight coming into our branches. We're now running a pilot in the Coastal Carolinas to coordinate our outbound deliveries to customers. And in that way, we can coordinate across branches. We can have a centralized dispatching and we can get shipments there quicker and faster and at a lower cost. So that's having a significant impact for those customers in those markets and that's something that we plan to roll out across the country during 2020. So all of these are aimed at the touch points of our customers, making things easier, making things faster. And when you do that, time is money for our landscapers. Their most precious resource is their labor and their second most precious resource is their own time because they're all entrepreneurs and they're busy. And so if you can save them time, give them a good competitive price and have it be an easy experience, they'll come to us, right? And we've seen that in the early stages and that's what gives us confidence we can outperform the market as we just provide a faster, more efficient superior customer experience than our competitors. So still in the middle innings there. We've seen good progress and we've seen the growth start to tick up, but lots more room there to improve as we roll all these out across the country and lock them in as the way we do business for the long term. Yes, I think that covers it. Thank you. Okay, terrific. Our next question is from Keith Hughes with SunTrust. Please proceed. Thanks. This is Judy Merrick in for Keith Hughes. Just to follow-up on the which you talked about the acquisitions kind of picking up, you said maybe it's more return to medium or large. Is there anything else you see that's different, just the type of products or adjacencies or anything else that you're looking at for the acquisitions? I would say nothing significantly changing. We're still seeing an overwhelming number of the deals are exclusively negotiated. I think you'll still see us leaning more towards hardscapes and nursery type acquisitions simply because of our filling out our map and our strategy to get our full product line offering across all of our target MSAs. So by and large, I think there's been very little change. The pipeline is strong and again still vast majority exclusively negotiated. Right. And we've talked about adjacencies like equipment and other facets of landscaping products that we can go into. But we have a robust pipeline in our traditional verticals. And really until we get further down the road on that, we don't think it's the time to start adding adjacencies and making our business more complex. So right now, we'd like to keep we are working across nursery, hardscapes, agronomics and irrigation and that business has its own complexities. We'd like to stick to that in the near term and keep those other adjacencies for down the road in our evolution to go after. Our next question is from Seldon Clarke with Deutsche Bank. Please proceed. Hey, guys. Thanks for the question. Could you just give a little bit more color around the cadence of your organic growth target for this year and whether it implies any acceleration in any market in particular in the back half? So I think in general from an organic growth, if we were to think next year is going to be a normal year, I think you would see probably we felt we had because of weather impacted the second quarter, we would expect to have probably the strongest quarter throughout the year and potentially the Q3 kind of moderate the opposite way. The second quarter is our most important quarter of the year, so it will be nice to hit there. In general, I think the growth geographically probably we're all across the country. So, for instance, in the first half of this year, probably Southern California was somewhat negatively impacted, a lot of rain. You might see a recovery there. The South had a very good year. So I mean, we're somewhat one of the great things about being so geographically diverse is there's always one market where it's probably down a down year and another it's offset. But generally, I would say, in general, the South was pretty strong this year. Obviously, there's good economic trends there also. The West, at least the first half of last year faced some wet weather. Okay. That's helpful. And then are you hearing anything from your suppliers in terms of disruption related to the coronavirus that we need to be thinking about? We've heard some we get about 10%, 15% of our cost of goods from China, either as input components or whole components. And it mostly affects our chemical business, some of our landscape accessories and then lighting. And so we've obviously been in communication with those. The disruptions to date have not been major. There are potential disruption down the road. And so we've been doing some buying into our DCs and other things to mitigate that. We have secondary suppliers in the United States that we can use for these products and we can also buy forward into our DCs to as a shock absorber against any kind of disruption. So we feel good about our ability to kind of manage through any developments. And we're watching like everybody else. But today, no major disruptions and we feel like our plans can allow us to navigate any disruptions that we develop in the future. Our next question is from Alex Maroccia with Derenberg Capital Markets. Please proceed. Taking the questions. So it's been a strong start to the year in the acquisition pipeline. I guess why did people wait until the start of the year to sell? And what are you guys thinking you'll add this year as a percentage of revenues? Take the second one first, I guess. We would still target our 7% to 13% TTM sales in terms of what we're looking for to add in terms of M and A. And then on the timing, I don't think anyone is specifically waiting. I mean, there's a small psychological edge, so I guess for some people or benefit to finishing at the end of the year. But more or less it just comes down to when people are ready to sell and the due diligence process and how long that takes. So I don't think there's any particular force that's pushing people towards the end of the year, which is sort of a timing for us in this year. And if you look at it, we did 3 deals in Q4. So they're kind of they're falling they just all fell toward the end of the year, some sort of Q4, some flipped over to the beginning of the year. And there's a little bit of an effect to the sellers' mind share that they have to be able to invest in an acquisition process. If they're in season, they have a look from March to June, they have a little bit harder time to focus on it. So it naturally pushes it sometimes to H2. Got it. That's helpful. And then second one is, just seeing Shannon come in as CMO, you've got the big company background. Can you give us an understanding of how you're trying to change your marketing strategy and if we can expect a significant uptick in marketing spend? Great question. So we're thrilled to have Shannon joining. Marketing has been one of our strategic initiatives for some time now, yet we're really still in the early stages of using marketing as a major lever to drive organic growth. We've made some solid progress over the last couple of years. What we love about Shannon is she's got experience in all aspects of marketing. She was the VP with Lowe's and she's got kind of proven track record, especially as we move into the digital age and we start using all of our weapons, digital and otherwise, in an integrated fashion to communicate with our customers, to improve the customer experience and to grow organically. We think Shannon is uniquely prepared to take us to world class and that's why we're very excited. In terms of marketing spend, we're not a big company and she understands that. And so we'll be steady as you go. Going forward. We'll obviously make investments in marketing. We've been making investments in marketing. So that won't end. I don't see that being a huge tick up, but if we see levers pull, we'll certainly make those investments and we'll expect high returns from those investments. So we'll have to see. I think invariably as we get bigger, our spend will increase, but we're not looking for any kind of massive strategic pivot here. We're just really looking for Shannon to take the investments that we made already, perhaps smarter and better ones going forward to continue to drive organic growth. We're very excited about her joining the team. Got it. All right. Thanks a lot guys. Thank you. We have reached the end of our question and answer in SiteOne. We're very excited about our long term growth potential and profitability potential. And I'd like to once again just thank all the terrific SiteOne associates for helping us get to where we are today and for all their hard work and commitment in building a world class company. Thank you very much and we'll look forward to communicating with you again after the Q1. Thank you. This does conclude today's conference. You may disconnect your lines at this time and have a wonderful day.