Earnings Call: Q2 2021

Aug 4, 2021

Greetings, and welcome to SiteOne Landscape Supply Inc.'s Q2 2021 earnings call. I would now like to turn the conference over to your host, Mr. John Guthrie, Executive Vice President and Chief Financial Officer. Please go ahead, sir. Thank you, and good morning, everyone. We issued our second quarter 2021 earnings press release this morning and posted a slide presentation to the investor relations portion of our website at investors.siteone.com. I'm joined today by Doug Black, our Chairman and Chief Executive Officer, and Scott Salmon, Executive Vice President of 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 filing 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. We were very pleased to continue our excellent momentum during the second quarter with outstanding growth in sales and profits. We have seen the robust demand for professional landscaping services continue with strong residential repair, upgrade, and new home construction, increasing commercial activity, and steady maintenance growth. In this environment, our terrific teams have continued to perform well, delivering superior value to our customers and suppliers while overcoming rapid product cost inflation, select supply shortages, and ongoing freight and labor constraints. As a result, we are continuing to steadily win market share on top of the underlying market growth. Lastly, we made great progress on our commercial and operational initiatives during the quarter while adding three high-performing companies to our family through acquisition. 2021 is shaping up to be a breakthrough year for SiteOne as we continue to build our great company and execute our long-term strategy. I will start today's call with a brief review of our unique market position and our strategy for long-term performance and growth, followed by some highlights from the quarter. John Guthrie will walk you through our second quarter financial results in more detail and provide an update on our balance sheet and liquidity position. Scott Salmon will discuss our acquisition strategy. I will come back and review some of the trends that we are seeing in our end markets and address our outlook for the remainder of the year before taking your questions. As shown on slide 4 of the earnings presentation, we have grown our footprint to more than 590 branches and 3 major distribution centers across 45 U.S. states and 6 Canadian provinces. We are the clear industry leader, yet we estimate that we only have about 13% share of the very fragmented, $20 billion wholesale landscaping products distribution market. Accordingly, our remaining growth opportunity is significant. We have a balanced mix of business with 59% focused on maintenance, repair, and upgrade, 27% focused on new residential construction, and 14% 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 more ways to add value for our customers and suppliers while providing 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 and differentiate us from our competition. While we have come a long way in building SiteOne, we are still in the early to middle innings of developing our full capabilities across all our product lines. We remain highly focused on our commercial and operational initiatives to build our capabilities and improve the value that we deliver to 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 all together, our strategy creates superior value for our shareholders through organic growth, EBITDA margin expansion, and acquisition growth. If you turn to slide 6, you'll see that our strategy is working. Over the last 5 years, we've been able to deliver consistent organic growth, strong acquisition growth, and solid EBITDA margin expansion while investing heavily in SG&A to build our IT, category management, supply chain, finance, marketing, operational excellence, and acquisition teams, as well as our underlying systems infrastructure, including our digital capabilities. While work remains to be done on building our systems infrastructure, our field support teams are largely in place. Each year, our teamwork and synergies across SiteOne improve, along with our ability to leverage our infrastructure investments. We can see this in our increased market share gains, organic growth, and in the improved operating leverage that we are continuing to achieve in 2021. Going forward, we will build and leverage our capabilities further to accelerate performance for all stakeholders. You will also note that we have now completed 61 acquisitions across the irrigation, agronomics, nursery, and hardscapes product lines during the last seven and a half years, with five completed so far in 2021. We only acquire well-run companies, and so all of these acquisitions were already high-performing companies before joining SiteOne. With them, we have added significant capability and tremendous talent, and we have learned many lessons that can be applied to future acquisitions. Our acquisition pipeline remains very robust, and we have significant potential to continue growing through acquisition for many years to come. In summary, our strategy is working. We are still early in our execution, and you will see us get stronger every year as our key initiatives gain more traction. Slide 7 shows the long runway that we have ahead in filling our product portfolio, which we aim to do primarily through acquisition, especially in the nursery and hardscapes categories. Nursery and hardscapes operations require larger sites and significant local expertise, and so these product lines cannot just be added to most of our existing branch locations. We're well-networked with the best companies in our industry and expect to continue filling in these markets systematically over the next decade. I will now discuss some of the second quarter performance highlights, as shown on slide 8. We delivered 33% net sales growth in the second quarter, with 22% organic daily sales growth and 11% net sales growth added through acquisition. We are continuing to see elevated levels of demand across all our product lines, customer segments, and geographies, supported by very strong residential repair and upgrade activity and a robust new residential construction market. Commercial activity is sustaining a healthy rebound so far this year after stabilizing in the first quarter off the prior year lows. On top of the market growth, we believe we are gaining share in all our product categories as we execute our category management, operational excellence, sales force performance, and marketing initiatives. We are especially pleased with our progress in attracting new, smaller, and mid-sized customers to SiteOne and increasing our market share among Hispanic customers. These segments offer tremendous growth opportunities for SiteOne over the next several years. Overall, our initiatives are improving our product portfolio, customer service, partnership value, and our customers' awareness of our capabilities. As a result, we are now attracting new customers and gaining wallet share with existing customers on a consistent basis. Our positive organic daily sales momentum has continued so far in the third quarter, although at lower levels than the second quarter, as we start to compare against stronger sales from last year. If you recall, we saw double-digit sales growth last year beginning in June and sustaining through the remainder of the year. Accordingly, we expected our sales growth to moderate significantly. However, we are encouraged by what we have seen so far in June and July. With the strong demand and ongoing COVID-19 challenges, we are continuing to see select product shortages as well as very tight trucking capacity in most parts of the country. Additionally, labor constraints have made it difficult for our customers to work through their backlogs and take on additional work. These market dynamics have tested and highlighted our supply chain capabilities and have reinforced our value-added partnerships, which help our customers to operate more efficiently and effectively. Our terrific functional and field teams have executed our strategy, stronger together, in world-class fashion, which has given us a distinct advantage over our competition. As has been the case in other industries, we have also seen rapid inflation in landscaping products and in transportation, ramping up from 3% in the first quarter to 8% in the second quarter. We have worked hard with our suppliers and our customers to manage these cost increases and proactively communicate them to minimize the impact on our customers' operations and profitability. We anticipate that this higher than usual inflation will continue through the end of the year, contributing positively to our organic daily sales growth. Gross margin improved 80 basis points to 35.8% in the second quarter as we grew significantly with smaller customers, drove private label sales, managed freight cost increases, and proactively leveraged our supply chain and category management capabilities. We are confident in our ability to continue executing these initiatives and improve our gross margins in the remainder of the year and beyond. On the SG&A side, we achieved good leverage as our teams worked very hard to service the strong demand while also managing costs exceptionally well. We saw strong cost efficiency benefits from the now widespread adoption of Mobile PRO and our new transportation management system or TMS, which we rolled out in 2019 and 2020. These two deployments highlight the power of investing in new technologies to achieve customer service benefits and increase operating leverage. We plan to continue making these types of investments in the future. The combination of strong organic sales, solid gross margin improvement and good SG&A leverage, and strong contribution from acquisitions allowed us to deliver adjusted EBITDA growth of 44% for the second quarter and improve our adjusted EBITDA margin by 140 basis points. We now have clear line of sight this year to surpass the milestone that we set during our 2016 IPO of 10% adjusted EBITDA margin. We have significant capability to further improve our EBITDA margin in the years to come and will enjoy setting a new target after we celebrate at year-end. In addition to Mobile PRO and TMS, we continued to make progress on other important investments during the second quarter to build our capabilities for the future. We added several new members to our operational excellence team and have continued to codify our operating best practices in each of our major lines of business, irrigation and lighting, agronomics, nursery, hardscapes, and landscape supplies. As we make these best practices more systematic across SiteOne, we can improve the value that we bring to both suppliers and customers and accelerate organic sales and profit growth. We also began the rollout of our new Salesforce customer relationship management system or CRM, which will help our over 400 outside sellers bring better value to our customers and drive new business through new customers and increase share of wallet. We reinforced our digital team in the first and second quarters with new leadership and additional resources to speed progress in executing our digital strategy. In addition, we recently conducted two more in-depth pilots of SiteOne.com in Tampa, Florida and Los Angeles, California, to properly test new content, features, and service capabilities, including a new customer app. Finally, we made important investments in marketing during the second quarter to drive further market awareness of SiteOne and to drive organic sales of targeted product and customer segments. Overall, through our strategic investments, we remain focused on providing world-class tools, processes, and technologies to deliver value to our customers and suppliers, and to help our associates be more productive so that they have more time to do what they do best, help our customers to win. On the acquisition front, we completed 3 deals during the second quarter, bringing our total companies added year to date to 5. These 5 companies are all high performers and provide us with excellent new talent and capability for growth in their respective markets, while adding approximately $90 million in trailing 12 months sales to SiteOne. Our development teams remain very active with numerous attractive target companies, and we should see additional deals being completed during the remainder of the year. With an experienced team, broad and deep relationships with the best companies, a strong balance sheet, and an exceptional reputation, we remain well positioned to grow through acquisition for many years to come. In summary, I'm very proud of our team as we are keeping everyone safe, serving and supporting our customers, and delivering outstanding financial results in this extraordinary environment. We remain excited about both the short and long-term opportunities to drive excellent performance and growth for all our stakeholders. John will walk you through the quarter in more detail. John? Thanks, Doug. I'll begin on slide nine with some highlights from our second quarter results. We reported a net sales increase of 33% to $1.1 billion in the quarter. There were 64 selling days this quarter, consistent with the prior year period. Organic daily sales increased by 22% for the quarter due to strong demand as consumers continued to invest in their outdoor living spaces. Organic daily sales for landscaping products, which includes irrigation, nursery, hardscapes, outdoor lighting, and landscape accessories, was strong again this quarter, increasing 24% compared to the prior year period. We saw strong growth in the repair and remodel end market, which is benefiting from homeowners upgrading their backyards, as well as the residential construction end market, which is benefiting from strong demand for new housing. Organic daily sales for agronomic products, which includes fertilizer, control products, ice melt, and equipment, grew 17% this quarter due to the stay-at-home trend, as homeowners are also spending more on maintaining their lawns. Geographically, all regions achieved double-digit organic daily sales growth. As Doug mentioned, our customers remain very busy, and we continue to see strong sales growth in July, though at a slower pace due to the higher comps. As a reminder, organic daily sales growth increased from 3% in the second quarter of last year to 11% and 12% in the third and fourth quarters respectively. We anticipate solid growth for the remainder of the year, but not at the growth rates seen in the second quarter. Prices increased 8% for the second quarter and 6% for the first six months, which exceeded our previously communicated range of 3%-5%. We saw supplier costs continue to increase during the quarter with the greatest increases for irrigation products like PVC pipe and copper wire, as well as agronomic products like grass seed and fertilizer. All products have also been impacted by increases in freight, although our strategic initiatives in supply chain have helped mitigate the impact. We are managing through these cost increases, and the market, for the most part, is passing them through in higher prices. We do not see these cost increases abating anytime soon and are increasing our expectation for price inflation for the full year to 6%-8%. Acquisition sales, which reflect the sales attributable to acquisitions completed in both 2020 and 2021, contributed approximately $90 million or 11% to the overall second quarter growth rate. We are pleased with the performance of our acquisitions and our overall deal pipeline. Scott will provide more details regarding our acquisition strategy later in the call. Gross profit increased 36% to $388 million for the second quarter, and gross margin increased 80 basis points to 35.8%. The gross margin improvement reflects the execution of our supply chain initiatives, favorable pricing, and a more favorable customer mix due to continued growth with smaller customers. With regards to the supply chain initiatives, we have benefited from the previously mentioned initiatives in freight, as well as some strategic buys ahead of supplier price increases. Selling, general, and administrative expense, or SG&A, increased 29% to $226 million for the second quarter. SG&A as a percentage of net sales decreased 60 basis points to 20.8%. The reduction in SG&A as a percentage of net sales reflects our strong organic daily sales growth, combined with solid cost management. For the second quarter, we recorded income tax expense of $36.8 million, compared to $25.6 million in the prior year period. The effective tax rate for the quarter was 23%, compared to 24.5% for the prior year period. The decrease in the effective tax rate was due primarily to an increase in the amount of excess tax benefits from stock-based compensation. For 2021, we expect our effective tax rate will be between 25.5% and 26.5%, excluding discrete items such as excess tax benefits. We recorded net income for the second quarter of $123.5 million, compared to $79.1 million for the prior year period. The improvement was primarily driven by our strong sales growth, gross margin improvement, and SG&A leverage. Our weighted average diluted share count for the second quarter was $45.8 million, compared to $43.1 million for the prior year period. This increase was primarily attributable to our August 6, 2020, equity offering. Adjusted EBITDA for the second quarter was $190.6 million compared to $132.1 million for the same period in the prior year. Adjusted EBITDA margin, reflecting our gross margin improvement and SG&A leverage, increased 140 basis points to 17.6%. Now I'd like to provide a brief update on our balance sheet and cash flow statement as shown on slide 10. Net working capital at the end of the second quarter was $624 million, compared to $584 million for the prior year period. The increase in net working capital is attributable to higher receivables resulting from our strong sales growth and our decision to operate with higher inventory levels given supply chain disruptions and the strong sales environment. Cash provided by operations decreased to $138 million for the quarter compared to $185 million for the prior year period. The decrease was primarily driven by the increase in working capital. We made cash investments of $36 million for the quarter compared to $5 million for the same quarter last year. The increase in cash investment reflects the higher spend on acquisitions this quarter compared to the prior year period. Net debt at the end of the quarter was approximately $257 million compared to $477 million at the end of the prior year period. The reduction in net debt reflects proceeds from our August 2020 equity offering and our strong operating cash flow. Leverage at the end of the second quarter decreased to 0.7 times our trailing 12-month adjusted EBITDA, compared to 2.2 times at the end of the second quarter of 2020. The lower leverage reflects our reduction in net debt as well as our improved profitability. Our target net debt to adjusted EBITDA leverage range at the year-end is 1 to 2 times. As a reminder, we lowered our target leverage range from 2-3 times to 1-2 times to increase our financial flexibility and allow us to execute our acquisition strategy in all market environments. At the end of the quarter, we had liquidity of $472 million, which consisted of $108 million of cash on hand and approximately $364 million in available capacity under our ABL facility. In summary, our priority from a balance sheet perspective is to maximize our financial strength and flexibility without sacrificing our long-term growth or market opportunities. I'll now turn the call over to Scott for an update on our acquisition strategy. Thanks, John. As shown on slide 11, we acquired 3 companies in the second quarter, making our total 5 year to date, with combined trailing 12 months net sales of approximately $90 million. Since 2014, we have acquired 61 companies with over $1.1 billion in trailing 12 months net sales. Turning to slide 12 through 14, you will find information on our most recent acquisitions. On April 30th, we acquired Timberwall Landscape & Masonry Products, expanding our leading hardscapes position in the greater Minneapolis market established in Q4 of 2020 when we acquired Hedberg Supply. Also on April 30th, we acquired Melrose Irrigation Supply and Sales, extending our leading irrigation presence in Florida by adding 6 locations across South Florida. Melrose brings a great team and excellent new locations to serve the growing Florida market. On May 7th, we acquired Rock and Block Hardscape Supply, expanding our leading hardscapes presence in Southern California. Rock and Block serves the San Diego, Southern Orange County, and Inland Empire markets in California from 2 locations focused on the distribution of hardscape and landscape supplies. Summarizing on slide 15, our acquisition strategy continues to create significant value for SiteOne. Our pipeline remains strong, expanding across all geographies and lines of business, and we are excited to be partnering with the highest-performing companies in the industry and bringing outstanding new talent to SiteOne. These innovative leaders bring new ideas to SiteOne and help us realize our vision of being stronger together. We are honored that so many of these entrepreneurs choose to continue their careers with SiteOne. Long after they've sold their family business, they are helping the SiteOne family provide outstanding value to our customers, suppliers, and communities. I want to thank the entire SiteOne team for their passion and commitment to making SiteOne a great place to work. This continues to be the driving force which allows us to add terrific new companies and associates, and I am confident in our ability to deliver value to all of our stakeholders through further acquisitions in 2021 and beyond. I will now turn the call back to Doug. Thanks, Scott. I'll wrap up on slide 16. As mentioned, we have seen the demand trends moderate somewhat in June and July from the first 5 months of the year against the higher comparable sales growth in 2020, which started in June. With the tailwind of higher inflation, we are seeing continued organic sales growth across all product lines, customer segments, and geographies. Overall, sales growth has held up better than we had expected. Given our customers' current backlog of work and the underlying positive developments that we see in the economy and in both residential and commercial construction, we expect to see solid organic sales growth for the remainder of the year. In terms of end markets, we would expect maintenance, which comprises 41% of our business, to be steady during the remainder of the year with low to mid-single digit growth. We have terrific capability and great momentum in maintenance with our market-leading LESCO brand, and so we are very confident in our ability to perform in a steady market. Residential new construction and repair and upgrade, which comprise 27% and 18% of our business respectively, are expected to remain very strong through the end of the year and likely into 2022. Our customers have deep backlogs in residential and do not plan to slow down. These markets will continue to be constrained by labor, weather, and possible supply shortages. The new commercial construction market, which represents 14% of our business, has been the biggest surprise this year. Commercial activity has continued to be positive, and we see encouraging developments in the ABI index and in our own commercial bidding activity, which would support further growth ahead. We now expect commercial construction to be solid through the remainder of the year. Taken all together, we expect to achieve solid organic daily sales growth in the second half of the year and record sales growth for the full year 2021. Additionally, we will continue to execute our commercial and operational initiatives, which we believe will yield good gross margin improvement and SG&A leverage, leading to strong adjusted EBITDA growth and margin expansion. As mentioned, we now expect to exceed our 10% milestone for adjusted EBITDA margin in 2021. In terms of acquisitions, as Scott mentioned, we currently have a very strong pipeline of high-quality companies and look forward to adding more of these to the SiteOne family over the remainder of the year. Our acquisitions are performing very well and we continue to improve our ability to integrate them into our company, improve our customer value, and create synergies together. Accordingly, we expect acquisitions to contribute strongly to our performance and growth in 2021 and the years ahead. Taken all together, we're raising our fiscal 2021 adjusted EBITDA guidance to be in the range of $335 million-$365 million, which represents year-over-year growth of 29%-40%. This range does not factor any contribution from unannounced acquisitions. This compares to our prior estimate of $300 million-$320 million EBITDA. In closing, I would like to sincerely thank all of our SiteOne associates who continue to amaze me with their passion, commitment, teamwork, and selfless service. We have a tremendous team. It is an honor to be joined with them as we deliver increasing value for all of our stakeholders. I would also like to thank our suppliers for supporting us so strongly and our customers for allowing us to be their partner. Operator, please open the line for questions. Thank you. At this time, we'll be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please, while we poll for questions. Your first question comes from the line of Ryan Merkel with William Blair. Please proceed with your question. Thanks. Good morning, everyone, and very nice quarter. Thanks, Ryan. First off on M&A, it's been quiet since May. My sense is you expected 2021 was going to be as big as 2020. Has there been any change in targets' desire to sell or is this just maybe some timing pushing back a bit? Yeah, thanks, Ryan. I would say it's just a matter of timing. We still feel confident that we can deliver a solid year of acquisition. If you recall last year, although we were at a COVID pause, we were at about $40 million in acquired sales and ended at $190 million. Feel still very confident about the pipeline, definitely about our team and our valuation processes. I wouldn't be concerned about it. Perfect. All right. That's great to hear. Gross margins, very nice execution given the backdrop. Some of the drivers you listed, are they sustainable for the second half? Should we expect gross margins to expand year-over-year during the second half of 2021? Yeah. We feel we're in good shape. As we indicated last quarter with regards to gross margin. Obviously, we saw more cost inflation, the market is passing that through in general. We feel good about that. Also, with regards to our teams, the supply chain initiatives, we think will be positive. The customer mix has been a positive growth also with the smaller customers. In general, we're still optimistic on a positive gross margin outlook for the second half of this year-over-year improvement. It's great to hear. All right, I'll pass it on. Thanks. Your next question comes from the line of David Manthey with Baird. Please proceed with your question. Thank you. Good morning, everyone. First off, John, I'm not sure if you mentioned the price realization in the quarter. Could you give us that as well as the breakdown by agronomics and landscape products? It was 8% for the quarter. Hold on. I'll give you the exact numbers. Hold on. Here. agronomics was 3%-4% with the balance being in landscaping products. We're seeing the greatest increases in probably the irrigation product line. PVC pipe, copper wire, resin that goes into a lot of the products is driving a lot of that. Even in agronomic products, there's select products that are seeing price inflation. Fertilizer rates are up. Fertilizer prices costs are up. Grass seed costs are up. In general, also kind of freight costs are increasing overall. We did see more this quarter. Fortunately, the market is adjusting. There's always some transition through, but the market is adjusting to the new costs. Yeah, makes sense. Second, how do you gauge your customer backlogs? Is that all anecdotal conversations with the branches or do you have some quantitative indicators you look at? Related to that, I'm wondering, you talked about your share of wallet and the customers and so forth. Do you have metrics on same store customer count or average revenues per customer or anything like that? In terms of backlog, David, it is largely anecdotal. We're constant communication with our customers. We do have an outlook through our project services bidding group. We do commercial bidding. Certainly, we can track the number of bids that we're submitting, the win rate, and et cetera. So we've got a lot more detail there. Commercial is a smaller part of our business. On the residential side, it's mostly just customer conversations and anecdotal. Then in terms of wallet share, customer counts, growth with different customer segments, we do segment our customers by size, by business type. So we track all of that. We're getting more sophisticated on wallet share with our new CRM going in, that we're putting in. That will get a lot tighter. We certainly can see number of customers, whether we're growing transactionally by customer, et cetera. Those metrics, by and large, are positive. As we mentioned on the call, we're growing faster with the smaller customer. We're actually growing faster with the Hispanic customer segments than we are on average. That's a targeted strategy because our share is lower with the smaller customers than it is with the larger customers, just by the nature of how we've grown in the past. There's a big opportunity there. We see positive indicators that our strategies are working. Our new marketing efforts are starting to work. Our teams are doing a great job, and that's good profitable growth for SiteOne. Good to hear, Doug. Thank you. Thanks, David. Your next question comes from the line of Matthew Bouley with Barclays. Please proceed with your question. Hey, good morning. Congrats on the results. Thank you for taking the questions. I wanted to ask about the long-term EBITDA margin target. It sounds like there's going to be a new, I guess, sort of official one to come, maybe at the end of the year, so we don't get too far ahead of ourselves. Conceptually, assuming that target will be higher, what might be the path from here that we can look forward to between SG&A leverage, just other drivers of gross margin expansion? Just what are some of the guideposts we can look out for? Thank you. Right. Well, thanks, Matthew. Yeah, we're pleased to be passing that milestone that we set several years ago, and we always position that as a milestone. We think our EBITDA potential is significantly higher. We'll be setting that mark as we report the full year early next year. In terms of opportunities, we're still in the early to middle innings of building our company. If you look at our digital capabilities and what we expect to do there, our operating best practices across our branches, and then just overall payoff of our infrastructure and field support investments, we think we can drive SG&A down further over the next 3-5 years. There's quite a bit of runway there. On the gross margin side, we have quite a bit of runway as well. I mentioned the small customer growth. Private label is around 15%-17% of our business. We'd like it to be double that. That brings on profitable growth. We have more room to go on our supply chain efficiencies, our category management with our suppliers, and those initiatives still have legs to run. Consider us in the third inning on the nine-inning game, and we got a lot of runway on both sides, SG&A and gross margin, to make SiteOne a more profitable company. Wonderful. That's a great color. Thank you for that, Doug. Second one, just on the EBITDA guide. I guess sort of a $30 million range, a little larger than you've given historically at this point in the year. Maybe part of that is you're just a bigger company now. Maybe if you could speak to kind of what are the areas of uncertainty around that guide, kind of drivers of the high end versus low end. Thank you. Yeah, I'll take that, and then John may have some comments. It's really around organic growth. We feel good about our gross margin and opportunities there. We know what we're going to spend in terms of investment in our teams and our initiatives, et cetera. It gets down to organic growth. As we mentioned, the growth has been strong against tougher comps in June and July. We expect to do well in the third quarter. It's really the fourth quarter that has more variability. Last year, we had extremely good weather, as well as a very strong market. We're cautious of how we would perform against that. We are subject to weather in the fourth quarter. It's a smaller quarter, and that's probably where the variability is, and that defines our range, primarily. The other factors we feel pretty good about. John, anything to add to that? No, I think you hit it. It's organic growth, primarily variability and uncertainty in the fourth quarter. In addition, in the fourth quarter, we do lose a week of sales. Obviously, that's built into the guide from that standpoint. It's the uncertainty in Q4 that gets you top or bottom. All right. Understood. Well, thanks for the details and congrats on the results again. Thanks, Matthew. Your next question comes from the line of Keith Hughes with Truist. Please proceed with your question. Thank you. You've mentioned positive comments on June and July. I know that was the first month you kind of hit double-digit growth. Can you give us sort of a feel for what the comps looking at, what the comps coming in out of these numbers as we pick up the business last year? Yeah. We were 11% and 12% in Q3 and Q4. That is what we're comping at. Q4 especially was strong in November, December because they were especially warm. Those are the comps we're running against as opposed to we were comping against a 3%. About roughly 10% increase in comps from that perspective. Okay. For June and July, are you running up mid-single digits versus the, I believe it was double digits in June and July of last year? Is that roughly what we're looking at or can you give us any feel on that? Yeah, I think it'd be a little stronger than that. We're still strong in June and July. It would be in the low double-digit range in those months. Yep. Inflation's probably running a little bit hotter than what it was in the second quarter. Is that a fair statement? I mean, we still got price increases coming in, correct? Yeah. I would say it's similar to the second quarter. Maybe slightly higher. Okay. Your comments on commercial are very interesting. Any sort of feel for what parts of the commercial market are the strongest? Would it still be next year before that business would really see kind of boots on the ground pick up in a strong demand scenario? We've seen the strength kind of come through, and it's the type of commercial that follows residential. Retail, fast food, those types. Obviously, it's not the office side of the market, et cetera. When you look at kind of inner city or high-rise, that doesn't have a lot of landscaping. What we're seeing is strong residential and then commercial following that as you need to build out and support those expanding neighborhoods. Okay. Thank you. Thank you, Keith. 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. John, appreciate the color so far. I wanted to stick with the second half guide and try to pin you down a little bit more. It sounds like just based on the price inflation guide, your pricing is 6%-10% implied for the back half of the year, which gives you a nice tailwind on organic. Can you give us just a better sense of, from a volume standpoint, what you expect volume contribution to be in the second half? Any split between 3Q, 4Q to your point on the comps in 4Q. Oh, we're not giving specific guides with regards to the volume. We are saying that Q3, we expect to be significantly stronger than Q4, is what's built into our guide. If you look at the EBITDA guidance range, it's really around the variation with regards to Q4 with regards to where we end up. Okay. Understood. Then just back on a prior question around wallet share and market share overall. This seems like the environment where your logistics supply chain, your scale, all that in a constrained environment with strong demand seems like it lines up pretty well for accelerated share gains. Anything more specific on what you think the market has grown at in the first half of this year compared to your growth organically and how you're thinking about whether or not the share gains are accelerating through this year or if it's still just kind of steady on taking share? Thanks. Yes. Well, it's very hard to pin down because there's no good industry sources for activity broadly. We can get snapshots in certain areas. We lean on information from our suppliers and how we track with our customers. All indications are that we are accelerating our share gains, and you nailed it. It really has to do with our strength. We've been working obviously hard on the front side in terms of serving customers. Our NPS scores continue to go up. Our sales force is getting more capable and more focused. We've got now marketing firepower that we're using on the front end. We really have shined through on the back end in terms of having product in stock when it's been in short supply, leveraging our supply chain. Areas like in nursery where your size gives you the capability to partner with growers and be a first mover to get product into the branches. Based on all those factors together, we do feel strongly that our market share gains have accelerated. Specifically, how much of the growth, when everything's growing and the market's really strong, it's hard to figure out exactly how much of that is share gain. We know it's higher than it was last year, and it's getting stronger, and our capabilities to sustain that are getting stronger. Okay. Appreciate that. Good to hear. Thanks. Thank you. Your next question comes from the line of Damian Karas with UBS. Please proceed with your question. Hey, good morning, guys. Congrats on another solid quarter. Good morning. Thank you. We've covered a lot of ground here. Maybe just a follow-up question on pricing. You alluded to the incremental inflation over the last few months and the 8% or so price that you're looking to pass through for the year. Just curious, as supply chain issues eventually start easing, we get a little bit of a easing of the freight conditions and raw materials. Would you expect to get some of that price back that's driving some of the daily organic sales growth this year? Maybe if you could just talk about how we should think about what the price impact could end up looking like next year. I wouldn't expect, in general, that we would see much price deflation. I think the market is pricing up given the increased demand. There will be certain items. We can identify some of the more commodity items. In general, we think most of this price after years of very low price inflation, the fact that the demand is driving it from our suppliers, we don't expect a major decrease or decreases in cost coming to us significantly. We can obviously identify certain items, more commodity-related, that would do that. If you looked at the overall picture, I don't think that we would be putting in a negative number next year from that standpoint. Just to reinforce that, remember that we operate across a very broad product range. From irrigation products that are driven by resins, etc., chemicals which have their own drivers, fertilizer, nursery, hardscapes, landscape supplies like soil and mulch. When you take that all together, it's typically a very stable portfolio of products that tend to average out. We have seen elevated levels, but we think that'll settle back down. It's not likely to go negative in terms of the whole portfolio together. It's likely just to settle down to our typical lower number. Okay, great. That's really helpful. If you wouldn't mind just clarifying, as it relates to the guidance, how much contribution from acquisitions you're assuming for the full year? We don't split out acquisitions, but we have not included any new acquisitions that we haven't already closed. There would be incremental EBITDA, potentially, for additional acquisitions. At the same time, if we closed in November, December, that there could be losses due to the seasonality. No acquisitions that haven't been announced or closed are included in our current guidance. Fair enough. Appreciate the time. Best of luck, guys. Thank you. Thank you. Your next question comes from the line of Jeffrey Stevenson with Loop Capital. Please proceed with your question. Hi, thanks for taking my questions, and congrats on the strong quarter. Thank you. Were there any deferred sales in the quarter due to product shortages that will be a tailwind into the third quarter? Do you think we could see an extended construction season given labor constraints so that the fourth quarter seasonality won't be as pronounced this year? Yeah, just to address the first part of the question, we don't see any deferred sales. The market is tight. Supply chains are constrained. We've tended to find a way to get products for our customers. We're fighting through and don't feel like there will be any deferred benefit later. In terms of, could you repeat? With regards to the fourth quarter, I think our customers are so busy now that they're working as much as they can. If it's raining, if it's snow on the ground, they're not going to be able to work and they'll shut down. I don't think it'll extend the season. Weather trumps demand, and what it's really doing is if we get an early spring, early winter, those projects will most likely push out to 2022. Yeah, we are in a constrained environment in terms of labor. As John mentioned, there is work that's there that the contractors just can't get to because they don't have the workers. Like John mentioned, that will all push into 2022, and so that does bode well for next year. It extends the season into the following year, essentially. Okay, great. Just following up on residential, is there any concern about the recent deceleration in new construction? Is there a long runway given the historical lag between landscaping and new starts? There is a lag, obviously, between starts and when we actually do the landscaping. It's 6 months or so. We see a strong residential market and, quite frankly, think that those trends are here for a while. When you think about the whole stay-at-home situation that we've been in over the last year and a half, and now the fact that a lot of companies are going to more hybrid work arrangements, where people are coming in 2 days and home 3 days, or some combination of being at work and being at home. It really accentuates the need for homes and the desire to have a home and lessens the net commute to work. All those factors are working together to drive new home sales, and that's a trend that we feel is going to be here not just this year, but on into next year and possibly beyond. We feel really good about the residential market. Of course, our business is primarily residential, and so that bodes well for SiteOne. Great. Thank you. 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 Mr. Doug Black for closing remarks. Well, thank you, and thank you again for joining us today. We appreciate your interest in SiteOne, and we're very excited about our long-term opportunities for performance and growth and the potential of our company. We look forward to touching base again at the end of the third quarter. This concludes today's conference. You may disconnect your lines at this time. Thank you all for your participation.