Q1 2022 Beacon Roofing Supply Inc Earnings Call
In other words and expressions of similar meaning forward looking.
<unk> are only predictions and are subject to a number of risks and uncertainties. Therefore actual results may differ materially from those indicated by such forward looking statements as a result of various important factors, including but not limited to those set forth in the risk factors section of the company's 2021.
<unk> 10-K, and subsequent filings with the U S Securities Exchange Commission. These forward looking statements fall within the Safe Harbor provisions of the private Securities Litigation Reform Act of $19 95 regarding future events and the future financial performance of the company, including the company's financial outlook.
Before looking statements contained in this call are based on information as of today may five 2022, and except as required by law. The company undertakes no obligation to update or revise any of these forward looking statements.
Finally, this call will contain references to certain non-GAAP measures. The reconciliation of these non-GAAP measures to the most comparable measures calculated and presented in accordance with GAAP is set forth in today's press release and the appendix to the presentation accompanying this call both the press release and the presentation are.
Available on our website www dot <unk> dot com I would now like to turn the call over to Mr. Bennett Zombie, Vice President capital markets and Treasurer. Please proceed Mr. Salvi.
Thank you Celina, good afternoon, and good evening and welcome to our first quarter 2022 earnings call with me on the call today are Julian Francis President and CEO , and Franklin Outgrow Chief Financial Officer.
Our prepared remarks will correspond with the slide deck posted to the Investor Relations section of <unk> website.
After managements prepared remarks, there will be a question and answer session I will now turn the call over to Julian.
Thanks Dennis.
Let's begin on slide four.
The slide presentation.
I am extremely pleased to report we have started the year with first quarter.
Record for sales net income and adjusted EBITDA.
Sales increased 28% year over year, well ahead of the expectations. We set out in February due to a combination of focused execution of our ambition 2025 strategy and leveraging strong end market demand.
I am also especially pleased with our team's responsiveness to a dynamic market and their ability to tackle a challenging supply situation and the highly inflationary environment.
Through the hard work, we continue our track record of growth expanding profitability differentiating us service and adding value for our customers.
Gross margins increased by 80 basis points to 26, 1%.
As we have successfully done in prior quarters, our team focused on pricing execution in order to stay ahead of the cost curve with.
We successfully implemented multiple increases to offset the inflationary headwinds and remain price cost positive.
Productivity initiatives contributed to favorable operating leverage and adjusted EBITDA increased by nearly 90% to $140 million.
Our margin of over 8%.
An impressive first quarter performance from the topline to the bottom line to start the year.
As we have discussed in our prior calls we have restored financial flexibility to our balance sheet.
Our net debt leverage today sits at two three times and we have $1 1 billion in liquidity.
Our balance sheet provides us with ample ability to invest in value, creating growth opportunities and that is exactly what we are doing.
In November of last year, we successfully closed on the acquisition of midway wholesale the premier distributor of roofing products with annual sales of approximately $130 million and 10 locations across the Midwest I'm.
I am pleased to report that the integration of Midway is on track and performance is better than forecasted.
We also continue to proactively invest in our team to ensure we are able to meet anticipated demand as we enter the construction season across the U S and Canada with a robust backlog.
Our customers Trust us to reliably deliver high caliber service in any demand environment and they can be assured that we are prepared with inventory of products.
Services, when and where they need them.
<unk>.
Our market fundamentals continue to be strong the.
The replacement cycle that underlies approximately 80% of our business remains a tailwind.
A typical residential roof lasts about 20 years and if you look back 20 years in terms of new construction you see as historic surge in building.
Keep in mind that the vast majority of this demand is also non discretionary.
On the commercial side, we believe our specialized capabilities will allow us to grow share and take advantage of the positive trends and activity.
While some economic signals are mixed we believe we are positioned to grow volume and variety of markets by capitalizing on our scale through greenfields and acquisitions.
We remain confident that we have a multiyear runway of growth opportunities underpinned by the re roofing cycle.
Please turn to page five of the slide deck.
We were thrilled to see so many of you in person at our Investor day in Houston in February .
There, we detailed our strategic plan named ambition 2025 through which we intend to unlock the potential of our people our growth engine, our operations and shareholder returns.
We have structured our roadmap in four areas with detailed initiatives that are systematic and measurable.
The first areas by building a winning culture.
Second is a comprehensive set of measures to drive above market growth.
Third is our continuous improvement process, which drives our operational performance.
And lastly, these will create value for our shareholders.
We will grow the business more than $2 billion.
To $9 billion of sales in 2025, and 8% compound annual growth rate.
Our EBITDA will grow from $686 million in 2021 to about $1 billion in 2025, approximately a 10% annual growth.
Now please turn to page six of the deck.
I'll provide a brief update on our strategic initiatives, which provide insight on how we intend to achieve our plan.
First I'd like to highlight some of the ways. We are building a winning culture.
We are committed to putting people first and doing the right thing for the communities where we operate.
Issuing our inaugural corporate social responsibility report is an important milestone in fulfilling our commitment.
One highlight from that report is our goal to reduce the intensity of our greenhouse gas emissions by 50% by the year 2030.
We've just begun this journey, but there is no doubt we are building a more sustainable future for everyone, who has a stake in beacon.
Second we are driving growth above market and enhancing margins through a set of targeted initiatives.
We have a strong pipeline to expand our footprint through a combination of greenfield locations and tuck in acquisitions.
So far in 2022, we have opened two Greenfield branch locations and acquired two others expanding our presence in attractive markets.
Our focus on National accounts is also generating results.
We grew sales to our largest customers by approximately 35% in the first quarter.
Our scale and capabilities position us to uniquely support contractors builders and other national account customers by investing in specialized account representatives, who focus on the operational dynamics in each end market and high volume customers.
We also have a set of initiatives that support margin growth as part of our plan.
Our digital capability continues to be a clear competitive differentiator for beacon and sales on our online platform deliver approximately 150 basis point better margins compared to offline channels.
In the first quarter, 17% of residential sales went through this platform.
We provide the most complete digital offering and continue to expand our capabilities to serve customers in a way that brings them the most value.
Just this week, we added to our digital integrations announcing our go live with <unk>, a leading provider of all in one business management software for roofing contractors.
Our private label line of high quality building products sold under the <unk> brand deliver professional results at a competitive price for customers and yield between 502000 basis points of additional margin versus the alternatives.
Sales of our private label are up nearly 40% in the quarter versus the prior year.
<unk> is becoming a recognized and trusted name by professional contractors across our residential commercial and complementary end markets.
For those of you who've been following US you know, we intend to enhance productivity and capacity by our operational excellence.
Our OTC network remains a differentiator.
Currently we have 60 markets, including over 280 branches, where our teams work together to deliver a service model that solves for customer needs.
In addition to that we have combined P&L in these markets and launch multiple branch managers are all United and trying to achieve the same four goals.
First is improved customer service levels.
We have greater flexibility to deliver from the branch with the best combination of product and service to support the customers' needs.
That can benefit as a lower cost to serve.
By leveraging resources and logistics across a network of branches, we are able to reduce delivery time, and mileage improved labor efficiency and reduce fleet cost and emissions.
We have identified at least $50 million reduction in operating expenses in these branches by 2025.
The third benefit is optimizing inventory levels, which has been challenging in this environment, where we continue to see supply chain disruptions.
However, our ability to manage inventory across locations is an advantage and we continue to believe there is potential to cut our inventory investment by around $50 million to $100 million, while maintaining service levels.
And fourth critical to our ambition is that we accelerate our talent development.
Our OTC initiative creates opportunities for the people at beacon to build fulfilling careers and for us to unleash local talent enhancing our ability to execute on our plans.
We were very pleased with the recent launch of our Los Angeles' OTC hub, which is an approximately 120000 square foot facility with dedicated will co locations for both residential and commercial roofing customers.
The hub adds value to customers by sharing market resources inventory and systems to deliver an outstanding experience and one of the country's largest msas.
I'll focus on the bottom quintile branches has also produced meaningful results and we are continuing to see efficiency gains by deploying our best processes across the country.
We generated approximately $6 million year on year EBITDA improvement in the first quarter.
Our solid first step on our way to our 75 million ambition 2025 target.
Lastly, our strategic initiatives are designed to create shareholder value and we are committed to improving returns.
As part of a $500 million share buyback authorization announced at the Investor day, we executed a $125 million.
The accelerated share repurchase program.
We expect to settle in the second quarter of this year.
The share repurchase program demonstrates both our commitment to delivering value to shareholders and our confidence in our plan.
As you can see we truly have multiple paths to growth and margin expansion. We have a differentiated approach and have built the tools that are delivering measurable results as we embark on our journey to achieve our ambition 2025 targets.
Now I will pass the call over to Frank to provide a deeper focus on our first quarter continuing results.
Thanks, Julian and good evening, everyone turning to slide eight we achieved nearly $1 7 billion and total net sales in the first quarter of 28% year over year, driven primarily by higher average selling prices for our products.
In the aggregate price contributed approximately 23% to 24% to revenue growth and estimated sales volumes contributed around 3% to 4% largely driven by continued demand strength across our lines of business.
An improving trend as evidenced by our strong quarter end backlog.
Complementary sales increased approximately 20% year over year, as we achieved higher prices across nearly all product categories.
Higher volumes in siding and waterproofing also contributed to the growth.
As a reminder, our complementary product category has approximately 80% residential and 20% nonresidential exposure.
Turning to slide nine we will review gross margin.
Gross margin increased 80 basis points year over year to 26, 1%.
The execution of price increases across many product categories, including the January shingle price announcements contributed to the improvement.
In the aggregate price cost was positive by approximately 130 basis points in the first quarter on a year over year basis.
Our team's focused execution once again kept price above product inflation and created favorable timing benefits, which contributed to gross margin expansion.
In addition, our private label sales increased approximately 40% year over year, providing gross margin enhancement.
Higher nonresidential sales caused a 50 basis point mix headwind, which partially offset the price cost improvement.
Adjusted Opex was $323 million, an increase of $45 million compared to the year ago quarter.
The increase was predominantly driven by increased head count and wages year over year, together with higher selling costs, namely commissions credit card fees and travel and entertainment and.
And inflation and fuel rent real estate taxes and insurance.
The current year Opex also includes approximately $10 million and costs associated with recently acquired branches net of our solar divestiture as well as Greenfields in OTC hubs opened since Q1 of 2021.
Excluding the midway and Crabtree acquisitions, our head count was up year over year largely in line with volume growth.
We consciously winterized less this year, given the difficult hiring environment and to make sure. We are appropriately staffed for the healthy selling season, we are expecting.
Our focus on labor and fleet productivity continues to show results. Our efforts combined with higher sales drove adjusted Opex to sales down 190 basis points year over year.
Importantly, we are making investments in our ambition 2025 growth and margin enhancement levers. We are nearly complete on building out our dedicated M&A and Greenfield teams investing in our sales organization and customer experience initiatives. While also progressing our work on our new pricing model and maintaining our industry leading digital platform.
Turning to slide 10, we will review our financial flexibility.
Our ambition 2025 strategic plan prudently balances the investment of capital on strategic growth opportunities, while maintaining a targeted leverage range of two to three times trailing 12 months EBITDA.
Net debt leverage stood at two three times trailing 12 month adjusted EBITDA at quarter end compared to two nine times at the end of the same period a year ago.
Some of you may recall that net debt leverage stood at six one times at March 31, 2020 over the last two years, we have reduced gross debt by approximately $1 8 billion.
And significantly increased our trailing 12 months EBITDA.
This transformation of our balance sheet has been integral to the launch of our ambition 2025 strategy.
We have no near term refinancing risk due to our comprehensive refinancing completed last year.
Which pushed out our debt maturities to 2026 and beyond.
And our liquidity of approximately $1 1 billion at quarter end provides significant ability to invest in our future.
As Julian mentioned, we have started to use our restored financial flexibility to accelerate our growth.
In recent quarters. This has included tuck in M&A.
Infield openings and rebuilding our inventory to ensure we can effectively meet demand.
We will also invest in our business through capital expenditures at approximately one 5% of sales this year.
Net inventory is $375 million higher compared to the end of the first quarter of 2021, largely due to product cost inflation, which accounts for approximately 55% of the increase.
We are also carrying certain elements of inventory longer than expected due to lengthening project cycles, and ensuring material availability to support our strong backlog.
Acquired inventory from both midway on Crabtree also contributed to the inventory build.
Operating cash flow adjusted for items related to the sale of our interiors business was negative $162 million in the quarter given.
Given the seasonal pattern of working capital needs in our business. We typically use cash in the first half of the year and generate cash in the second half of the year.
We're pleased to report that our share buyback program is off to a good start as we executed on both open market purchases as well as an accelerated share repurchase program.
We repurchased approximately $113 million of our common stock during the quarter.
As a result shares of common stock outstanding decreased to $68 7 million as of March 31 22.
From $70 4 million as of December 31, 2021, a reduction of approximately $1 7 million shares.
To wrap up we're very excited about our performance in the first quarter, we have significant momentum as we enter the most important part of our year and are making progress on our ambition 2025 plan.
With that I'll turn the call back to Julian for his closing remarks.
Thanks Frank.
Before we turn the call over to Q&A I want to briefly wrap up our first quarter and turn your attention to the remainder of 2022.
Please reference page 12 of the slide materials.
We expect end market demands to remain strong even at headwinds such as inflationary pressures supply chain disruption and labor and material shortages persist.
Overall macro indicators are mixed and we will keep a watchful eye on economic and geopolitical developments.
Residential roofing demand in the residential exposed areas within our complementary products will continue to benefit from R&R and new construction market tailwind.
Regarding commercial roofing demand the rising trend in activity. We saw began several quarters ago is expected to continue.
The architectural billing index overall sentiment remains positive and we enter the construction season with a strong backlog.
April net sales per day are up around 25%.
In our second quarter ending in June we expect total sales growth to be up in the low 20% range year over year.
Reflecting the fact that the sales comparable get slightly more challenging as the quarter progresses.
This guidance also reflects our recent acquisitions and the divestiture of our solar business.
Gross margin will reflect our price increases across all product categories from the beginning of the year as well as anticipated inventory profits.
Our emphasis remains on pricing execution and operating efficiency to offset inflation.
Please remember that we will be lapping a prior year quarter, which had two price increases as well as the related timing benefit.
We expect solid execution to result in a year to year gross margin percentage between 27% and 27, 5%.
Regarding the remainder of the year, we will continue to focus on sales and operational execution product availability and cost management.
All areas within our control.
We are increasing our full year 2022 sales growth expectations to approximately 20% versus calendar year 2021.
We expect that sales growth and continued cost discipline will result in adjusted EBITDA in the range of $800 million to $850 million.
We continue to believe that the constructive demand environment will continue and that supply chain challenges will ease through the year.
We have a resilient business model and a leadership team capable of adjusting quickly to changes in the market.
More broadly our ambition 2025 plan provides us with multiple paths to growth and margin expansion.
Non discretionary R&R demand underpins, our end markets and will continue to provide us a secular growth opportunity.
I, thank our more than 6000 team members for their dedication, which allows our continued success.
We are strategically and financially positioned for growth as we empower our customers to build more.
And with that Selina will open it up for questions.
Thank you, ladies and gentlemen, if you wish to ask a question. Please press star followed by one on your Touchtone telephone. After your question has been answered or you call. Your question, Chris Star team each caller, if Remington to one question.
Our first question comes from Keith <unk> with BMO capital markets. Please proceed.
Thank you and congrats on a strong start for 2022.
I was just curious.
About your guidance for 2022.
I was just curious one contemplated.
Bye.
Volume and price.
20% revenue growth number and if you can break that down by segment that would be helpful.
Hey, Thanks, So I appreciate the congratulatory remarks on a full year basis, when you blended across the entirety of the portfolio.
You should think of something in the low single digit volume range, obviously, the rest of it being.
Price if I looked at it on a.
Hello basis, and obviously shingles are only a component of resi, but where.
We're really handicapping shingle volumes in the mid single digit range Youll see more of that in Q2, and Q3, given that thats the strongest selling season for us.
When you look at non res on a full year basis that one's a little harder to handicap given the supply chain issues right now we're handicapping that one is.
Flat overall, but some fairly significant swings by quarter based on the prior year comps you might remember the Q2 comp was quite high in the Q3 comp was softer. So as you model that out just give that some thought and then on the complement complementary just sort of using a broad brush here given the fact that there are a number of different items inside the <unk>.
Complementary business, that's probably in the low single digit blended range there as well.
That's very helpful I'll jump back in the queue.
Thank you next question comes from Mike Dahl with RBC capital markets. Please proceed.
Hi, Thanks for taking my question.
Frank just a follow up on the guide.
I'm, probably missing something here, but when I.
Put it in the sales guide for in the gross margin guide it would seem to require quite a step up in SG&A.
You knock the EBITA down to 850 and that seemed a little weird given how much leverage you should get on.
Operationally on the SG&A side.
Given the pricing dynamics. So can you just bridge that a little bit more maybe.
Yes.
Just for the gross margin guide.
We did not guide gross margin for the year, we guided gross margin for the quarter.
So that might be part of the math there.
That would that would change things quite a bit I'm sure.
Yes, okay.
Okay.
If I could if I could ask a second one than not.
Non brands.
The pricing.
The pricing dynamics.
I mean, thats fairly robust going in.
<unk> for the quarter.
Implied.
Can you just could you elaborate a little more on what's driving that and how to think about that through the balance of the year.
Yes.
Obviously it is a big number right around 40 is probably a good place to to see that on a blended basis theres a number of different products in there.
I would chalk it up to a combination of the supply chain challenges that we have been.
All in countering on the non res side, the price increases that are coming through from the.
The manufacturers and then demand.
Demand has come back strong obviously it was delayed.
The resi come back from from Covid, but the demand is healthy. So I think it's all of those things do I think that will continue to see <unk> across the board for the rest of the year no.
But I think it will continue to be.
An inflationary environment for us, but obviously, we begin to lap across all of the different lines of business. You've got to go back last year and think about the price increase timing last year across the various lines of business and that will obviously compressed as we go forward throughout the year.
And Mike I'll add a couple of things as well to that Julien.
Yes.
It is difficult to see.
Forward in the commercial roofing supply chain, it's been it's been a real challenge it continues to be a challenge.
As the.
As the project.
Project construction timelines also we think we've seen some things pulled forward into quarter that we've been delayed from last year. So we think that there was strong demand there.
We believe that will continue I think we'll continue to see.
Some pricing momentum.
But obviously, we don't bake in anything that.
Has not been announced.
So we're.
We're cautious there and then in terms of the SG&A growth I mean, we've got a lot of inflation that runs not just through product cost its running through all areas of the business fuel.
We want to add investments too busy.
Business as we.
Executing against a 25, so we've got additional investments there that we're considering so we're we believe we're managing it very well, we certainly are looking at to get leverage, but we also want to make sure that where we're investing for growth in the future as well.
Got it okay. Thanks, Julian Thanks, Greg.
Thank you. The next question comes from Garik <unk> with loop capital. Please proceed.
Oh, hi, Thanks, and obviously congratulations on the quarter.
I guess I'll follow up on the gross margin question, just recognizing that you can formally guide.
For the full year, but how should we think about some of the puts and takes and ethics specific.
Inventory costs previously you had warned us of about 50 to 100 basis point drag for this year I'm just curious of desktop holds or could that be pushed out a bit because of the pricing strength you've seen so far.
Yes Garrett good good question, if you remember from the Investor Day, We took the reported 2021 of $26 seven.
And normalize it down to 25, eight is sort of reflective of the inventory profits that once we get done the year, we calculated at about 90 basis points to your good point.
We won't see as much of that.
Reduction given the fact that we are generating some inventory profits. This year. So I think it will be above the 25 eight.
With with the mixed differences year over year, I think it would be hard to get up to that 2006 seven number so.
Something on the <unk>.
Middle to just slightly below middle on that one is probably a good number for the full year.
Great. Thank you.
Okay.
Okay.
The next question is from the line of Keith.
Here.
With Trs <unk> inventory.
Thank you for your questions on inventory.
A good bit year over year, there was a lot of inflation. There could you just talk about inventory of units where you stand.
Particularly in residential roofing and are you at a level you would like to be at or are you still kind of a deficit position.
Yeah, Thanks, Keith so.
Yes inventory just aggregates, 55% of the increases on the price side, obviously, 45% on units when you look at it on an <unk> basis on the resi side, it's about two thirds volume one third price.
Non res if you if you look at it on that one and again these are sort of broad proxies, given the fact that theres lots of different products in each one of these.
About 40% up on dollars.
And more price than units, but.
There is a different story on installation and single ply.
It's in different places obviously.
The ISO is really holding for the membrane to allow us to unlock it so theres a little bit of holding there in general on an ISO and some other products that are waiting for the job lot to be able to ship.
When you look at complementary.
Lumbers sort of all over the place depending on what the spot market is doing.
But let's talk about siding, maybe it's up about 47% in dollars and more price than volume. Your overall question.
About how we how we look on inventory I mean, we've obviously built it in.
Expectations that we're going to grow.
You see that in the numbers that we just talked about we did.
Buy ahead of the price increases we know the Oems are producing full tilt so.
We were taking on more than we were selling given the fact that it was not the most robust selling season, given the seasonality of our business January February March are not the highest output your output quarter.
A month for us.
In terms of product inflation, we see that continuing continuing as Julian mentioned.
I mentioned I mentioned, the commercial supply chain items, I mean, we're just having to hold inventory longer because that last product needs to come in for us to be able to unlock the <unk>.
Job lot and then look we're building required some inventory in the M&A, where we built the couple of OTC hubs and open those we've got the Greenfields that we opened so to me all of that contributes to where we are in inventory. There are still places where inventory isn't where we want it to be where the demand is high as the inventory is the most challenged.
And where the demand is a little bit softer the inventories are in good shape. So we're going to continue to buy in the places that we need them. We do think it is.
An advantage to us to make sure that we have the products that our customers need Julian may have others to add that.
Kind of where we are thanks, Rick just to answer your question.
Around are you where you want to be.
As Frank alluded to there is a region reality to it today.
And also across the various product lines.
Overall, I'd say I was very pleased with where we finished up I think.
We were able to take advantage early in the year builds.
Build some inventory ahead of price increases and that was that's going to be very constructive for us going forward.
Obviously as I did say in my prepared remarks that we expected some of the supply chain challenges to ease through the year.
We certainly expect that to.
Predominantly in the commercial roofing sector, we do think that will be easing up and so as we go through the year, we'll start to think about how we manage that a little bit more tightly.
As the supply chain pressure eases and.
Lead times get down to maybe not normal, but perhaps closer to normal.
Okay, great. Thank you.
Thank you. The next question comes from Noah <unk> with Stephens. Please proceed.
Sure.
Good evening and thanks for taking my question.
So first I think Julien you mentioned a few times in your prepared remarks that we're sort of in this re roofing cycle. If you look back in the last 20 years and see how the homebuilding that was going on.
So I guess the question is what inning are we in the cycle or maybe asked another way how long can it last I think you also mentioned that a couple of times Youre seeing.
Multiyear demand tailwind.
Any additional color there would be appreciated.
Sure be happy to answer that one no. Thanks for the question.
Okay again.
We estimate that.
A typical residential roof lasts about 20 years.
Commercial roofs have slightly different cycle, but give or take are in the same in the same range, depending on the type of building but.
We see that.
As you said being a multi year if you go back to.
The the.
The build in residential markets it really started to happen through.
2000 to 2005, 2006 and 2016 when it started to come down so we still see.
A good trend in that direction and.
Several more years of that growth.
The other thing that we're seeing that as a positive we think for this trend is that.
On the insurance companies and those looking at.
Homes, when they transact so existing sales in turnover and more and more as saying that you have to get to.
A new roof with the roof is over a certain age on the home before they will ensure it.
So we're seeing we're seeing a good number of positive trends that we think will will positively influence the overall cycle in both.
Residential roofing and then commercial is typically lagged the residential cycle by about 18 months.
But commercial building owners.
They're doing a lot more.
Their maintenance on an ongoing basis on roofs, as well more so than the residential side. So we continue to see that as an opportunity and we think there is lots of room for growth. We also believe that there's plenty of opportunity in our space, even with a relatively flat market for us to continue to grow share and execute against our plan.
And we're excited about the growth opportunities that are ahead of us not just from the market the things that we control and we can drive forward as well.
Okay. Thanks for the answer I'll leave it there.
Thank you. The next question comes from Truman Patterson with Wolfe Research. Please proceed.
Hey, good afternoon, everyone and thanks for taking my question.
Just wanted to touch on the nonresidential commercial roofing side, a little bit more.
You are stating that the supply chain is still challenging, but you were able to grow volumes in the first quarter.
Just hoping to understand are you seeing beginning to see any incremental improvement of the supply chain.
How should we think.
How deep the strength is of your backlog in that segment.
Trying to understand.
I believe you gave flattish volume growth in the segment going forward just trying to understand if there's upside if the supply chain improves.
Thanks for the question Truman.
It is difficult to see so I understand the question I think I've got the same question on a daily basis, but what I think we saw in the.
Quarter.
Was a little bit of thing.
So it was so difficult at the start at the end of last year.
On the supply chain was really jammed up.
Projects were really getting pushed out.
We probably saw a little bit of catch up from the demand that had been pushed out of last year in the first quarter, we had a.
Not too bad weather.
<unk>.
Quarter.
Honestly, the commercial roofing contractors continue to work robustly through that period.
So we think some of that that had been pushed out probably picked up a little bit.
Obviously, our inventory improved which suggests that the supply chain.
Is easing a little bit we're able to get the some of the materials that we need to ship those jobs.
That's been important for us we're leveraging.
Scale to.
Really really get the product in the door from all the vendors that we need to so that we can support our customer base I do think that some of the challenges that face prior year Youll remember the February freeze last year that completely jammed up.
The chemical industry in the U S.
Supported the commercial roofing manufacturers.
It Hasnt repeated obviously, so we're not going to see that come through so I think that that combined with strong operations on the manufacturing side that I do think as improved year over year will lead to an overall improvement in the supply chain situation.
It's going to ease the backlogs continue to grow I think primarily because we do still have some supply chain challenges.
<unk>.
A little bit of a.
The pig going through the snake here.
But I think that overall as I said in my prepared remarks, we're seeing an easing we feel we're in an advantageous inventory position.
Still about labor and production and other materials that go into.
Completing a commercial roofing job is not just about commercial roofing. It's about all the other elements of getting the building closed and so we're not just dependent on our materials, we're dependent on some other materials in the supply chain that we don't touch.
But that affect the overall schedule of production of a building and overall, we think it's easing.
We're in a good position.
But we do continue to see a solid backdrop of demand.
Hey, a couple of quick data points I guess on the backlog.
We're up 20% sequentially.
And up about three times, what we were a year ago as you know thats been <unk> been growing.
Really consistently here for the last four or five quarters and about 60% of that overall backlog is in the non res space.
As you look at volumes throughout the year on non res is as I mentioned I think in an answer to an earlier question.
Second quarter 2021 volume comp.
Is the strongest in the last four years and the only reason I say four years is because only went back four years.
But I.
I mean, thats sort of post post allied for us so so really heavy comparable.
On both the single planning the ISO for us in that quarter. If you pull that one out obviously you would see a different volume growth story.
Okay perfect. Thank you.
Thank you. The next question comes from David Manthey with Baird. Please proceed.
Alright. Thank you, yes, good afternoon.
Given the growing above market as one of the goals of the ambition 2025, I'm wondering from a management.
<unk> point, what systems do you have in place to ensure that.
Your branches maintained price discipline at the point when supply and demand reach equilibrium jewelry and you were talking about supply chain is getting better I mean at some point they will clearly.
That happens how do you maintain price discipline at the branch level.
Thanks for the question David I mean, I think that this is something that we've focused on certainly since I came in I had a lot of experience in that space we've hired.
People to the company with a lot of experience in that space and we are also building out a new pricing model that we've talked about that we think.
Will benefit us over time, so we do provide guidance.
To the branches, we have a lot of management systems in place around that we.
We have daily measurements to see not just at an overall company level, but branch by branch how we're doing we can measure that at a branch level on a daily basis.
We can look at price cost on those things. So we've got a number of management systems that we can follow.
Obviously the pricing dynamic.
The last couple of years has been incredibly important in driving our results.
Thank you.
Sure.
One of the other management systems, we have in places the incentive compensation plan, we put in place and it has been.
I think everyone's learned just how valuable it is from the standpoint of managing that price cost relationship and making sure that it's it's well imbalance. So.
The experience we brought into the company in terms of price management and systems that we're investing in to provide better visibility as well as the incentive compensation schemes that we put in place to ensure that.
We are managing this on a daily basis and everyone benefits from from good management around this.
As you say rightly, we do want to grow we don't think that's independent of good management of the business.
And we'll obviously.
Obviously, we'll be balancing price volume on.
On a ongoing basis no matter what there is lots of ways that we believe that that we can grow above market that just related to.
So price management, we do think that whether its greenfields, which have we've got an air pocket and we're going to invest in whether it's the the M&A component. Then we can bring specialized skills to help those companies that we acquired grow more than they had been in the past as well as <unk>.
Specialized services to our digital platform all of those things that we can do that are differentiators, we believe will help us drive growth as well.
Okay, great. Thank you.
Thank you. The next question comes from Michael Rehaut with Jpmorgan. Please proceed.
Hi, Good afternoon, Doug Wardlaw on for Mike.
Just you just mentioned M&A and just regarding how should we think about M&A over the next 12 to 24 months.
What type of opportunities are you evaluating in terms of size and number of targets.
Thanks for the question I would refer you back to the statements. We made at our Investor Day, We said that we anticipate.
Somewhere in the region of $1 billion of revenue to come from.
M&A over the next several years I mean, our ambition 2025 plan.
Ideal.
<unk>, so between 50 and $250 million of sales quite frankly.
We're in the market.
For the the companies that are a great fit for us the ones that we've done most recently have been single branch locations that dot on the map, where we think there is opportunity to grow we can bring them.
<unk> unique capabilities that we have integrate them into OTC.
OTC <unk> and leverage that strength, so we see a good pipeline.
We think that it continues to be focused on core markets and we've described that as a.
Our residential roofing commercial roofing and the complementary products.
The overlap of those customers, that's where we're focused.
We think there's a good pipeline that we're involved with right now.
Okay. Thank you.
Thank you. The next question comes from Deepa Raghavan.
Wells Fargo. Please proceed.
Hi, good evening, everyone. Thanks for taking my question.
My question is on Q2 revenue growth guide of low term. Please.
How does that split across segments you have.
Pretty tough comps are complementary.
And like you also called out <unk>.
<unk> had some tough comps.
Yeah.
Yes, thanks, Deepa, so yes, the low Twenty's, if you look at it in the in the aggregate.
I think low single digit volume in the <unk>.
And the rest.
Price.
I think on the shingle volume side.
Sort of in the in the mid singles there.
Theres going to be some regional strength, obviously, where the sunshine's the most.
Theres some acquisitions.
We have already brought on which will add a little bit on the res side.
I think on the non res side Youre going to continue to see the pricing that was referenced early in earlier in the call.
Even though the volumes are going to be healthy volumes I did mentioned in the prior comp last year, which means that we should be probably down in volume, but the pricing will remain.
Strong there I think on the on the complementary side. If you again, it's a lot of different product categories. In there. If you just look at siding is it.
As a good proxy it will probably be in the low to mid single digits on a volume basis, there with the rest price. So continued strength in price across the board and then the volume commentary that I just mentioned.
That's great. Thanks, very much if I can squeeze just one more in.
Can you give us an estimate of how much inflation really broken into your full year EBITDA outlook on how much price umbrella in terms of dollars I mean these are substantial numbers.
Yes, I mean, you'll have to do the math, but.
When we look at the full year guide of about 20% net sales up year over year as I think I Might've mentioned earlier, you've got low single digit volumes and the rest price. So you can see what that accounts for.
Obviously, the inventory piece is going to be impacted by inflation as well as we continue to see the the product cost go up and we.
Have the replacement cost catch up with the net cost catch up with the replacement costs, we did not factor in any future price increases as Julian mentioned, so we will have to be responsive to those as if and when those come out.
And then as Julian also mentioned and I think I mentioned in my prepared remarks as well there is there is inflation on the Opex line.
Well, whether it's fuel or labor.
Any of the fleet aspect of things.
<unk> real estate real estate taxes, everything seems to be going up right. Now we have baked all of that into our guide both the things that help us into things that don't.
And we think we're going to be able to manage that quite well this year.
When you when you look at the sales guidance imply what I mentioned earlier on gross margin and maybe a little bit of progress on leverage on the Opex line you get to a pretty good spot in that 800 to 850 that Julian mentioned.
Thanks for the color I'll pass it on good luck.
Thank you. The next question comes from Ryan Merkel with William Blair. Please proceed.
Hey, guys I had a question on Covid and just the impact to your business and clearly pricing has helped margins quite a bit but whats less clear to me is how investment in home might have boosted residential re roofing.
So I realize that shingle volumes are flat here, but when you look at the shipment data.
Shipments are up quite a bit last couple of years. So the question is could there be a sales hangover in 'twenty three from pull forward or if the consumer spending money elsewhere outside the house.
Thanks for the question Ryan.
Sorry.
Ill pass that in terms of.
What I think has happened over the last 10 15 years since the housing crash that began in 2006 2007, obviously led to the great recession.
There has been substantial underinvestment in housing in general.
As you think about how people might react. So many people went underwater at that time that the investment in housing seem.
Seem to be just not the place to put your money I mean, I think that that that was inevitable. I mean, there was all this talk for.
Probably the last 10 years about how everyone was going to live in a condo downtown close to work and was never going to travel anywhere.
And the single family home and the <unk>.
Suburbs, where the white picket fences, just gone out of style.
I think COVID-19 just change that I think people realized that for our entire history, not just as a nation, but as a species. We wanted to live in single family dwellings, and I think that the aberration. It's been the last 10 years, where the massive underinvestment in single family dwellings, or could I, just think that Covid has made people.
Reassess that again and say.
I do aspire to live as a single family unit.
With my Kids I do on somewhere where I can actually get out of the house and.
No pun intended brief.
I think it's just a revert to normal.
And I think that we've got.
While it is a slow growth that you've got is you've got a growing population you've got.
Household growth, we're just returning to a more normal situation.
And I think it's it creates a positive momentum for us and I do think as I mentioned earlier that you've got some other trends that are impacting.
Demand, particularly on the residential side.
With this idea that insurance companies say that.
We're not gonna insurer has on that transaction.
If you haven't got a new roof, because the roofs over 12 years old.
We're seeing more of that.
That behavior in which case that spurs demand so as houses turnover.
Probably getting more of them today getting reroutes than you have in the last 10 years 15 years. So combined with the re roof cycle combined with these other trends that are suggesting that.
There is.
You need to replace a roof.
If if you're getting your house because that's what the insurance companies are saying I think we've got a great.
A great backdrop for.
The residential market for the next several years.
Thanks Julien.
Thank you. The next question comes from Phil.
Please proceed.
Hey, guys congrats on the excellent quarter.
I guess question for Frank and I appreciate that.
My question is around the working capital the inventory Bill makes sense, just given where inflation is.
But receivables.
Increased quite a bit as well just given the.
Solid demand backdrop can you kind of walk us through some of that noise and then I think in terms of your full year guidance. Frank I think you called out mid single digit volume growth for <unk>, how much of that is tied to M&A versus organic the reason I ask you, you're obviously lapping tougher comps yes.
You had some weaker storm carryover demand as well.
Yes, Thanks, Phil I appreciate the shout out in terms of Ah.
It's up about $2 50 year over year about 150 quarter over quarter higher sales, obviously are a big driver of that one the other thing that's happening given the mix shift that we've seen in favor of non res recently.
Probably a couple of days worth of DSO.
Given that the terms on non res receivables are generally longer a lot of those deals have kind of a pay when paid type of of a clause and we've talked a lot about lengthening project cycles and things of that nature. So I would see it as just the inflation and the sales is it relating to inflation in the or and then that.
Mix shift in terms of a higher proportion of the AAR being.
Non res.
And then give me your second question one more time.
Your guidance for a full year, you're calling for mid single digit growth for resi how much of that is M&A.
I ask this.
There is weaker storm demand.
Coming through so it just seems like a pretty healthy growth backdrop with the environment.
Yes, so the M&A that's in there is only one.
What we have announced so you've got obviously midway and Crabtree and Wichita Falls, which we just announced earlier in the week. So.
Not a huge number there just given the magnitude of those businesses that we acquired so I wouldn't handicap it as being all all.
While M&A by any stretch.
Did the dollars on AR.
To answer your question I did the dollars on an overall basis and when you net out the divestiture last year of solar and I know this is not an answer to your resi question, but more broadly.
And you add in the M&A, that's already been announced its about a 1% move in revenue so positive 1% that we get from our net acquisitions.
Yes.
I would also emphasize that it's still early in the year in terms of storm activity, we're still saying that it's we think it'll be about average it's been a little bit light in the first half of the year, but last year. It would have been heavier than it was like by the end of the year, but we're still forecasting about that average in our guide.
If it's lower we'll be at the low end of the guide if it's higher it would be at higher end of the guide.
Got you helpful.
Thank you. The next question comes from generally arent linear with Stifel. Please proceed.
Hey, everybody. Thank you guys for squeezing me in.
Quick question on the private label business.
Big numbers.
Are you seeing better uptake right now with the residential customer or your commercial customers.
And then are you also seeing more reorder activity in the private brand products or some of this momentum that youre seeing a result of some supply chain issues.
Thanks for the question.
So I'll start with the risk I don't think there are supply chain issues, we do think that we.
We get favorable treatment.
Because of our private label position in terms of supply.
We think that's very important to our manufacturers to.
Partners in this.
To keep the supply so that's that's very important in this environment.
I think broadly speaking it's.
It's across the board.
Now, we do have customers who.
The like the private branded product.
It's a high quality product.
Get used to using it.
It fits obviously with our sales model.
And we're we're certainly incentive.
Our people to position that with the customers and we will certainly take advantage of.
The sales when they come in.
The penetration is substantial in that category.
The categories, where we have private label, we do very very well.
Now, we'd like to add additional categories as we go forward, but it's it's a great opportunity for us.
We see it in residential and the commercial roofing business and in the complementary business and we think theres more room to grow as we indicated in our.
Ambition 2025 plan, we intend to grow to at least $1 billion business over the next several years.
Great guys. Thanks for the time, congratulations and best of luck.
Thank you.
Thank you and that concludes our questions now I would like to turn the call back over to Mr. Francis for his closing remarks.
Thank you Selena and thank you everyone for joining us this evening.
Obviously, we're thrilled with the start to the year.
We're excited about the opportunities we're excited about our ambition 2025 plan and if you are celebrating Cinco de Mayo Tonight. Please make sure you drive home carefully thanks, everyone.
Okay.
That concludes the Beacon first quarter 2022 earnings call. Thank you for your participation you may now disconnect your lines.