Q4 2023 Beacon Roofing Supply Inc Earnings Call

Victoria: Thanks for watching! Good evening, ladies and gentlemen, and welcome to the Beacon fourth quarter 2023 earnings call. My name is Victoria, and I will be your coordinator. At this time, all participants are in a listener-only mode.

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Victoria: Good evening, ladies and gentlemen, and welcome to the Beacon fourth quarter 2023 earnings call. My name is Victoria and I'll be your coordinator for today at this time all participants are in a listen only mode. We will be conducting a question and answer session towards the end of this call at that time I will give you instructions on how to ask a question if at any time during the call you have.

Victoria: We will be conducting a question-and-answer session towards the end of this call. At that time, I will give you instructions on how to ask questions. If at any time during the call you require assistance, please press star followed by zero, and a coordinator will be happy to assist you. As a reminder, this conference call is being recorded for replay. I would now like to turn the call over to Mr. Bennett Sanghvi, Vice President, Capital Markets, and Treasurer. Please proceed, Mr. Sanghvi. Thank you, Victoria. Good evening, everybody.

Victoria: Wire assistance. Please press star followed by zero and a coordinator will be happy to assist you. As a reminder, this conference call is being recorded for replay purposes, I would now like to turn the call over to Mr. Bennett Sundby, Vice President capital markets and Treasurer. Please proceed Mr Sundby.

Bennett Sundby: Thank you Victoria, Good evening, everybody and as always we thank you for taking the time to join our call today I'm joined by Julian Francis Our Chief Executive Officer, Carmelo Corrobos Beacons interim Chief Financial Officer.

Bennett Sanghvi: And as always, we thank you for taking the time to join our call. Today, I'm joined by Julian Francis, our Chief Executive Officer, and Carmelo Caruba, Beacon's Interim Chief Financial Officer. Julian and Carmelo will begin today's call with prepared remarks that will follow the slide deck posted to the investor relations section of Beacon's website. After that, we will open the call to questions. Before we begin, please refer to slide two for a couple of brief reminders. First, this call will contain forward-looking statements about the company's plans and objectives and future performance. Forward-looking statements can be identified because they do not relate strictly to historic or current facts and use words such as anticipate, estimate, expect, believe, or, in other words, have a similar meaning.

Julian G. Francis: Julian and Carmelo will begin today's call with prepared remarks that will follow the slide deck posted to the Investor Relations section of <unk> website after.

Speaker Change: After that we will open the call for questions.

Before we begin please reference slide two for a couple of brief reminders first this call will contain forward looking statements about the companys plans and objectives and future performance.

Speaker Change: Forward looking statements can be identified because they do not relate strictly to historical or current facts and use words, such as anticipate estimate expect believe and other words of similar meeting.

Bennett Sanghvi: Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, but not limited to those set forth in the risk factor section of the company's 2022 Form 10-K. Second, the forward-looking statements contained in this call are based on information as of today, February 27, 2024, and, except as required by law, the company undertakes no obligation to update or revise any of these forward-looking statements.

Speaker Change: Actual results may differ materially from those indicated by such forward looking statements as a result of various important factors, but not limited to.

Speaker Change: Those set forth in the risk factors section of the company's 2022 Form 10-K.

Speaker Change: Second.

Speaker Change: The forward looking statements contained in this call are based on information as of today February 27 2024.

Speaker Change: And except as required by law. The company undertakes no obligation to update or revise any of these forward looking statements and finally this call will contain references to certain non-GAAP measures. The reconciliation of these non-GAAP measures to the most comparable GAAP measures is set forth in today's press release.

Bennett Sanghvi: And finally, this call will contain references to certain non-GAAP measures. The reconciliation of these non-GAAP measures to the most comparable GAAP measures is set forth in today's press release and the appendix to the presentation accompanying the call. Both the press release and the presentation are available on our website at beecn.com. Now, we will begin with opening remarks from Julian. Thanks, Bennett. Good afternoon, everyone.

Speaker Change: In the appendix to the presentation accompanying the call both the press release and the presentation are available on our website at <unk> Dot Com now, let's begin with opening remarks from Julien.

Julien: Thanks, Pat good afternoon, everyone and let's begin on slide four.

Julian G. Francis: And let's begin on slide four. I'm very pleased to report that we had a strong finish to the year. The Beacon team delivered a record fourth quarter as a result of executing on our strategic plan, Ambition 2025. Sales were up nearly 17% year-over-year to $2.3 billion, a record fourth quarter and above our expectations from our third quarter call. Demand for our services drove organic sales growth across all three lines of business. We continue to create value for our customers, especially by enhancing our service proposition, allowing them to maximize the productivity of the scarce labor resources they have. Acquired and newly opened Greenfield branches contributed approximately 6% growth to the top line. Our gross margin came in at 25.7%, above our guidance of 25.5% that we provided on our third quarter call. We stayed focused on labor productivity, and our bottom quintile branch initiative delivered.

Julien: I am very pleased to report that we had strong finish to the year. The <unk> team delivered a record fourth quarter as a result of executing on our strategic plan ambition 2025.

Julien: Sales were up nearly 17% year over year to $2 3 billion.

Julien: Our fourth quarter record and above our expectations from our third quarter call.

Julien: Demand for our services drove organic sales growth across all three lines of business we.

Julien: We continue to create value for our customers, especially by enhancing our service proposition, allowing them to maximize the productivity of the scarce labor resources they have.

Julien: Acquired and newly opened Greenfield branches contributed approximately 6% growth to the topline.

Julien: Gross margin came in at 25, 7% above our guidance of 25, 5% that we provided our third quarter call.

Julien: We stayed focused on labor productivity and our bottom Quintile branch initiatives delivered as a result, we achieved a fourth quarter record for adjusted EBITDA of $217 million.

Julian G. Francis: As a result, we achieved a fourth quarter record for adjusted EBITDA of $217 million. I'm particularly pleased with our management of working capital, which generated a record fourth quarter cash flow of $262 million. This enabled us to deploy capital towards our ambition 2025, including greenfield locations and acquisitions, while maintaining our balance sheet capacity. We've completed four acquisitions since the end of the third quarter. This includes adding to our industry-leading waterproofing footprint by acquiring Metro Sealant and Waterproofing Supply earlier this month. Metro, along with Garvin Construction Products, acquired in October, enhances our position on the Eastern Seaboard as we continue to become recognized as a national leader in specialty waterproofing distribution.

I am, particularly pleased with our management of working capital, which generated record fourth quarter cash flow of $262 million.

Julien: This enabled us to deploy capital towards our ambition 2025, including Greenfield locations and acquisitions, while maintaining a balance sheet capacity.

Julien: We've completed four acquisitions since the end of the third quarter. This includes adding to our industry, leading water proofing footprint by acquiring metro sealants and waterproofing supply earlier this month.

Julien: Metro along with Gavin construction products acquired in October enhances our position on the eastern Seaboard as we continue to become recognized as a national leader in specialty waterproofing distributions.

Julian G. Francis: We also completed the acquisition of Roofers' Supply of Greenville, adding commercial roofing branch locations in North and South Carolina. The Roofers' Supply team has great talent and strong capabilities, and we welcome them to be part of the team. At our Investor Day two years ago, we said that we would unlock the potential of Beacon, and I can confidently say today that we are well on our way to achieving that goal. We demonstrated once again that we have multiple paths to growth and can deliver results under a variety of conditions. Now, please turn to page 5.

Julien: We also completed the acquisition of roofing supply of Greenville, adding commercial roofing branch locations in North and South Carolina. The roofing supply team has great talents and strong capabilities and we welcome them to be.

Julien: At our Investor day, two years ago, we said that we would unlock the potential of Beacon and I can confidently say today that we are well on our way to achieving that goal. We demonstrated once again that we have multiple paths to growth and can deliver results in a variety of conditions.

Now please turn to page five.

Julian G. Francis: At BAT Invest today, we laid out our targets to drive above-market growth, deliver consistent double-digit adjusted EBITDA margins, build a great organization, and generate superior shareholder returns. Creating value for our customers is central to achieving these goals, and our team is relentlessly focused on doing that every day. Let me provide you with an update on our strategic initiatives, starting with how we are building a winning culture. One of our core values is doing the right thing, and this applies to our efforts to build a better environment by engaging our employees and improving the climate in our communities. During the quarter, we launched a Turn It Off campaign to educate our truck and forklift drivers about their role in reducing non-productive engine idling. Our drivers have pledged to turn off their vehicles whenever they can to contribute to cleaner air at our branches, on job sites, and throughout the country.

Julien: At that Investor day, we laid out our targets to drive above market growth deliver consistent double digit adjusted EBITDA margins build a great organization and generate superior shareholder returns.

Julien: Creating value for our customers is central to achieving these goals and our team is relentlessly focused on doing that everyday.

Speaker Change: Let me provide you with an update on our strategic initiatives starting with how we are building a winning culture.

Speaker Change: One of our core values is do the right thing and this applies to our efforts to build better for the environment by engaging our employees and improving the climate and our communities.

Speaker Change: During the quarter, we launched a turn it off campaign to educate our truck and forklift drivers about their role in reducing nonproductive engine idling. Our drivers have pledged to turn off their vehicles whenever they can to contribute to cleaner air in our branches on job sites and throughout the community.

Julian G. Francis: In addition, we contracted to power over 30 of our branches with renewable energy from community solar installations. We're proud to support investment in community solar, which allows underserved neighborhoods to receive discounts on their energy. Our second pillar is driving growth above market and enhancing margins through a set of targeted initiatives. Expanding our customer reach continues to be a major driver in our growth plans. This includes our investments in greenfields and acquisitions. A dedicated team continues to execute on our pipeline of greenfield locations. In the fourth quarter, we opened 11 new branches.

Speaker Change: In addition, we contracted to power over 30 of our branches with renewable energy from community solar installations, we're proud to support investment in community solar which lies underserved neighborhoods to receive discounts on their energy bills.

Speaker Change: Our second pillar is driving growth above market and enhancing margins through a set of targeted initiatives.

Speaker Change: Expanding our customer reach continues to be a major lever in our growth plans. This includes our investments in greenfields and acquisitions.

Speaker Change: Our dedicated team continues to execute on our pipeline of Greenfield locations in the fourth quarter. We opened 11, new branches. Each time, we add a new location, we had sales resources and reduce the average distance and time for us to reach our customers.

Julian G. Francis: Each time we add a new location, we add sales resources and reduce the average distance and time for us to reach our customers. This enhances our overall value proposition, giving us the opportunity to earn market share. We have now opened 45 new branches since the beginning of 2022, exceeding our original Ambition 2025 goal. These branches have contributed more than $290 million to our top line in two years.

Speaker Change: This enhances our overall value proposition, giving us the opportunity to earn market share.

Speaker Change: We have now opened 45, new branches since the beginning of 2022 exceeding our original ambition 2025 goal.

Speaker Change: These branches have contributed more than $290 million to our top line over two years.

Speaker Change: It also demonstrates our ability to adjust to prevailing market opportunities. We've seen the impact. These new branches have had on our results and accelerated the program.

Julian G. Francis: It also demonstrates our ability to adjust to prevailing market opportunities. We've seen the impact these new branches have had on our results, and we have accelerated the program. On acquisitions, we discussed the recent additions of Roofers Supply and Metro Sealants, as well as Garvin. We also acquired H&H Roofing Supply, strengthening our presence in the Central Valley of California, adding Baker seals to our service area. Since announcing our Ambition 2025 plan, we have acquired 16 companies and added 50 branches. Our online capability continues to be a clear competitive differentiator for Beacon.

Speaker Change: On acquisitions, we discussed the recent additions of roofing supply and as Metro sealants as well as Gavin We also acquired <unk> roofing supply strengthening our presence in the Central Valley of California, and in Bakersfield to our service area.

Speaker Change: Since announcing our ambition 2025 plan, we have acquired 16 companies, adding 50 branches.

Speaker Change: Our online capability continues to be a clear competitive differentiator for beacon sales through our online platform deliver approximately 150 basis points better margin compared to offline channels.

Speaker Change: Our value added integrations are driving performance and in the fourth quarter, we grew digital sales nearly 28% year over year.

Julian G. Francis: Sales through our online platform deliver approximately 150 basis points better margin compared to offline channels. Our value-added integrations are driving performance, and in the fourth quarter, we grew digital sales nearly 28% year-over-year. Digital sales to our residential customers were a highlight, as we achieved adoption of nearly 22%.

Speaker Change: Digital sales to our residential customers were a highlight as we achieved adoption of nearly 22%.

Speaker Change: We have plans to build on our digital leadership by continuing to invest in this area and to differentiate ourselves and build upon our competitive advantage in the marketplace.

Speaker Change: Our third pillar involves driving operational excellence and expanding capacity through our continuous improvement and productivity initiatives.

Julian G. Francis: We have plans to build on our digital leadership by continuing to invest in this area and to differentiate ourselves and build upon our competitive advantage in the market. Our third pillar involves driving operational excellence and expanding capacity through our continuous improvement and productivity initiatives. Our focus on the bottom quintile branches generated a significant contribution to EBITDA in the fourth quarter.

Speaker Change: I'll focus on the bottom quintile branches generated the significant contribution to EBITDA in the fourth quarter.

Speaker Change: Disciplined process for diagnosing and addressing issues have been core to our operational improvements for the last two years.

Speaker Change: I'm pleased to report that the process added approximately $15 million to the bottom line year over year in the fourth quarter.

Speaker Change: And fourth let's review, how we're creating shareholder value in.

Julian G. Francis: A disciplined process for diagnosing and addressing issues has been core to our operational improvements for the last two years. I am pleased to report that the process added approximately $15 million to the bottom line year over year in the fourth quarter. And fourth, let's review how we're creating shareholder value. In July, we deployed a little over $800 million to repurchase the entirety of the outstanding Preferred Shares from CD&R, reducing the ad's converted share count by $9.7 million. Since then, CD&R sold off its remaining stake in our common stock and exited its board representation.

Speaker Change: In July we deployed a little over $800 million to repurchase the entirety of the outstanding preferred shares from <unk>, reducing the ads converted share count by $9 7 million.

Speaker Change: Since then <unk> sold off its remaining stake in our common stock and exited its board representation.

Speaker Change: In addition, we continue to execute on our current authorization to repurchase our common stock retiring eight 4 million shares in the last two years.

Since the start of ambition 2025, we have deployed more than one 3 billion to shareholder returns, reducing the as converted share count by approximately 21%.

Julian G. Francis: In addition, we continue to execute on our current authorization to repurchase our common stock, retiring 8.4 million shares in the last two years. Since the start of Ambition 2025, we have deployed more than $1.3 billion to shareholder returns, reducing the as-converted share count by approximately 21%. And impressively, even with the purchase of our shares, the investment in M&A, and the record spending on growth CapEx, we exited the year with net debt leverage at 2.4 times. In summary, we have a differentiated approach and have built the tools to enable multiple paths of growth, margin expansion, and value creation through the cycle. Our Ambition 2025 plan brings it all together to amplify the resiliency of our business model and unlock our potential. Now, let me introduce our Interim Chief Financial Officer, Carmelo Carubo. First, let me say that I'm delighted that Carmelo has accepted this interim responsibility until a permanent CFO has been appointed. Carmelo has extensive executive, functional, and operational experience, creating value in serving in various roles.

Speaker Change: And impressively, even without reason with the purchase of our shares the investment in M&A and the record spending on growth Capex, we exited the year with net debt leverage at two four times.

Speaker Change: In summary, we have a differentiated approach that built the tools to enable multiple paths of growth margin expansion and value creation through the cycle. Our ambition 2025 plan brings it altogether to amplify the resiliency of our business model and unlock our potential.

Speaker Change: Now, let me introduce our interim Chief Financial Officer Carmelo Carrubba.

Carmelo Carrubba: First let me say that Im delighted that <unk> has accepted this interim responsibility until a permanent CFO who has been appointed.

Carmelo Carrubba: <unk> extensive executive functional and operational experience, creating value serving in various roles I.

Carmelo Carrubba: I was pleased when he joined US in April of 2022, as Vice President of strategy and transformation and is a member of <unk> Executive Committee.

Carmelo Carrubba: And these key leadership positions camilo shares responsibility for creating and supporting the value creation framework to drive that successful execution of beacons ambition 2025 plan.

Camilo: That I will pass the call over to come out to provide the details on our fourth quarter results.

Camilo: Thanks, Julian and good evening everyone.

Camilo: Turning to slide seven we achieved nearly $2 $3 billion in total less sales in the fourth quarter up nearly 17% primarily driven by organic growth.

Carmelo Carubo: I was pleased when he joined us in April of 2022 as Vice President of Strategy and Transformation and as a member of Beacon's Executive Committee. In these key leadership positions, Carmelo shares responsibility for creating and supporting the value creation framework to drive the successful execution of Beacon's Ambition 2025 plan. And with that, I'll pass the call over to Carmelo to provide the details on our fourth quarter results. Thanks, Julian. And good evening, everyone.

Colin: Volume across all three business lines as well as contributions from acquisitions in the aggregate average selling prices for our products were slightly positive year over year.

Colin: Organic volumes include industrial Greenfields increased approximately 12% to 13%, while overall price contributed less than 1%.

Colin: Acquisitions are performing well and contributed approximately 4% to net sales growth year over year.

Colin: As a reminder, as of November one we lapped the acquisition of cross sell construction product, which has been the largest acquisition under our ambition 25 plan.

Carmelo Carubo: Turning to slide seven, we achieved nearly $2.3 billion in total net sales in the fourth quarter, up nearly 17%, primarily driven by organic growth, volume across all three business lines, as well as contributions from a. In the aggregate, average selling prices for our products were slightly positive year-over-year. Organic volumes, including those from Greenfields, increased approximately 12% to 13%, while overall price contributed less than 1%. Acquisitions are performing well and contributed approximately 4% to net sales growth year-over-year. As a reminder, as of November 1st, we closed the acquisition of Coastal Construction Products, which has been the largest acquisition under our Ambition 25 plan. Our backlog continued to convert in the quarter and was lower sequentially, but still well above historical levels. The mix of backlog is now more aligned with our safety, with non-Reggie representing slightly less than 30% of the total.

Colin: Our backlog continued to convert in the quarter and was lower sequentially, but still well above historical levels.

Colin: The mix of backlog is now more aligned with our sales mix with non resi representing slightly less than 30% of that is also.

Colin: Residential roofing sales were higher by more than 20% as higher volumes were driven by resilient underlying R&R demand and storm activity combined with higher prices in the low single digit range.

Colin: Already volumes in the quarter was strong and adjusting for channel restocking, we estimate that we grew in line with the market for the full year.

We're very pleased to see the improvement of demand in the new residential construction in particular are single family homes.

Colin: Non residential sales increased more than 11% on solid R&R activity at.

Colin: As expected Destocking at our capsular contracture level came to an end.

Colin: Estimated volumes increase in the mid teens and while prices declining in the low single digits year over year from a high comparable in the year prior.

Colin: <unk> stable on a sequential basis.

Colin: Complementary sales increased by 16% year over year as our new waterproofing platforms continue to grow.

Carmelo Carubo: Residential roofing sales were higher by more than 20% as higher volumes were driven by resilient underlying R&R demand and storm activity, combined with higher prices in the low single-digit rate. Already, volumes in the quarter were strong, and adjusting for channel restocking, we estimate that we grew in line with the market for the full year. We are very pleased to see the improvement in demand for new residential construction, in particular single-family homes. Non-residential sales increased more than 11% on solid R&R activities.

Colin: Higher volume of siding products also contributed to the growth.

Colin: Selling prices across product lines with the exception of lumber were stable year over year.

Colin: Please keep in mind that with the addition of cost out our complementary product category now as approximately 70% residential and 30% nonresidential exposure.

Colin: Turning to slide eight we will review of gross margin and operating expenses.

Colin: Gross margin was 25, 7% in the fourth quarter.

Carmelo Carubo: As expected, the stocking at our customer-contractor level came to an end. Estimated volumes increased in the mid-teens, and while prices declined in the low single digits year-over-year from a high comparable in the year prior, they remained stable on a sequential basis. Complementary sales increased by 16% year-over-year as our new waterproofing platforms continue to grow. Higher volume of siding products also contributed to the growth. Selling prices across product lines, with the exception of lumber, were stable year-over-year.

Colin: Then our guidance on our third quarter call.

Colin: Price cost was down approximately 50 basis points year over year as a result of stable average selling prices and higher product costs, especially in the non residential line of business.

Colin: Keep in mind that we had significant inventory profits generated in the year ago period.

Colin: Adjusted Opex was $409 million, an increase of $45 million compared to the prior year quarter adjusted Opex as a percentage of sales decreased to 17, 8% or down 70 basis points year over year.

Carmelo Carubo: Please keep in mind that with the addition of Coastal, our complementary product category now has approximately 70% residential and 30% non-residential exposure. Turning to slide 8, we'll review Gross Margin and Operating Expense. Gross margin was 25.7% in the fourth quarter, higher than our guidance on our third quarter call. Price-cost was down approximately 50 basis points year-over-year as a result of stable average selling prices and higher product costs, especially in the non-residential line of business.

Colin: The year over year change in adjusted Opex was driven primarily by expenses associated with acquired and Greenfield branches accounted for accounting for approximately $24 million of the year over year increase.

Increases in wages and benefits, including incentive comp annual bonus true up and conditions also contributed to the increase these increases were partially offset by lower <unk> and fleet expenses year over year.

Colin: <unk> productivity helped drive favorable operating leverage for year over year.

Colin: You can see our SaaS per hour metric reached its highest fourth quarter level. Since we began tracking at the beginning of the first quarter in 2020.

Carmelo Carubo: Keep in mind that we had significant inventory profits generated in the year-ago period. Adjusted OPEX was $409 million, an increase of $45 million compared to the prior year quarter. Adjusted OPEX as a percentage of sales decreased to 17.8%, or down 70 basis points year over year.

Colin: Investments in ambition 2025 priorities to drive above market growth and margin enhancement continued in the quarter. These investments include our dedicated Greenfield and M&A teams as well as initiatives related to our sales organization customer experience pricing tools ecommerce technologies and branch optimization.

Colin: Sure.

Carmelo Carubo: The year-over-year change in adjusted OPEX was driven primarily by expenses associated with acquired and greenfield branches, accounting for approximately $24 million of the year-over-year income. Additionally, increases in wages and benefits, including incentive comp, annual bonus, through-app, and commissions, also contributed to the increase. However, these increases were partially offset by lower T&E and fleet expenses year over year.

Speaker Change: Let's turn now to slide nine.

Speaker Change: Cash flow was strong in the fourth quarter of $262 million, we had about $95 million less in inventory as compared to the prior year quarter, even with inventory acquired through M&A and new inventory to support Greenfields.

Speaker Change: This reflects our effective inventory management that continue into the year end.

Speaker Change: Through close collaboration with the field management team and our supply chain organization, we efficiently manage working capital contributing to a strong finish to the year.

Carmelo Carubo: Branch productivity helped drive favorable operating leverage year over year. As you can see, our sales per hour metric reached its highest fourth quarter level since we began tracking at the beginning of the first quarter in 2016. Investments in Ambition 2025 Priorities to Drive Above-Market Growth and Margin Enhancement continued in the course of the year. These investments include our dedicated Greenfield and M&A teams, as well as initiatives related to our sales organization, customer experience, pricing tools, e-commerce technologies, and branch optimization. Let's turn now to slide 9.

Speaker Change: Our fourth quarter cash conversion was impressive at more than 120% of adjusted EBITDA.

Speaker Change: In our full year 2023, we generated a record $788 million of operating cash flow with conversion of more than 84%.

Speaker Change: We continue to balance our capital allocation between organic and inorganic growth opportunities and shareholder returns.

Speaker Change: Our ability to invest in greenfield and value, creating acquisitions is underpinned by our ample balance sheet capacity and liquidity.

Speaker Change: As Julian mentioned, our former largest shareholder <unk>.

Carmelo Carubo: Operating cash flow was strong in the fourth quarter at $262 million. We had about $95 million less in inventory as compared to the prior year quarter, even with inventory acquired through M&A and new inventory to support Greenfield. This reflects our effective inventory management that continues into the year ahead. In close collaboration with the field management team and our supply chain organization, we efficiently managed working capital, contributing to a strong finish to the year. Our fourth quarter cash conversion was impressive at more than 120% of adjusted EBITDA. For our full year 2023, we generated a record $788 million of operating cash flow, with a conversion rate of more than 84%.

Speaker Change: Recently sold off its remaining stake in our common stock and exited its representation on our board of directors at the same time in February Moody's Moody's upgraded our long term credit rating, one notch, which will improve our access to capital and lower our overall cost of debt going forward.

Speaker Change: We are investing record amounts in our business deploying more than $120 million in capital expenditures in 2023.

Speaker Change: This is not only included the investments.

Speaker Change: In the Greenfield already discussed, but also the upgrading of our fleet and facilities as well as well as building out the technology tools that will benefit us in 2024 and beyond.

Speaker Change: Let me give you some of the details on our share buybacks share repurchases in the fourth quarter were made through open market repurchases and resulted in the retirement of 140000 shares during the quarter.

Carmelo Carubo: We continue to balance our capital allocation between organic and inorganic growth opportunities and shareholder returns. Our ability to invest in greenfields and value-creating acquisitions is underpinned by our ample balance sheet capacity and liquidity. As Julian mentioned, our former largest shareholder, CDNR, recently sold off its remaining stake in our common stock and exited its representation on our Board of Directors.

Speaker Change: Net of share issuances for stock based compensation, we reduced our common shares outstanding to $63 3 million on December 31.

Speaker Change: Versus the $64 2 million at the same time the prior year.

We are confident in our ability to successfully compete competing and react to changing market conditions and look forward to a successful start of the year. We're also investing in the processes and technologies in order to build upon the foundation of our high caliber service future growth and operational excellence.

Carmelo Carubo: At the same time, in February, Moody's upgraded our long-term credit rating one notch, which will improve our access to capital and lower our overall cost of debt going forward. We are investing record amounts in our business, deploying more than $120 million in capital expenditures in 2020. This not only includes the investment in the greenfields already discussed but also the upgrading of our fleet and facilities as well as building out the technology tools that will benefit us in 2024 and beyond. Let me give you some of the details on our share buyback. Share repurchases in the fourth quarter were made through open market repurchases and resulted in the retirement of 140,000 shares during the quarter. Net of share issuances for stock-based compensation, we reduced our common shares outstanding to 63.3 million on December 31st versus 64.2 million at the same time last year.

Speaker Change: Now, let me turn the call back to Julian for his closing remarks.

Julian G. Francis: Thanks, Camilo and please reference page 11 of the slide materials.

Julian G. Francis: Before we move to the outlook I'd like to take a minute to reflect on the impressive 2023 results and the progress we have made towards the ambition 2025 targets, we conveyed two years ago.

Julian G. Francis: In 2023, we produced sales growth of over 8% to $9 1 billion.

Julian G. Francis: When we started the year uncertainties around the economy housing inflation of mortgage rates were all in the headlines we remain confident that we could grow and we did just that despite headwinds from destocking at the commercial contractor level and sluggish new construction demand to start the year.

Julian G. Francis: We focused on delivering high caliber service to our customers and productivity and continuous improvement of our branches, we delivered approximately $930 million of adjusted EBITDA and our third consecutive calendar year of double digit EBITDA margins.

Carmelo Carubo: We are confident in our ability to successfully compete in and react to changing market conditions and look forward to a successful start of the year. We're also investing in processes and technologies in order to build upon the foundation of a high-caliber service. Future Growth and Operation ELECT. Now, let me turn the call back to Julian for his closing remarks.

Julian G. Francis: We delivered record sales in our national accounts private label and digital initiatives, which delivered both enhanced growth and margin.

Julian G. Francis: We generated $21 million and EBITDA contribution from our bottom Quintile branch initiative, bringing the two year total to $57 million three quarters of our $75 million ambition 2025 target.

Julian G. Francis: Thanks, Carmelo, and please refer to page 11 of the slide material. Before we move to the outlook, I'd like to take a minute to reflect on the impressive 2023 results and the progress we have made toward the Ambition 2025 targets we communicated two years ago. In 2023, we achieved sales growth of over 8% to $9.1 billion. When we started the year, uncertainties around the economy, housing, inflation, and mortgage rates were all in the headlines. But we remained confident that we could grow, and we did just that, despite headwinds from de-stocking at the commercial contractor level and sluggish new construction demand to start the year. We focused on delivering high-caliber service to our customers and productivity and continuous improvement at our branch. We delivered approximately $930 million of adjusted EBITDA and our third consecutive calendar year of double-digit EBITDA margins. We delivered record sales in our national accounts, private label, and digital initiatives, which delivered both enhanced growth and margin. We generated $21 million in EBITDA contribution from our Bottom Quintile Branch Initiative, bringing the two-year total to $57 million, three-quarters of our $75 million Ambition 2025 target.

Julian G. Francis: We opened 28 greenfields across 17 states enhancing service to our customers. These new branches are ramping up ahead of expectations and in total all new Greenfield locations contributed nearly $200 million to the topline in 2023 alone.

Julian G. Francis: We welcomed nine new acquisitions, adding 21 branches new markets and capabilities.

Julian G. Francis: I am pleased to report that our acquisition portfolio is performing well and delivering results.

Julian G. Francis: Acquired branches contributed approximately $370 million to net sales in 2023, and like our Greenfield strategy expands our ability to serve our customers across the country.

Julian G. Francis: We filled several key leadership positions with our Salesforce line of business and leadership ranks while at the same time advancing our diversity inclusion and equity initiatives, we repurchased and retired $1 6 million shares for approximately $111 million and as discussed redeem the entirety of the preferred shares.

Julian G. Francis: For a little over $800 million.

Julian G. Francis: In summary, our performance in 2023 has created significant value for our customers and shareholders, including achieving two of the ambition 2025 targets net sales of $9 billion and shareholder returns of more than $500 million. Two years ahead of plan as well as a third year of double digit.

Julian G. Francis: We opened 28 greenfields across 17 states, enhancing service to our customers. These new branches are ramping up ahead of expectations, and in total, all new greenfield locations contributed nearly $200 million to the top line in 2023 alone. We welcomed nine new acquisitions, adding 21 branches, new markets, and capabilities.

Julian G. Francis: EBITDA margin another of our 825 targets.

Julian G. Francis: Please reference slide 12.

Speaker Change: Before we head to Q&A I'd like to provide our 2024 market expectations.

Speaker Change: We expect that residential re roofing market demand will be lower this year driven by our assumption that storm demand will revert to the 10 year average.

Speaker Change: At the same time, we expect non storm repair and re roofing to be higher as the number of older Rus growth's residential new construction and existing home sales are expected to improve also.

Julian G. Francis: I'm pleased to report that our acquisition portfolio is performing well and delivering results. Acquired branches contributed approximately $370 million to net sales in 2023, and like our Greenfield strategy, expanded our ability to serve our customers across the country. We filled several key leadership positions in our sales force, line of business, and leadership ranks while at the same time advancing our diversity, inclusion, and equity initiatives. We repurchased and retired 1.6 million shares for approximately $111 million, and, as discussed, redeemed the entirety of the preferred shares for a little over $800 million.

Regarding commercial roofing, we are monitoring the architectural billing index, which remains below 50, indicating contraction in activity in the first half of the year. We also see a continued shift from new construction to repair and re roofing activity as the year progresses.

Speaker Change: Despite these modest market headwinds for the first quarter, we expect total sales growth to be in the high single digit range year over year, demonstrating the value of our model.

Speaker Change: And this is considerably more than the 4% sales per day decline, we saw in January which as you know had cold and wet weather in many parts of the country.

Speaker Change: Nonresidential shipments are expected to be higher versus the prior year quarter in which we experienced considerable destocking at the commercial contracting level.

Julian G. Francis: In summary, our performance in 2023 has created significant value for our customers and shareholders, including achieving two of the Ambition 2025 targets, net sales of $9 billion and shareholder returns of more than $500 million, two years ahead of plan, as well as a third year of double-digit EBITDA margin, another of our A25 targets. Please reference slide 12.

Speaker Change: With respect to the first quarter gross margins, we expect it to be in the mid 24% range, which is down driven by line of business mix and the impact of both new Greenfield locations and the M&A. We've conducted in the past year that has yet to be fully synergize.

Speaker Change: Operating expenses as a percentage of sales is expected to increase year over year, largely attributable to the higher expenses related to head count from Greenfields and acquired branches.

Julian G. Francis: Before we head to Q&A, I'd like to provide our 2024 market expectations. We expect that residential re-roofing market demand will be lower this year, driven by our assumption that storm demand will revert to the 10-year average. At the same time, we expect non-storm repair and re-roofing to be higher as the number of older roofs grows. Residential new construction and existing home sales are expected to improve also. Regarding commercial roofing, we are monitoring the Architectural Billing Index, which remains below 50, indicating contraction in activity in the first half of the year.

Speaker Change: But also given tight labor markets, we are making efforts to ensure that we are properly staffed to meet the ramp and seasonal activity to continue to provide the high level of service our customers expect.

Speaker Change: For the full year, we expect net sales growth in the mid single digit percent range, including contributions from acquisitions previously announced this is an upward revision to our the expectations provided in January for low single digit growth, reflecting our recent acquisitions and our expectations that we announced April residential price.

Julian G. Francis: We also see a continued shift from new construction to repair and re-roofing activity as the year progresses. Despite these market headwinds for the first quarter, we expect total sales growth to be in the high single-digit range year over year, demonstrating the value of our model. And this is considerably more than the 4% sales per day decline we saw in January, which, as you know, had cold and wet weather in many parts of the country. Non-residential shipments are expected to be higher versus the prior year quarter, when we experienced considerable destocking at the commercial contractor level.

Speaker Change: The increase.

Speaker Change: Regarding gross margin structural improvements from our initiatives, including higher private label and digital sales are expected to be somewhat offset by higher non residential mix.

Speaker Change: Important to note that we expect price cost to be neutral, resulting in a full year gross margin percentage in the mid 25% range.

Speaker Change: With all that in mind, we expect adjusted EBITDA range between 920 and $980 million.

Speaker Change: Regarding cash flow, we expect inventory to follow a more normal pattern of seasonality as we build inventory and working capital in the first half of the year.

Julian G. Francis: With respect to the first quarter gross margins, we expect them to be in the mid-24% range, which is down, driven by the line of business mix and the impact of both new greenfield locations and the M&A we've conducted in the past year that is yet to be fully synergized. Operating expenses as a percent of sales are expected to increase year over year, largely attributable to the higher expenses related to headcount from greenfields and acquired branches. But also, given tight labor markets, we are making efforts to ensure that we are properly staffed to meet the rampant seasonal activity to continue to provide the high level of service our customers expect. For the full year, we expect net sales growth in the mid-single-digit percent range, including contributions from acquisitions previously announced.

For the full year, we expect to generate strong cash flow with conversion from adjusted EBITDA above 50%.

Speaker Change: Our focus will remain on the areas within our control, including enhancing our customer experience pricing and daily execution on safety service and efficiency.

Speaker Change: We will continue to invest in initiatives that we expect will result in accelerated growth with acquisitions and approximately 25 additional greenfield locations.

Speaker Change: We're investing in improving our operations delivering results today, but also getting ready for the future.

Speaker Change: And last but certainly not least we continue to be committed to generating returns for our shareholders and we will be balancing growth investments with share repurchases we.

Speaker Change: We have approximately $390 million left remaining on the authorization from our board approval early last year.

Julian G. Francis: This is an upward revision to the expectations provided in January for low single-digit growth reflecting our recent acquisitions and our expectations for the announced April residential price increase. Regarding gross margin, structural improvements from our initiatives, including higher private label and digital sales, are expected to be somewhat offset by higher non-residential mix. It is important to note that we expect price costs to be neutral, resulting in a fully accretive margin percentage in the mid 25% range. With all that in mind, we expect adjusted EBITDA to range between $920 and $980 million.

Speaker Change: In summary, our business model is resilient and we are positioned to outperform the market in any demand environment, creating value for all our stakeholders. We're looking forward to the rest of 2024 and is always helping our customers build more.

Speaker Change: And with that Victoria, I'll turn it back to you and open up the question and answer session.

Victoria: Of course.

Victoria: Ladies and gentlemen, if you wish to ask a question. Please press star followed by one on your telephone.

Speaker Change: Touchtone telephone apology.

Speaker Change: If your question has been answered or you wish to withdraw your question press the star key followed by two each.

Julian G. Francis: Regarding cash flow, we expect inventory to follow a more normal pattern of seasonality as we build inventory and working capital in the first half of the year. For the full year, we expect to generate strong cash flow with conversion from adjusted EBITDA above 50%. Our focus will remain on the areas within our control, including enhancing our customer experience, pricing, and daily execution on safety, service, and efficiency. Additionally, we will continue to invest in initiatives that we expect will result in accelerated growth through acquisitions and approximately 25 additional greenfield locations. We're investing in improving our operation and delivering results today but also getting ready for the future. And last but certainly not least, we continue to be committed to generating returns for our shareholders, and we will be balancing growth investments with share repurchases. We have approximately $390 million left remaining on the authorization from our board approval early last year.

Speaker Change: Each caller is limited to one question.

Speaker Change: Our first question comes from the line of Ryan Merkel with William Blair.

Ryan Merkel: Your line is now open.

Ryan Merkel: Hey, Thanks, good afternoon, thanks for taking the questions I wanted to ask on gross margin.

Ryan Merkel: Gave the reasons why in the first quarter, it's going to be down year over year, but then it assumes that it will be up year over year. The rest of the year. So some of the factors you cited like line of business and mix dilutive new Greenfields.

Ryan Merkel: Those things improve through the year or are you counting on something else to drive the gross margin improvement through the year.

Speaker Change: Thanks for the question Ryan I'm glad I'm glad you asked that clarification.

Speaker Change: In the first quarter, what we've got.

Speaker Change: <unk> mentioned, we got 11 Greenfields that we opened in the fourth quarter, obviously, we don't get the full gross margin benefit.

Speaker Change: Of those so that's a that's a piece of it that's a drag in the first quarter, we would expect those to improve through the year and get better as we fully ramp them up and get their product mix right. So that's a piece of it similarly.

Speaker Change: Similarly, with our acquisitions.

Julian G. Francis: In summary, our business model is resilient, and we are positioned to outperform the market in any demand environment, creating value for all our stakeholders. We are looking forward to the rest of 2024, and, as always, helping our customers build more. And with that, Victoria, I'll turn it back to you and open up the question and answer session. Ladies and gentlemen, if you wish to ask a question, please press a star followed by one on your telephone. Touchtone telephone

Speaker Change: Particularly with some of the more recent ones.

Speaker Change: We're working very carefully on on driving the performance that we expect but some of our larger acquisitions apart from coastal looks now included in our continuing results some of the newer acquisitions, we've yet to fully synergize because they were done later later in the year than they were a little bit larger than others. We've done previously so very.

Speaker Change: Having more of an impact early on in the year and again, we expect to see that improve year over year.

Victoria: Apologies. If your question has been answered or you wish to withdraw your question, press the star key followed by two. Each caller is limited to one question. Our first question comes from the line of Ryan Merkel with William Blair. Your line is now open. Hey, thanks. Good afternoon.

Speaker Change: Also as we start to come out if you look back beyond the last couple of years, which had been a little bit odd in terms of price carryover and.

Speaker Change: Inventory profits, we've returned to a sort of more normal seasonality and so we normally would see a lower <unk>.

Ryan Merkel: Thanks for taking the question. I wanted to ask about gross margin. You gave the reasons why the first quarter is going to be down year over year, but then it assumes that it'll be up year over year the rest of the year. So some of the factors you cited, like line of business and mix and the dilutive effect of new greenfields, Did those things improve through the year, or are you counting on something else to drive the gross margin improvement? Thanks for the question, Ryan. I'm glad you asked for that clarification.

Speaker Change: Margin.

Speaker Change: Gross margin in the first quarter of the year, that's a more typically seasonal basis that we recover through the rest of the year as the mix shifts more towards the residential side. So to answer your question.

Speaker Change: Relatively succinctly.

Speaker Change: It's mostly on improvements in what we have.

Speaker Change: And then the other piece of it would be more typical selling season as we get more into.

Julian G. Francis: In the first quarter, what we've got is, as we've mentioned, we've got 11 greenfields that we opened in the fourth quarter. Obviously, we don't get the full gross margin benefit of those, so that's a piece of it that's a drag in the first quarter.

Speaker Change: So the shingle re roof area. The margins go up so it's just a more normal pattern of behavior.

Speaker Change: Excuse me, we're not relying on other elements, but thanks for the clarity clarifying question.

Julian G. Francis: We would expect those to improve through the year and get better as we fully ramp them up and get their product mix right. So that's a piece of it. Similarly, with our acquisitions, particularly some of the more recent ones, we're working very carefully on driving the performance that we expect. But some of our larger acquisitions, apart from coastal, that's now included in our continuing results, some of the newer acquisitions we've yet to fully synergize because they were done later in the year and they were a little bit larger than others we've done previously. So they're having more of an impact early in the year. And again, we expect to see that improve year over year. Also, as we start to come out, if you look back beyond the last couple of years, which have been a little bit odd in terms of price carryover and inventory profits, we've returned to a sort of more normal seasonality. And so we normally would see a lower gross margin in the first quarter of the year. That's a more typically seasonal basis that we recover through the rest of the year as the mix shifts more towards the residential side. So to answer your question, relatively succinctly.

Speaker Change: Perfect. Thank you.

Speaker Change: Thank you for your question.

Speaker Change: The next question comes from the line of Michael Rehaut with Jpmorgan.

Michael Jason Rehaut: Your line is now open.

Michael Jason Rehaut: Sure.

Michael Jason Rehaut: Hi, guys one more on for Mike I'm curious, if you could give a little bit more color.

Michael Jason Rehaut: Some of the trends you saw throughout the quarter.

Michael Jason Rehaut: In addition to that of any of that was surprising in any surprising variation in market and just kind of your general.

Speaker Change: Do you are you.

Speaker Change: How the market can kind of developed throughout 2024.

Speaker Change: Thanks for the question.

Speaker Change: I'd be happy to do that so.

Speaker Change: A couple of things I think we're.

Speaker Change: Very evident to us.

Speaker Change: Throughout the fourth quarter.

Michael Jason Rehaut: And I'll split it into residential and commercial residential remains strong.

Michael Jason Rehaut: The seasons stretched.

Michael Jason Rehaut: Stretched out a little bit there was despite some some cold weather.

Michael Jason Rehaut: We saw contractors on the residential side working through particularly in the western.

Michael Jason Rehaut: Half of the country.

Michael Jason Rehaut: Obviously, we've seen significant storms out west.

Michael Jason Rehaut: Last year, and I think there was a real opportunity for people to get some of that work done.

Julian G. Francis: It's mostly on improvements in what we have. And then the other piece of it would be a more typical selling season, as we get more into sort of the shingle re-roof area, the margins go up. So it's just a more normal pattern of behavior. We're not relying on other elements.

Michael Jason Rehaut: So residential demand held up.

Michael Jason Rehaut: Through most of the fourth quarter, while we did see on the residential side was Florida came down hard after the after hurricane Ian sort of roll off you could see the difference kind of going into the a little bit in the third quarter, but certainly in the fourth quarter.

Ryan Merkel: But thanks for the clarifying question. Perfect. Thank you.

Michael Jason Rehaut: The impact of Hurricane Dorian was clearly done so those those two impacts.

Michael Jason Rehaut: Thank you for your question. The next question comes from the line of Michael Rehaut with J.P. Morgan. Your line is now open. Hi guys, Doug Wardlaw on for Mike.

Michael Jason Rehaut: They weren't offsetting the storms in the west with significantly greater and so we continue to see.

Doug Wardlaw: I'm curious if you could give a little bit more color on, you know, some of the trends you saw throughout the quarter and, Thank you all for joining us today. I hope any of that was surprising and any surprising variation in the market and just kind of your general view on how the market can kind of develop throughout 2024. Thanks. Thanks for the question. I'd be happy to do that.

Michael Jason Rehaut: Some really good demand and quite honestly, we expect to see that rolling into the start of 2024 on the residential side.

Michael Jason Rehaut: Which is very encouraging and also why we wanted to maintain.

Michael Jason Rehaut: Our workforce through the winter because we've seen the.

Michael Jason Rehaut: The demand.

Michael Jason Rehaut: On the residential side, particularly when we have.

Michael Jason Rehaut: Reasonably warm days in February we've seen demand be particularly good. So we're excited about that site switch.

Julian G. Francis: So, a couple of things I think were... It was very evident to us throughout the fourth quarter. And I'll split it into residential and commercial. Residential remained strong. The season stretched out a little bit.

Michael Jason Rehaut: Switching to the commercial volumes.

Michael Jason Rehaut: I think what we were convinced of.

Julian G. Francis: Despite some cold weather, we saw contractors on the residential side working through, particularly in the western half of the country. Obviously, we've seen significant storms out west last year, and I think there was a real opportunity for people to get some of that work done. And so residential demand held up through most of the fourth quarter. But what we did see on the residential side was Florida came down hard after Hurricane Ian sort of rolled off. You could see the difference, kind of going into a little bit in the third quarter, but certainly in the fourth quarter, the impact of Hurricane Ian was clearly done. So those two impacts weren't offsetting.

Michael Jason Rehaut: In the fourth quarter was kind of the rebound we saw in the commercial business.

Michael Jason Rehaut: And we think that a lot of that is just lapping some of the contracted destocking.

Michael Jason Rehaut: Don't think we really captured in fourth quarter of last year, but it was sort of evidenced in our numbers.

Michael Jason Rehaut: In the fourth quarter of 2023, so commercial volumes were good.

Michael Jason Rehaut: We believe the market solid.

Michael Jason Rehaut: There's a few headwinds that their interest rates not being the least to them in terms of new projects. So we think that that will move the commercial low slope roofing business, a little bit more towards.

Michael Jason Rehaut: The repair and replacement than the new side.

Michael Jason Rehaut: Obviously the numbers, we see in Q1 Q1's, Destocking last year was significant so we're seeing significant uptick in volumes year over year in Q1, but obviously, that's not sort of market related that's more.

Julian G. Francis: The storms in the West were significantly greater, and so we continued to see some really good demand. And quite honestly, we expect to see that rolling into the start of 2024 on the residential side, which is very encouraging and also why we wanted to maintain our workforce through the winter, because we've seen the demand on the residential side, particularly when we have reasonably warm days in February, we've seen the demand be particularly good. So we're excited about that. Switching to commercial volumes, I think what we were convinced of in the fourth quarter was the kind of rebound we saw in commercial business. And we think that a lot of that is just the lapping of some of the contract of the stocking that I don't think we really captured in the fourth quarter of last year but was sort of evident in our numbers in the fourth quarter of 2023. So, commercial volumes were good.

Michael Jason Rehaut: Distribution, and probably manufacturing related as opposed to total market.

Michael Jason Rehaut: Because of the Destocking that was so prevalent in the first quarter.

Michael Jason Rehaut: I think the other thing I would touch on is the growth in some of the water proofing business as well.

Michael Jason Rehaut: That's been that's been very attractive for us and we're seeing a shift away from new commercial construction also to the repair and replace which I think is a really underappreciated part of it.

Michael Jason Rehaut: When you think of codes that are starting to be written.

Michael Jason Rehaut: Around waterproofing.

Michael Jason Rehaut: Not just in coastal areas, but all across the country, we're starting to see the renovation of waterproofing become something that's really important too.

Julian G. Francis: We believe that the market's solid. You know, there are a few headwinds out there, interest rates not being the least of them in terms of new projects. So, we think that that will move the commercial low-slope roofing business a little bit more towards the repair and replacement side than the new side. Obviously, the numbers we see in Q1. Q1's destocking last year was significant. So, we're seeing a significant uptick in volumes year over year in Q1. But obviously, that's not sort of market-related.

Michael Jason Rehaut: The code writers, but also to the buildings themselves, obviously sort of exciting exciting things there. So we think.

Michael Jason Rehaut: <unk>.

Michael Jason Rehaut: Drawing conclusions from that coming into the first of the year, we expect to get off to a decent start to the year a little bit of pressure on gross margin, we've got higher opex in the first quarter, but we are absolutely ready for March April may and the second quarter of <unk>.

Michael Jason Rehaut: Yes.

Speaker Change: Great. Thank you guys.

Julian G. Francis: That's more distribution and probably manufacturing-related as opposed to total market because of the destocking that was so prevalent in the first quarter. I think the other thing I'd touch on is the growth in some of the waterproofing business as well. That's been very attractive for us, and we're seeing a shift there away from new commercial construction also to repair and replace, which I think is a really underappreciated part of it. You know, when you think of codes that are starting to be written around waterproofing, not just in coastal areas but all across the country, we're starting to see the renovation of waterproofing become something that's really important to code writers, but also to the buildings themselves, obviously.

Speaker Change: Thank you for your question.

Speaker Change: The next question comes from the line of Trey Grooms Stephens your.

Speaker Change: Your line is now open.

Speaker Change: Hey, guys. This is <unk> on for Trey Thanks for taking my question.

Speaker Change: Could you guys talk through.

Speaker Change: The cadence for for Opex.

Speaker Change: <unk> makes sense, but maybe <unk> onwards.

Speaker Change: Yes, I'll add.

Speaker Change: Kind of a high level.

Speaker Change: Working theory of what we're what we believe and then I'll, let <unk> add some color.

Speaker Change: As we said.

Speaker Change: We do expect to have higher opex in Q1.

Speaker Change: Mainly because we did not winterize the branches as much as we would normally do.

Sid Ramesh: So, exciting things there. Drawing conclusions from that, coming into the first of the year, we expect to get off to a decent start. A little bit of pressure on gross margin, we've got higher off-backs in the first quarter, but we are absolutely ready for March, April, May, and the second quarter of the year. Great, thank you guys. Thank you for your question. The next question comes from the line of Trey Grooms, Stephen. Your line is now open. Hey guys, this is Sid Ramesh on behalf of Trey.

Speaker Change: The scarcity of labor and full belief that we're going to get off to a really good start to the year.

Speaker Change: Once the season breaks out in.

Speaker Change: We get away from the cold wet weather into sort of a more normal climate patents.

Speaker Change: We will start to see that we've continued to invest in what we believe growth enhancing initiatives. So.

Speaker Change: So we believe that that's that's still important for us to continue to do so as we look at some of the key initiatives, we have and particularly as we think about.

Sid Ramesh: Thanks for taking my question. Could you guys talk through the cadence for for OPEX? One cue, one cue makes sense, but maybe two cues onward.

Speaker Change: Greenfields and M&A, obviously Greenfields you staff up first before you have any sales we have to bring.

Julian G. Francis: Yeah, I'll add kind of a high-level sort of working theory of what we believe, and then I'll let Carmelo add some color. As we said, we do expect to have higher operating costs in Q1, mainly because we did not winterize the branches as much as we would normally do because of the scarcity of labor and our full belief that we're going to get off to a really good start to the year once the season breaks out and we get away from the cold, wet weather into sort of a more normal climate pattern. We'll start to see that. We've continued to invest in what we believe are growth-enhancing initiatives. So we believe that it's still important for us to continue to do so. So as we look at sort of the key initiatives we have, and particularly as we think about Greenfields and M&A. Obviously, Greenfields, you staff up first before you have any sales.

Speaker Change: The branch managers and we have to bring the drivers in the warehouse people salespeople. So obviously opex grows ahead of those greenfields and honestly we just.

Speaker Change: And asked that we sort of committed to around 25, new branches. So there'll be additional opex coming in throughout the year as we as we build buildup.

Speaker Change: Build out new capabilities, there and then.

Speaker Change: Some key initiatives that.

Speaker Change: But we want to get done this year I mean, we're getting really close to achieving the goals.

Speaker Change: We laid out an ambitious 2025.

Speaker Change: We've seen the investments we've made in.

Speaker Change: And these initiatives really pay off over the last couple of years and so we certainly don't want to dial that back just yet, but I'll, let Tom mellow out a little bit of color, yes, I think <unk> covered pretty well I will just add that you were asking about the expected kind of evolution throughout the year quarter over quarter of course after Q1, we.

Julian G. Francis: We have to bring in the branch managers, we have to bring in the drivers, the warehouse people, the sales people. So obviously, OPEX grows ahead of those Greenfields. And obviously, we just announced that we've committed to around 25 new branches. So there'll be additional OPEX coming in throughout the year as we build out new capabilities there. And then some key initiatives that we wanna get done this year. I mean, we're getting really close to achieving the goals that we laid out in Ambition 2025. And we've seen the investments we've made in these initiatives really pay off over the last couple of years. And so we certainly don't wanna dial that back just yet, but I'll let Carmelo add a little bit of color.

Speaker Change: Expect.

Tom: Sales to ramp like following the normal seasonal dynamic that we have in our base assets. So we will see some.

Tom: Opex leverage in Q2 and Q3.

Tom: I'd say for the full year, we will probably expect it to remain to remain flat.

Tom: What we had in 2023.

Speaker Change: Got it I appreciate the color guys. Thanks.

Speaker Change: Thank you for your question.

Speaker Change: The next question comes from the line of Garik <unk> with loop capital.

Carmelo Carubo: Yeah, I think Julian covered it pretty well. I will just add that you were asking about the expected kind of evolution throughout the year, quarter over quarter. And of course, after Q1, we expect sales to ramp up, following the normal seasonal dynamic that we have in our business. And so we will see some OPEX leverage in Q2 and Q3. I'd say for the full year, we will probably expect this to remain flat versus what we had in 2023.

Garik: Your line is now open.

Garik: Oh hi.

Garik: Thank you I was wondering if you could speak to your expectations for residential pricing, recognizing you're anticipating price cost neutrality.

Garik: But given there is a price increase in the market for April I'm wondering how that might influence your thought.

Garik: Sure.

Garik: Yes.

Speaker Change: We factored in that.

Garik: Price increase Garrick in terms of what we forecast going forward.

Sid Ramesh: Appreciate the call, you guys. Thanks. Thank you for your question. The next question comes from the line of Garik Shmois with Loop Capital. Your line is now open.

Garik: The Big question I'll tell you I don't want to be too aggressive in terms of forecasting Alex I mean, we don't know what the execution is.

Garik: It's going to be like so.

Garik Shmois: Oh, hi. Oh, thank you. I'm wondering if you could speak to your expectations for residential pricing, you know, recognizing that you're anticipating price cost neutrality. But given there's a price increase in the market for April, wondering how that might influence your. Yeah, I mean, we've factored in that price increase, Garik, in terms of what we've forecast going forward. I mean, the big question, I'll tell you, I don't want to be too aggressive in terms of forecasting. I mean, you know, we don't know what the execution is going to be like, so, you know, we're encouraged by it.

Garik: We're encouraged by it.

Garik: And I asked our own price increase on top of the manufacturers. So we certainly expect to.

Garik: Recover crossed and hold on to gross margin.

Garik: But we will we do believe that it's.

Garik: It's warranted we are watching.

Garik: We're watching the commercial side closely.

Garik: That's that's an area, where we have a slightly weaker demand the destocking from the contractor level volumes at the manufacturers and distributors are likely to be up this year.

Garik: But we're watching the overall end market demand there.

Julian G. Francis: We've announced our own price increase on top of the manufacturer's, so we certainly expect to recover the cost and hold on to gross margin, but, you know, we do believe that it's warranted. We're watching the commercial side closely. That's an area where, you know, with slightly weaker demand, the de-stocking from the contractor level volumes of the manufacturers and distributors is likely to be up this year, but we're watching the overall end market demand there, so we're feeling pretty good. We do think we'll get some benefits in, you know, probably the second quarter from inventory profits as we go up and watch our weighted average cost of goods come in. Obviously, that will roll off probably in the mid-third quarter, but overall, you know, we're expecting it to be relatively neutral.

Garik: So we're feeling pretty good we do think we will get some benefit in.

Garik: Probably the second quarter.

Garik: From inventory profits as we go up in and watch our weighted average cost of goods come in.

Garik: Obviously that will roll off.

Garik: Probably in mid third quarter.

Garik: But overall.

Garik: We're expecting it to be relatively neutral I'd love to see some opportunity elsewhere.

Garik: And I think the longer term piece is were starting to rollout.

Garik: Pricing model.

Garik: And thats that won't have a lot of impact in the first half of the year, but we hope to and expect to see some impact from that in the second half of the year as well so hopefully hopefully we'll see some good opportunity to two.

Garik Shmois: You know, I'd love to see some opportunity elsewhere, and I think the longer-term piece is we're starting to roll out our new pricing model, and that won't have a lot of impact in the first half of the year, but we hope to and expect to see some impact from that in the second half of the year as well, so hopefully, we'll see some good opportunities to improve on our overall numbers this year as well. understood. Thank you very much. Thank you for your question. The next question comes from the line David Manthey with Baird. Your line is now open.

Garik: To improve on our overall.

Garik: Numbers this year as well.

Speaker Change: Understood. Thank you very much.

Speaker Change: Thank you for your question.

Speaker Change: The next question comes from the line of David Manthey with Baird. Your line is now open.

David John Manthey: Thank you and good afternoon.

David John Manthey: Julian I was wondering if I could get your view on a couple of industry factors first changes in homeowners insurance from replacement value depreciated cash value that those last year and then second E. Verify you mentioned labor issues in general, but if you could give us your thoughts.

David John Manthey: Thank you. Good afternoon. Julian, I was wondering if I could get your view on a couple of industry factors. First, changes in homeowners insurance from replacement value to depreciated cash value. I think that was last year. And then second, E-Verify, and you mentioned labor issues in general, but if you could give us your thoughts on both of those, I snuck in two questions there, David, but I'll be happy to do that. So, first of all, on insurance. You know, it... Part of our theory about our business is that if you need a roof, you're going to figure out how you can get a roof, whether the insurance pays a portion of it or it pays all of it. If you need a new roof, you're going to get all of it. This is the core piece of our model. I think many, many contractors and certainly distribution; we offer financing through a partner.

David John Manthey: On both of those issues.

Speaker Change: And snuck into two questions, there, David but I'll be happy to do that.

Speaker Change: So.

Speaker Change: First of all on the insurance.

Speaker Change: It's.

Speaker Change: Yes.

Speaker Change: This is part of our theory about our business is that if you need a roof youre going to figure out how you can get a roof.

Speaker Change: Yes.

Speaker Change: The insurance pays a portion of it or it pays all of it.

Speaker Change: <unk>.

Speaker Change: If you need any route you're going to get all of it.

Speaker Change: And this is the core piece of our model.

Speaker Change: Sure.

Speaker Change: I think many many contractors.

Speaker Change: And certainly distribution, we offer financing through a partner so the ability to get the money to finance a roof, one way or another.

Speaker Change: Is that.

Speaker Change: So while I think it puts a little bit of strain on homeowners in terms of cash position.

Julian G. Francis: So the ability to get the money to finance a roof one way or another is there. So while I think it puts a little bit of a strain on homeowners in terms of cash position, what happens is that it's not the roof that they decide that they're not going to do. It's other things. So it's less about roofing in that situation.

Speaker Change: What happens is it's not the roof.

Speaker Change: They decided that they're not going to do.

Speaker Change: Other things so.

Speaker Change: It's less about roofing and that situation. So we don't think ultimately it creates challenges.

Julian G. Francis: So we don't think, ultimately, it creates challenges for the roofing business. We think that it's one of the great things about the roofing business, that it really is non-discretionary, and people will find ways. And there is financing out there. Customers' balance sheets, consumer balance sheets are strong, so they're able to borrow.

Speaker Change: For the roofing business, we think that is.

Speaker Change: It's one of the great things about the roofing business. It's really is non discretionary and people will find ways and there is financing out their customers' balance sheets consumer balance sheets are strong. So they are able to they are able to borrow.

Julian G. Francis: So that's the first part. The second part regarding e-Verify, you know, I mentioned this on a prior earnings call maybe two or three quarters ago. We were asked specifically about the rule in Florida, and I'd say we did see an impact in the immediate aftermath of that, not so much on our business, obviously.

Speaker Change: So that's the first part the second part regarding E verify.

Speaker Change: You know.

Speaker Change: I've mentioned this on a prior.

Speaker Change: Earnings call, maybe two or three quarters ago, we were asked specifically.

Speaker Change: <unk>.

Speaker Change: Rule in <unk>.

Speaker Change: Florida, and I'd say, we did see an impact.

Speaker Change: In the immediate aftermath of that not so much on our business obviously, we.

Julian G. Francis: We follow the verified programs, but we did see some activity in Florida decline. We believe a lot of that came back over, you know, probably a five, six-month period. We think that, in general, the contractors found ways to mitigate some of the losses that you saw in Florida. So broadly, I think, you know, we're going to find ways to figure out some of the labor tightness. Fundamentally, I don't believe that the labor challenges we face are necessarily going to be solved by more labor.

Speaker Change: For the verified programs, but we did see some activity in Florida decline.

Speaker Change: We believe a lot of that came back.

Speaker Change: Probably.

Speaker Change: Five six month period, we think that.

Speaker Change: In general the.

Speaker Change: The contract has found ways to mitigate some of the losses that you saw in Florida. So broadly I think we're going to find ways to figure out the some of the labor tightness.

Speaker Change: Look.

Speaker Change: Fundamentally I don't believe that.

Speaker Change: The labor challenges, we face is necessarily going to be solved by more labor I think it's got to be driven by efficiencies productivity is.

David John Manthey: I think it's got to be driven by efficiencies, and productivity, and that's really what we're working on for our customers. If we can deliver on time and save them time, if we can do roof loading in those markets that require it, we save them time. So we're working very hard to find ways to enable our contractors with better service. Very clear. Thanks, Julian.

Speaker Change: And that's really what we're working on for our customers. If we can deliver on time and save them time, if we can do roof loading in those markets that require it we save them time. So we're working very hard to find ways to enable our contractors with better services.

Speaker Change: Very clear thanks Julien.

David John Manthey: Thank you for your question. Before we proceed to our next question, as a reminder, please hit star 1 to ask a question. Our next question comes from the line of David McGregor with Longbow Research. Your line is now open.

Speaker Change: Thank you for your question.

Speaker Change: Before we proceed to our next question as a reminder, please hit star one to ask a question.

Speaker Change: Our next question comes from the line of David Macgregor with Longbow Research.

David John Manthey: Your line is now open.

David John Manthey: Yeah, good. Yeah, good afternoon, everyone. And thanks for taking my question. Julian, I wanted to go back to the new pricing model, which you mentioned in passing to a previous question. And you mentioned that, you know, the impact from the second half of the year. Is there any way you can help us in terms of just quantifying how we should think about the expected impact to margins or EBITDA on a run rate basis going forward? And also, is there any, how confident are you about the risks associated with implementing a model that is potentially disruptive on a short term basis?

David John Manthey: Yes, yes.

David John Manthey: Yes, good afternoon, everyone and thanks for taking my question.

David John Manthey: Julia I wanted to go back to the new pricing model, which you mentioned in passing to a previous question.

David John Manthey: You mentioned that it will be impactful in the second half of the year.

Speaker Change: Any way you can help us in terms of just quantifying how we should think about the expected impact to margins or EBITDA on a run rate basis going forward.

Speaker Change: So is there any.

Speaker Change: Confident are you that.

Speaker Change: Around the risks associated with implementing the model being essentially disruptive on short term basis.

Speaker Change: David Thank you for the questions.

Julian G. Francis: Thank you for the question. It's a great question, and we've worked very hard to mitigate the downside of the new model. We committed during our Ambition 2025 Investor Day presentation to 50 basis points of improvement through better pricing, and we've been really diligent in terms of implementing that. We have begun rollouts in several trial markets to make sure that we're getting the right implementation. We're seeing good traction with our people, which is probably the most important thing in the early rollout. It's difficult to pick out exactly the impact we're having on pricing in such a short period of time, but I'm very, very pleased with the fact that the usage of the tool that we are implementing has been very high. The adoption rate is good, and I was also concerned not just about the adoption but the abandonment rate, so people going away from it, and I think that's been pretty good. It is still early, though.

David: It's a great question and we've worked very hard to mitigate the downside.

Speaker Change: Sure.

Speaker Change: The new model so.

Speaker Change: And we have.

Speaker Change: We committed during our ambition 2025.

Speaker Change: Investor Day presentation to 50 basis points improvement through better pricing model.

Speaker Change: We've been really diligent in terms of implementing that we have begun rollouts in several trial markets to make sure that we're getting.

Speaker Change: The right implementation.

Speaker Change: We're seeing good traction with our people, which is probably the most important thing in the in the early rollout difficult to pick out.

Speaker Change: Exactly the impact we're having on on pricing in such a short period of time.

Speaker Change: But I'm very very pleased with.

Speaker Change: The fact that the usage of the tool that we are implementing.

Speaker Change: <unk> has been very high the adoption rate is good.

Speaker Change: And I was also concerned not just about the adoption, but the abandonment rate so people going away from it and I think that's been that's been a pretty good it is still early so.

Julian G. Francis: So we're not going to get through the bulk of the... launch until probably through the end of the third quarter. We do expect, and we continue to commit to that 50 basis points of run rate, and we do think we'll be seeing that come through. I have no reason to doubt it right now.

Speaker Change: We're not going to get through the bulk of the.

Speaker Change: Launch in <unk>.

Speaker Change: <unk>, probably through the end of the third quarter.

Speaker Change: We do expect and we will continue to commit to that 50 basis points of run rate.

Speaker Change: And we do think we will be seeing that come through I have no reason to doubt it right now have been very pleased with the execution.

David John Manthey: I've been very pleased with the execution. We've been incredibly diligent about making sure that this isn't disruptive to our people or to the market. It's just our ability to respond better to inbound information, and the scale that we have, the information we have, the data that we have coming in. Because of the size, we believe that we're getting much better market intelligence that we can feed into our model and deliver better results. You won't see a tremendous impact this year, maybe a little bit in the fourth quarter, but I would expect us to be up and running by the beginning of next year and ramping up, and we still are committed to at least 50 basis points of margin improvement for the whole period.

Speaker Change: We've been incredibly diligent about making sure that this isn't disruptive to our people or to the market is just our ability to respond better to.

Speaker Change: Inbound information and the scale that we have the information we have the data that we have coming in because of the size. We believe that we are getting much better markets.

Speaker Change: Market Intel that we can feed into our model.

Speaker Change: And deliver better results. So you won't see a tremendous impact this year, maybe a little bit in the fourth quarter.

Speaker Change: But I would expect us to be sort of up and running.

Speaker Change: At the beginning of next year and ramping up and we still are committed to at least 50 basis points of margin improvement for the whole company.

David John Manthey: Got it. Thanks for that and good luck. Appreciate it. Thanks for your questions. Sorry about that. Thank you for your question. There are currently no questions registered, so as a reminder, it is Star 1 to ask a question.

Speaker Change: Got it thanks for that and good luck.

Speaker Change: I appreciate it thanks for your questions.

Speaker Change: Sorry about that.

Speaker Change: Thank you for your question.

Speaker Change: There are currently no questions registered so as a reminder, it is star one to ask a question.

Speaker Change: Okay.

Speaker Change: Okay.

Julian G. Francis: That concludes the questions for now. I would like to turn the call back over to Mr. Francis for his closing comments. Thank you, Victoria. Once again, we thank you all for your interest in Beacon. 2023 was, you know, a truly inspiring year for our team. We've set records across the board, including record stock prices, and I'm thrilled that we continue to be able to deliver on our ambitious 2035 goals.

Julian G. Francis: That concludes the questions for now I would like to turn the call back over to Mr. Francis for his closing comments.

Francis: Thank you Victoria once again.

Francis: Thank you all for your interest in Beacon.

Francis: <unk> 23 was truly inspiring year for our team.

Francis: We've set records across the board, including record stock prices and Im thrilled that we continue to be able to deliver on our ambition 2025 and with that thank you Goodnight.

Victoria: And with that, thank you. Good night. That concludes today's call. Thank you for your participation, and enjoy the rest of your day. That concludes today's call. Thank you for your participation, and enjoy the rest.

Speaker Change: That concludes today's call. Thank you for your participation and enjoy the rest of your day.

Speaker Change: That concludes today's call. Thank you for your participation and enjoy the rest.