Q2 2024 Beacon Roofing Supply Inc Earnings Call
Unknown Executive: Reminder. 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, and other words of similar meaning.
This call will contain forward looking statements about the companys plans and objectives and future performance 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 meaning actual results may differ materially.
Julian: 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 2023 Form 10-K. Second, the forward-looking statements contained in this call are based on information as of today, August 1, 2024, 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.
Really 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 2023 Form 10-K.
Second the forward looking statements contained in this call are based on information as of today August one 2024, 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 GAAP measures 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 at <unk> Dot com now.
Julian: 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 this call. Both the press release and the presentation are available on our website at BECN.com. Now, we will begin with opening remarks from Julian. Thanks, Binit. Good afternoon, everyone.
To begin with opening remarks from Julien.
Julien: Thanks, <unk> good afternoon, everyone.
Julien: I'm pleased to say that we delivered another quarter of solid execution on our growth initiatives.
Julian: I'm pleased to say that we delivered another quarter of solid execution on our growth initiative. But before I begin our review, let me remind you of the assumptions that underpinned our prior outlook. We expected the residential roofing market would be down year on year as storm-related demand declined substantially and more than offset the improvement in new residential construction and non-storm-related re-roofing.
Speaker Change: Before we begin our review, let me remind you of the assumptions that underpin our prior outlook.
Julien: We expected the residential roofing market would be down year on year as storm related demand declined substantially and more than offset the improvement in new residential construction and non storm related re roofing.
Julian: In commercial roofing, we said that there would be a contraction in the installation activity in the first half of the year, but our volumes would grow because of last year's reduced stock. We also expected a shift to more repair and re-roofing activity rather than new commercial construction. That would impact product mix in this part of our business. By and large, end market demand has performed as we expected, with commercials slightly better than anticipated and new res slightly worse, and we expect storm demand to be in line with the 10-year average. Now let's begin on slide four.
Julien: And commercial roofing, we said that there would be a contraction in the installation activity in the first half of the year, but our volumes would grow because of last year's contract with Destocking.
Julien: We also expected to shift to more repair and re roofing activity rather than new commercial construction that would impact product mix in this part of our business.
Julien: By and large end market demand has performed as we expected with commercial is slightly better than anticipated new raise slightly worse than we expect storm demand to be in line with the 10 year average.
Julien: Now, let's begin on slide four.
Julian: Against this backdrop, our team demonstrated that our Ambition 2025 plan has created multiple paths to growth, and we delivered a record for quarterly sales. In the second quarter, average selling prices were up low single digits year-over-year, which combined with contributions from greenfields and acquisitions to drive net sales nearly 7% higher, although slightly lower than our initial expectations given the weather in the quarter. And once again, we delivered double-digit adjusted EBITDA
Julien: Against this backdrop our team demonstrated that our ambition 2025 time has created multiple paths to growth and we delivered a record for quarterly sales.
Julien: In the second quarter average selling prices were up low single digits year over year, which combined with contributions from Greenfields and acquisitions to drive net sales nearly 7% higher although slightly lower than our initial expectations given the weather in the quarter.
Julien: And once again, we delivered double digit adjusted EBITDA margins.
Julian: Our gross margin came in at 25.6%, approximately 20 basis points above the second quarter of last year but below our expectations, largely due to the lower-than-expected contribution from inventory profits related to our April shingle price increase. Adjusted OPEX increased primarily from additional headcount, as we maintain staffing at our branches to meet a higher level of anticipated activity. Additionally, the impact of recent greenfield locations and M&A yet to be fully synergized has also negatively impacted operating levels.
Julien: Gross margin came in at 25, 6% approximately 20 basis points above the second quarter of last year, but below our expectations largely due to the lower than expected contribution from inventory profits related to our April single price increase.
Julien: Adjusted Opex increased primarily from additional head count as we maintain staffing at our branches to meet a higher level of anticipated activity additions.
Julien: Additionally, the impact of recent greenfield locations and M&A, yet to be fully synergize also negatively impacted operating leverage.
Julian: We continue to use our balance sheet capacity to reinvest in the business, conduct M&A, and return capital to shareholders. Since the end of the first quarter, we have acquired 21 branches, including the recent announcements of Roofers of Southern California, Extreme Metal Fabricators, and Integrity Metal. Roofers Mart has a 40-year history serving contractors in the Los Angeles metro market and demonstrates our focus on growing our commercial roofing business. Extreme Metal and Integrity Metals extend our residential and commercial roofing product offering to include metal solutions to meet the needs of Florida's coastal region.
Julien: We continue to use our balance sheet capacity to reinvest in the business conduct M&A and return capital to shareholders.
Julien: Since the end of the first quarter.
Julien: Slide 21 branches, including the recent announcements of roof is not southern California, extreme metal fabricators and integrity metals.
Speaker Change: <unk> has a 40 year history, serving contractors in the Los Angeles Metro market and demonstrates our focus on growing our commercial roofing business.
Speaker Change: Extreme metal and integrity metals extend our residential and commercial roofing product offering to include metal solutions to meet the needs in Florida's coastal regions.
Julian: Entering the second half of the year, we will be proactive in responding to local market conditions by adjusting inventory and staffing levels while maintaining Beacon's high-caliber customer service. We're investing in improving our operations, delivering results today, while also preparing for the future, including investments in our leading digital platform, private label offerings, and our pricing. Now, please turn to page 5. As many of you know, 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. A relentless focus on our customers is central to how we operate and to achieving these goals.
Julien: Entering the second half of the year, we will be proactive in responding to local market conditions by adjusting inventory and staffing levels, while maintaining beacons high caliber customer service.
Speaker Change: We're investing in improving our operations delivering results today, while also preparing for the future including investments in our leading digital platform private label offering and our pricing model.
Speaker Change: Now please turn to page five.
Speaker Change: As many of you know we laid out our targets to drive above market growth deliver consistent double digit adjusted EBITDA margins. It was a great organization and generate superior shareholder returns.
Speaker Change: Our relentless focus on our customers is central to how we operate and to achieving these goals. Our team is working everyday to deliver a great customer experience and ensure we are building on our legacy of service.
Julian: Our team is working every day to deliver a great customer experience and ensure we are building on our legacy of service. Let me provide you with an update on our strategic initiatives, starting with how we are building a winning culture. As part of our commitment to our team members' wellness, we recently launched an upgraded employee assistance program. The new program has added emphasis on mental health as well as physical health to recognize the challenges today's employees and their families face.
Julien: Let me provide you with an update on our strategic initiatives starting with how we are building a winning culture.
Speaker Change: As part of our commitment to our team members' wellness. We recently launched an upgraded employee assistance program. The new program has added emphasis on mental health as well as physical health to recognize the challenge today's employees and their families face.
Julian: One of our core values is doing the right thing, and this applies to our efforts to build better for the environment. In May, we issued our third annual Corporate Social Responsibility Report, which demonstrated our commitment to action and transparency on environmental and social topics. We proudly reported three years of progress towards our goal of halving our emissions intensity by 2030. In addition, we outlined our scope 1 and 2 greenhouse gas emissions and our efforts to reduce those emissions by operating a more sustainable fleet and investing in renewable energy. Our 2023 CSR report highlights how we are progressing on our commitment. I encourage all of our stakeholders to go to our website and view the full report.
Speaker Change: One of our core values is do the right thing and this applies to our efforts to build better for the environment in May we issued our third annual corporate social responsibility report, which demonstrated our commitment to action and transparency on environmental and social topics.
Speaker Change: We proudly reported three years of progress towards our goal of having of emissions intensity by 2030.
Speaker Change: In addition, we outlined our scope one and two greenhouse gas emissions and our efforts to reduce those emissions by operating our more sustainable fleet and investing in renewable energy.
Speaker Change: 2023, CSR report highlights how we are progressing on our commitment.
Speaker Change: All of our stakeholders to go to our website and beautiful report.
Julian: 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 lever in our growth plans, including our investments in greenfields and acquisitions. Our Greenfield team continues to execute on our pipeline of new locations, and we have opened 13 branches year-to-date.
Speaker Change: Our second pillar is driving growth of both 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, including our investments in Greenfields and acquisitions.
Speaker Change: Our Greenfield team continues to execute on our pipeline of new locations and we have opened 13 branches year to date.
Julian: Each time we open a new branch, we add sales resources and reduce the average distance and time it takes us to reach our customers. This enhances our overall value proposition, giving us the opportunity to earn market share. We have now opened 58 new branches since the beginning of 2022, exceeding our original Ambition 2025 goal of 40 total. On acquisitions, we discussed our recent purchase of Roofers Mart, Extreme Metals, and Integrity Metals earlier, and we highlighted the acquisitions of Roofers Supply of Greenville, General Siding, and Smalley & Company on our call in May.
Speaker Change: Each time, we have a new branch, we add sales resources and reduced the average distance and time it takes us to reach our customers.
Speaker Change: This enhances our overall value proposition, giving us the opportunity to earn market share.
Speaker Change: We have now opened 58, new branches since the beginning of 2022 exceeding our original ambition 2025 goal of 40 total.
Speaker Change: On acquisitions, we discussed our recent purchase of roof is not extreme metals and integrity metals earlier I.
Speaker Change: And we highlighted the acquisitions of roofing supply of Greenville, General siding and smaller <unk> company on a call in May.
Julian: However, it is worth mentioning again that, with the acquisition of Smalley and its 11 locations spread throughout the West, we have built the leading national specialty waterproofing distribution platform with a track record of providing value-added solutions to contractors in both new construction and restoration markets.
Speaker Change: However, it is worth mentioning again that with the acquisition of slowly and its 11 locations spread throughout the west we have built the leading national specialty waterproofing distribution platform with a track record of providing value added solutions to contractors in both new construction and restoration markets.
Julian: Since announcing our Ambition 2025 plan, we have acquired 21 companies and added 71 branches. In total, we have deployed approximately $690 million in capital towards these acquisitions, adding base year revenue of more than $800 million. In total, these acquisitions are performing ahead of our expectations. Our online capability continues to be a clear competitive advantage for Beacon, and sales through our digital platform increase customer loyalty, generates larger basket sizes, and enhances margin by roughly 150 basis points when compared to offline channels.
Speaker Change: Since announcing our ambition 2025 plan, we have acquired 21 companies, adding 71 branches in total we have deployed approximately $619 million in capital towards these acquisitions, adding base year revenue of more than $800 million.
Speaker Change: In total these acquisitions are performing ahead of our expectations.
Speaker Change: Our online capability continues to be a clear competitive advantage for beacon and sales through our digital platform increases customer loyalty generate larger basket sizes and enhances margin by roughly 150 basis points when compared to offline channels.
Julian: In the second quarter, we grew digital sales approximately 22% year over year. Digital sales to our residential customers were a highlight, as we achieved our highest quarterly adoption ever at nearly 26%. We continue to invest in strengthening our platform and just last week announced an enhanced alliance with EagleView, a leading provider of aerial imagery, software, and analytics. This collaboration makes it easier for contractors to quickly and accurately place digital orders.
Speaker Change: In the second quarter, we grew digital sales of approximately 22% year over year.
Speaker Change: Digital sales to our residential customers were a highlight as we achieved our highest quarterly adoption ever at nearly 26%.
Speaker Change: We continue to invest to strengthen our platform and just last week announced an enhanced alliance with <unk>, a leading provider of aerial imagery software and analytics.
Speaker Change: This collaboration makes it easier for contractors to quickly and accurately place digital orders.
Julian: Allowing them to run their businesses more efficiently, and as such, choose Beacon as their supply partner. Our focus on commercial roofing solutions is one of the key growth initiatives of our Ambition 2025 plan. We have outlined above market growth targets and have been taking steps to become the market leader. To achieve this goal, we must develop best-in-class talent, and in the past year, we launched a new training program. Hundreds of employees have attended the e-learning and hands-on sessions, with over 150 completing the advanced level certification.
Speaker Change: Allowing them to run their businesses more efficiently and as such choose Beacon is there supply partner.
Speaker Change: Our focus on commercial roofing solutions is one of the key growth initiatives of our ambition 2025 plan, we outlined above market growth targets and have been taking steps to become the market leader to.
Speaker Change: To achieve this goal we must develop best in class talent and in the past year, we launched a new training program.
Speaker Change: <unk> employees who've attended the learning and hands on sessions with over 150, completing the advanced level certification.
Julian: Team members improved their understanding of commercial roofing basics, including product details, installation techniques, and all varieties of low-slope roof systems. Through a more knowledgeable and confident branch and sales team, we are better able to support the needs of our commercial contractor customers and create positive interactions that will increase loyalty, resulting in higher wallet share. Now, as we have discussed for several quarters, we are enhancing productivity and capacity through our continuous improvement and operational excellence initiatives. Our focus on the bottom quintile branch process has generated meaningful contributions to EBITDA, and this year is no different. Through this process, we have already generated approximately $3 million in additional revenue from the class of 2024.
Speaker Change: Team members improve their understanding of commercial roofing basics, including product details installation techniques and override ease of low slope roof systems.
Speaker Change: Through more knowledgeable and competent branch and sales team, we are better able to support the needs of our commercial contracted customers and create positive interactions that will increase loyalty, resulting in higher wallet share.
Speaker Change: Now as we have discussed for several quarters, we are enhancing productivity and capacity through our continuous improvement and operational excellence initiatives.
Speaker Change: Our focus on the bottom Quintile branch process has generated meaningful contributions to EBITDA and this year is no different.
Speaker Change: Through this process, we have already generated approximately 3 million additional dollars from the class of 2024.
Julian: Our branch optimization efforts are also showing results, increasing storage capacity, improving yard flow, and optimizing product placement for picking efficiency, all of which improves branch productivity and supports increased sales from existing assets. And all these tools are deployed to drive synergies from our acquisition portfolio.
Speaker Change: Our branch optimization efforts are also showing results increasing storage capacity, improving YOD flow and optimizing product placement for picking efficiency, all of which improve branch productivity and support increased sales from existing assets.
Speaker Change: And all these tools are deployed to drive synergies from our acquisition portfolio.
Julian: Through a systematic approach to integrating acquired branches, we are able to achieve top-line and bottom-line performance improvements. As we have mentioned on previous calls, our recent acquisitions that have yet to be synergized are likely to be diluted in the near term, but I am pleased to report that the margins in our portfolio as a whole continue to improve relative to the performer at the time of transaction. And fourth, let's review how we are creating shareholder value. As previously announced during the quarter, we entered into an additional accelerated share repurchase program in the amount of $225 million.
Speaker Change: Through a systematic approach to integrating acquired branches, we are able to achieve topline and bottomline performance improvements.
Speaker Change: As we have mentioned on previous calls our recent acquisitions that have yet to be similar sized are likely to be dilutive in the near term, but I am pleased to report that the margins in our portfolio as a whole continued to improve relative to the pro forma at the time of transaction.
Speaker Change: And fourth let's review, how we are creating shareholder value.
Speaker Change: As previously announced during the quarter, we entered into an additional accelerated share repurchase program and the amount of $225 million.
Julian: The BIBRAC program demonstrates both our commitment to delivering value to shareholders and our confidence in the Ambition 2025 plan. As you can see, we truly have multiple paths to growth and margin expansion through the cycle. We have a differentiated approach and have built the tools to achieve our Ambition 2025 target. Now, many of you know or have met Prith Gandhi, our CFO, since May. I'm very pleased that Prith has joined
Speaker Change: The buyback program demonstrates both our commitment to delivering value to shareholders and our confidence in the ambition 2025 plan.
Speaker Change: As you can see we truly have multiple paths to growth and margin expansion through the cycle. We have a differentiated approach and have built the tools to achieve our ambition 2025 targets.
Matt: Now many of you know, Matt <unk> CFO since May I am very pleased with purpose joined us and as I said in the last call when I welcomed him for its proven track record in financial leadership, especially in the building products industry makes him a great addition to our team and I will pass the call over to Chris to provide a deeper focus on our second quarter.
Prithvi Gandhi: And as I said on the last call when I welcomed him, Prith's proven track record of financial leadership, especially in the building products industry, makes him a great addition to our team. Now, I'll pass the call over to Prithvi to provide a deeper focus on our second quarter results. Thanks, Julian. And good evening, everyone.
Speaker Change: <unk>.
Chris: Thanks, Julian and good evening everyone.
Prithvi Gandhi: Turning now to slide 7, we achieved almost $2.7 billion in total net sales in the second quarter, up nearly 70% year-over-year, primarily driven by the impact of acquisitions and higher average selling prices. As Julian mentioned, we had wet weather and precipitation in large swaths of the country, particularly in May, as well as excessive heat throughout the quarter that impacted the number of roofing days during Q3. Nevertheless, we were able to achieve organic sales growth across all three lines of business and set a new quarterly sales record.
Chris: Turning now to slide seven we achieved almost $2 7 billion in total net sales in the second quarter up nearly 70% year over year, primarily driven by the impact of acquisitions and higher average selling prices.
Chris: As Julian mentioned, we had wet weather and precipitation and large swathes of the country, particularly in may as well as excessive heat throughout the quarter that impacted a number of roofing days. During Q2. Nevertheless, we were able to achieve organic sales growth across all three lines of business and set a new quarterly sales record.
Prithvi Gandhi: In the aggregate, price contributed over 2% to revenue growth, while organic volumes were up less than 1%, including contributions from green. Acquisitions completed within the last 12 months are performing well and contributed more than 4% growth to daily net sales year over year. Residential roofing sales were higher by more than 2% as higher prices were partially offset by lower shipments in regions that are experiencing higher storm and hail demand, including in Florida.
Speaker Change: In the aggregate price contributed over 2% of revenue growth organic volumes were up less than 1%, including contributions from Greenfield Act.
Speaker Change: Acquisitions completed within the last 12 months are performing well and contributed more than 4% growth daily net sales year over year.
Speaker Change: Residential roofing sales were higher by more than 2% as higher prices were partially offset by lower shipments in regions that are lapping higher storm and hail demand, including in Florida.
Prithvi Gandhi: Recall that Q2 2023 was a record second quarter for shingle shipping. And while our residential volumes are down on a year-over-year basis, the R&R market remains resilient and consistent with our planning assumptions. Beacon's volumes compared favorably to industry shipments or ARMA during the quarter, but it is always important to keep in mind that there is destocking or restocking at the distributor level in any given quarter. With that in mind, we estimate that we grew at least in line with the market.
Speaker Change: Recall that Q2, 2023 was a record second quarter for shingle shipments.
Speaker Change: And while our residential volumes were down on a year over year basis.
Speaker Change: R&R market remains resilient and consistent with our planning assumptions.
Speaker Change: Because volumes compared favorably to industry shipments or RMR during the quarter, but it is always important to keep in mind that there is destocking or restocking at the distributor level in any given quarter with that in mind, we estimate that we grew at least in line with the market.
Prithvi Gandhi: Our team executed the April shingle price increase so this, achieving good realization regionally. As a result, we achieved price growth in the low to mid single digit percentages year over year. Non-residential sales increased by more than 11% based on strong R&R activity and the comparison to low second quarter 2023 sales, which were influenced by destocking at the customer level. However, prices declined in the low single digits year-over-year but remained stable on a sequential basis.
Speaker Change: Our team executed the April shingle price increase so disciplined achieving good realization regionals.
Speaker Change: As a result, we achieved price growth in the low to mid single digit percentages year over year.
Speaker Change: Non residential sales increased by more than 11% based on strong R&R activity and the comparison to low second quarter 2023 sales, which were influenced by destocking at the customer level.
Speaker Change: Prices declined in the low single digits year over year, but remained stable on a sequential basis bidding and quoting activity remains at healthy levels. We also continue to see a shift from new construction to repair and re roofing activity in the second quarter comps.
Prithvi Gandhi: Bidding and quoting activity remains at healthy levels. We also continue to see a shift from new construction to repair and re-roofing activity in the second quarter. Complimentary sales increased by more than 12% year-over-year as acquisitions drove higher sales of our specialty waterproofing products. Selling prices were higher by low single digits year over year.
Speaker Change: Complementary sales increased by more than 12% year over year as acquisitions drove higher sales of our specialty waterproofing products selling prices were higher by low single digits year over year.
Prithvi Gandhi: Please keep in mind that our complementary product category now has approximately 70% residential and 30% non-residential. Turning to slide 8, we will review gross margin and operating income. Gross margin was 25.6% in the second quarter, up nearly 20 basis points year-over-year. The slower realization of the April shingle price increase was largely matched by the timing of the inflow of higher product costs.
Speaker Change: Please keep in mind that our complementary product category.
Speaker Change: Approximately 70% of residential and 30% nonresidential exposure.
Speaker Change: Turning to slide eight we will review gross margin and operating expenses gross margin was 25, 6% in the second quarter up nearly 20 basis points year over year.
Speaker Change: Slower realization of the April <unk> price increase was largely matched by the timing of the inflow of higher product costs. Therefore, we did not produce the level of inventory profits. We initially forecast that said our gross margin performance in the quarter remains well above historical Q2 gross margin levels.
Prithvi Gandhi: Therefore, we did not produce the level of inventory profits we initially forecast. That said, our gross margin performance in the quarter remains well above historical Q2 gross margin levels. In the aggregate, on a year-over-year basis, price-cost was positive by nearly 30 basis points in the second quarter. The execution of the April shingle price increase kept prices above product inflation.
Speaker Change: In the aggregate on a year over year basis price cost was positive by nearly 30 basis points in the second quarter. The execution of the April shingle price increase kept price above product inflation.
Prithvi Gandhi: In addition, higher digital channel sales and sales of our private label products continue to be a creative contributor to Beacon's gross margin. However, these sales are offset by higher non-residential sales mix impacts and the dilutive impact of acquisitions in greenfields completed in the past. Adjusted operating expense was $441 million, an increase of $63 million compared to the prior year quarter. The change in adjusted OPEX was driven primarily by additional headcount in our existing branch. You will recall from our Q1 call in May that we made a conscious effort to ensure that we were appropriately staffed to meet the forecast ramp in seasonal activity. In addition, expenses associated with acquired and greenfield branches contributed approximately $27 million to the increase in total operating expenses.
Speaker Change: In addition, higher digital channel sales and sales of our private label products continue to be accretive to <unk> gross margin.
Speaker Change: However, these sales were offset by higher nonresidential sales mix impacts and the dilutive impact of acquisitions and Greenfields completed in the past year.
Speaker Change: Adjusted operating expense was $441 million, an increase of $63 million compared to the prior year quarter.
Speaker Change: The change in adjusted Opex was driven primarily by additional headcount in our existing branches.
Speaker Change: You will recall from our Q1 call in May that we made a conscious effort to ensure that we were appropriate.
Speaker Change: To meet the forecast ramp and seasonal activity in.
Speaker Change: In addition expenses associated with acquired in Greenfield branches contributed approximately $27 million of the increase in total operating expenses inflation in wages benefits and professional fees and <unk> also contributed to the increase in operating expenses.
Prithvi Gandhi: Inflation in wages, benefits, rent, professional fees, and T&E also contributed to the increase in operating... As a result, adjusted operating expenses as a percent of sales increased to 16.5%, up 140 basis points year-over-year. As mentioned earlier, demand in several key markets, including Florida, was either impacted by wet weather, severe heat, or was lapping record shingle volumes in the prior year, resulting in lower operating leverage than we expected on our call in May.
Speaker Change: Sure.
Speaker Change: As a result, adjusted operating expenses as a percentage of sales increased to 16, 5% up 140 basis points year over year as mentioned earlier demand in several key markets, including Florida was either impacted by wet weather severe heat overlapping records.
Speaker Change: Volumes in the prior year, resulting in lower operating leverage than we expected on our call in may.
Prithvi Gandhi: As we have demonstrated in the past, we are adjusting to local market conditions and will balance operating efficiency and high service levels in the second half of the year. Investments in Ambition 2025 priorities to drive above-market growth and margin enhancement also continued in the quarter. These investments include initiatives related to our sales organization, private label, pricing tools, e-commerce technologies, and branch optimization. Now, turning to slide 9. Operating cash flow was negative $48 million in the quarter.
Speaker Change: As we have demonstrated in the past we are adjusting to local market conditions, and well balanced operating efficiency and high service levels in the second half of the year.
Speaker Change: Investments in ambition 2025 priorities to drive above market growth and margin enhancement also continued in the quarter.
Speaker Change: These investments include initiatives related to our sales organization private label pricing tools ecommerce technologies and branch optimization.
Speaker Change: Now turning to slide nine.
Speaker Change: Creating cash flow was negative $48 million in the quarter as a reminder, 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.
Prithvi Gandhi: As a reminder, 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. Net inventory reached a seasonal peak at the end of the second quarter, up $259 million compared to the end of the second quarter of 2020. As mentioned on the first quarter call, we built inventory to ensure adequate product availability to align with the height of construction activity.
Prithvi Gandhi: Higher inventory year-over-year is also attributable to inventory acquired through M&A and to support. We continue to expect strong cash generation in the second half of the year, but now expect it to be weighted towards the fourth quarter given the inventory build into. While Julian previously covered the share repurchase program, let me provide some additional details that may be helpful. Share repurchases in the second quarter were made through a $225 million accelerated share repurchase plan and resulted in the retirement of approximately 1.9 million shares, or $180 million, during the second quarter. As a result, net of share issuances for stock-based compensation, we reduced our common shares outstanding to $61.9 million on June 30th versus $63.6 million on March 34th.
Speaker Change: Net inventory reached a seasonal peak at the end of the second quarter up $259 million compared to the end of the second quarter of 2023 as mentioned on our first quarter call. We built inventory to ensure adequate product availability to align with the height of construction activity.
Speaker Change: Higher inventory year over year is also attributable to inventory acquired through M&A and to support Greenfields.
Speaker Change: We continue to expect strong cash generation in the second half of the year, but now expect it to be weighted towards the fourth quarter, given the inventory build into Q2.
Speaker Change: While Julien previously cover the share repurchase program, let me provide some additional details that may be helpful.
Speaker Change: Share repurchases in the second quarter will remain through a $225 million accelerated share repurchase plan and resulted in the retirement of approximately $1 9 million shares or $180 million during the second quarter.
Speaker Change: As a result net of share issuances for stock based compensation, we reduced our common shares outstanding to $61 9 million on June 30 versus $63 6 million at March 30 for us.
Prithvi Gandhi: The remaining $45 million equity forward contract is expected to settle in the fourth quarter of 2024 and result in the estimated repurchase and retirement of approximately 500,000 additional shares as of June 30. We also continue to invest in organic growth, upgrading our fleet and facilities to support our customers and employees. In total, we expect to deploy approximately 125 million in capital expenditures during the full year of 2025. Our capital allocation will remain balanced between deploying cash in our business and executing on the active and robust value-creating acquisition pipeline. Net debt leverage at the end of the second quarter was 3.2 times trailing 12 months adjusted EBITDA.
Speaker Change: The remaining $45 million equity forward contract is expected to settle in the fourth quarter of 2024 and results and the estimated repurchase and retirement of approximately 500000 additional shares as of June 30.
Speaker Change: We also continued to invest in organic growth upgrading our fleet and facilities to support our customers and employees.
Speaker Change: In total we expect to deploy approximately $125 million in capital expenditures during the full year 2024.
Speaker Change: Our capital allocation will remain balanced between deploying cash in our business and executing on the active and robust value creating acquisition pipeline.
Speaker Change: Net debt leverage at the end of the second quarter was three two times trailing 12 months adjusted EBITDA.
Julian: Given the substantial cash generation expected in the back half of the year, we are well positioned to pay down our seasonal borrowings and bring down net debt leverage closer to the midpoint of our targeted. At the same time, we intend to continue to invest in the processes and technologies that will lay the groundwork for improved service, future growth, and branch productivity. With that, I'll turn the call back to Julian for his closing remarks. Thanks, Prith. Please refer to page 11 of the slide materials.
Speaker Change: Given the substantial cash generation expected in the back half of the year.
Speaker Change: Well positioned to pay down our seasonal borrowings and bring down net debt leverage closer to the midpoint of our targeted range at the same time, we intend to continue to invest in our processes and technologies that will lay the groundwork for improved service future growth and branch productivity.
Speaker Change: With that I'll turn the call back to Julian for his closing remarks.
Julian: Thanks, Brett who will now please reference page 11 of the slide materials.
Julian: Before we head to Q&A, I'd like to update you on our outlook for the remainder of 2024. We expect the momentum we experienced in the first half and outlined at the beginning of this call to continue into the third quarter. We expect that the residential repair and re-roof market demand will be lower this year, driven by lower storm demand, which at this point appears to remain on track to meet our assumption of the 10-year average.
Julian: Before we head to Q&A I'd like to update you on our outlook for the remainder of 2024 weeks.
Speaker Change: We expect the momentum we experienced in the first half and outlined at the beginning of this call to continue into the third quarter.
Brett: We expect that the residential repair and re roof market demand will be lower this year, driven by lower storm demand, which at this point appears to remain on track to meet our assumption of the 10 year average.
Julian: We continue to believe non-storm-related demand will be higher in both new construction and aged replacement despite higher interest rates. In our commercial roofing business, we monitor the architectural billing index, which continues to remain significantly below 50, indicating contraction in activity.
Julian: We continue to believe non storm related demand will be higher in both new construction and age replacement despite higher interest rates.
Speaker Change: In our commercial roofing business, we monitor the architectural billing index, which continues to remain significantly below 50, indicating contraction in activity and while we expect better than I expected.
Julian: And while we expect better than expected repair and re-roofing activity to continue, and the stock to be largely over at the end of the second quarter of 2023, and so the year on year comps should return to more normal levels. For the third quarter, we expect total sales per day growth to be in the high single digit range year over year, above the July sales growth of low single digits per day.
Julian: Repair and re roofing activity to continue contracted destocking was largely over at the end of the second quarter of 2023, and so the year on year comps should return to more normal levels.
Speaker Change: For the third quarter, we expect total sales per day growth to be in the high single digit range year over year above the July sales growth of low single digits today.
Julian: We expect gross margin to be in the high 25% range, around 30 basis points higher than in our second quarter. This includes current expectations regarding our announced August price increase realization. Operating expenses are expected to increase year-over-year, largely attributable to the higher headcount from greenfields and acquired branches.
Julian: We had script gross margin to be in the high 25% range around 30 basis points higher than our second quarter. This includes current expectations regarding our announced August price increase realization.
Julian: Operating expenses are expected to increase year over year, largely attributable to the higher head count some greenfields and acquired branches as mentioned earlier, our focus on operational efficiency and proactively managing resources will intensify as a result, we expect adjusted operating expenses.
Julian: As mentioned earlier, our focus on operational efficiency and proactively managing resources will intensify. As a result, we expect adjusted operating expenses as a percentage of sales to be in line with the third quarter of last year. Regarding the second half of the year, we remain focused on areas within our control, including sales execution, inventory reductions, and cost management. Our full year net sales expectations are for growth in the 6-8% range, including acquisitions announced year-to-date. Please note that we have two extra selling days in 24 as compared to 23. On gross margin, we continue to expect to be price-cost neutral, resulting in a full-year gross margin percentage in the mid-25% range.
Julian: As a percentage of sales to be in line with the third quarter of last year.
Speaker Change: Regarding the second half of the year, we remain focused on areas within our control, including sales execution inventory reductions and cost management.
Julian: Full year net sales expectations is for growth in the 6% to 8% range, including acquisitions announced year to date.
Julian: Please note that we have two extra selling days in 24 as compared to 23.
Speaker Change: On gross margin, we continue to expect to be price cost neutral, resulting in a full year gross margin percentage in the mid 25% range.
Julian: We now expect that sales growth and cost discipline will result in full-year adjusted EBITDA expectations of between $930 million and $970 million, inclusive of recently acquired businesses. And, as Prith mentioned, our focus on working capital is expected to result in strong cash flow generation in the second half of the year. We have a resilient business model and a leadership team capable of adjusting quickly to take advantage of opportunities in the market as they arise.
Speaker Change: We now expect net sales growth and cost discipline will result in full year, adjusted EBITDA expectations of between $930 million and $970 million inclusive of recently acquired businesses.
Speaker Change: And as Chris mentioned, our focus on working capital is expected to result in strong cash flow generation in the second half of the year.
Speaker Change: We have a resilient business model and our leadership team capable.
Chris: Adjusting quickly to take advantage of opportunities in the market as they develop we will continue to deploy capital on initiatives that we expect will result in accelerated growth, including executing on a robust pipeline of acquisitions and delivering on our greenfield locations, which we now expect to result in more than 25 branches in 2012.
Julian: We will continue to deploy capital on initiatives that we expect will result in accelerated growth, including executing on our robust pipeline of acquisitions and delivering on our greenfield locations, which we now expect to result in more than 25 branches in 2024. In summary, we're well positioned to continue to outperform the market in this dynamic demand environment, creating value for all our stakeholders. We are looking forward to the rest of 2024 and helping our customers to build better and build more.
Speaker Change: Before.
Speaker Change: In summary, we are well positioned to continue to outperform the market in this dynamic demand environment, creating value for all our stakeholders.
Speaker Change: We are looking forward to the rest of 2024, and helping our customers to build better and build more and more.
Julian: And with that, Elliot, I'll 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 phone. If your question has been answered or you wish to withdraw your question, press star followed by two.
Speaker Change: That Elliot I'll open it up for questions.
Elliot: Thank you, ladies and gentlemen, if you wish to ask a question. Please press star followed by one on your telephone touched on China.
Speaker Change: Your question has been answered or you wish to withdraw your question Star followed by two each.
Speaker Change: Each caller is limited to one question.
Stanley Elliott: Each caller is limited to one question. We now turn to Michael Rehaut with J.P. Morgan. Your line is open, please go ahead. Hi, thanks. Good afternoon.
Julian: We know Tien tsin, Michael Rehaut with Jpmorgan. Your line is open. Please go ahead.
Michael Rehaut: And thanks for taking my question. I wanted to zero in a little bit on the SG&A in 2Q, and you kind of reviewed in your prepared remarks some of the drivers that appeared to be, you know, a bit higher than expected on a year-over-year basis in the percent of revenue. You know, at the same time, you said you're focused on driving efficiencies in the second quarter and the second half and, Transcribed by https://otter.ai, Let's say with a certain temporary element that drove the higher expense in the second quarter relative to expectations.
Michael Rehaut: Hi, Thanks, good afternoon, and thanks for taking my question.
Speaker Change: Wanted to first zero in a little bit on the SG&A in <unk> than you did kind of reviewed in your prepared remarks that some of the drivers that.
Speaker Change: It could be a.
Speaker Change: A bit higher than expected on a year over year basis, and 70% of revenue.
Speaker Change: Well at the same time.
Speaker Change: Would you focus on driving efficiencies in the second quarter in the second half.
Speaker Change: We expect the sale of <unk>.
Speaker Change: The flat year over year so.
Speaker Change: What's driving the.
Speaker Change: No.
Speaker Change: Let's say we're reporting.
Speaker Change: Comporary element that drove the higher expense in the second quarter relative to expectations.
Michael Rehaut: And, you know, what are the actions that you're taking to maybe get that back online on a percent of sales basis for the back half, or at least for the third quarter? Thanks, Michael. This is Julian.
Speaker Change: And.
Speaker Change: What are the actions that you're taking to me.
Speaker Change: When you get that back on line.
Speaker Change: Percent of sales year over year.
Speaker Change: For the backhaul or the.
Speaker Change: For the third quarter.
Julian: And yeah, I mean, I think it's the question that's going to be on everyone's minds for our second quarter. So it was a really difficult sort of second quarter to manage at a branch level. We saw record daily sales, but we didn't see them consistently because of the weather.
Michael Rehaut: Thanks, Michael.
Speaker Change: As Julian and yes, I mean, I think it's the question that is going to be on everyone's minds.
Speaker Change: For our second quarter. So it was a really difficult through the second quarter to manage at a <unk>.
Speaker Change: <unk> level, so we saw a record daily sales.
Speaker Change: <unk>.
Speaker Change: But we didn't see it consistently because of the weather. So we were staffed up.
Julian: So we were staffed up to sort of serve that really high demand level, but it was never consistent. And managing that on a day-to-day basis, we didn't do it as well as I'd hoped, but, you know, I think that that was a big driver of it. Obviously, we added a number of greenfields and acquisitions earlier in the year this year than we'd done previously, and so that adds to our total op-ex count.
Speaker Change: To serve that really high demand level.
Speaker Change: But it was never consistent and managing that on a day to day basis.
Speaker Change: We.
Speaker Change: We didn't do it as well as I'd hoped but.
Speaker Change: I think that that was that was a big driver of it obviously, we added a number of greenfields.
Speaker Change: And acquisitions earlier in the year this year than we've done previously and so that adds to our total opex campus. So.
Julian: And so, you know, we've sort of flatlined it. This year, there will be a similar number of branches opened in the first half and the second half, which was a little bit more back-end weighted last year. So that drove a year-over-year increase as well. But the big thing was this variability in day-to-day volume. We were staffed ready. The inventory was ready for it.
Speaker Change: Sort of Flatlined at this year will be <unk>.
Speaker Change: The number of branches opened in the first half in the second half, which was a little bit more back end weighted last year, so that drove year over year increase as well, but the big thing with this variability in day to day volume we were staffed ready.
Speaker Change: The inventory was ready for it.
Julian: And we think it was just so variable on a day-to-day basis in the markets that it became tricky to manage. And so we were a little bit, we missed a little bit on that side of things in terms of our overall management. Now, as you also asked about sort of looking forward, and how does that adjust?
Speaker Change: And we think it was it was just so variable on a day to day basis in the markets that it became tricky to manage.
Speaker Change: And so we were a little bit.
Speaker Change: We missed a little bit on that side of things in terms of our overall management now.
Speaker Change: You also asked about sort of looking forward and how does that adjust.
Julian: You know, we've sat down with our operating groups and sat down and said, look, we've got to get this back in line, we've got to create operating leverage from sales growth, and we're going to have to manage that more aggressively. We've already started doing that; we took action in June and July to make sure that we've got the right level of staffing for the demand that's in the market.
Speaker Change: We've.
Speaker Change: We sat down with our operating groups and so is that then said look we've got to get this this back in line, we've got to create operating leverage from from sales growth and we're going to have to manage that.
Speaker Change: More aggressively.
Speaker Change: <unk> already started doing that we've taken action in.
Speaker Change: In June and July to make sure that we've got the right level of staffing for the demand that's in the market.
Speaker Change: We're seeing still seeing some variability.
Julian: And, you know, we're still seeing some variability in terms of day to day sales, but we are being much more aggressive in terms of managing levels of staffing on a day to day basis than we were in the second quarter. Like I said, I don't think we missed it by much.
Speaker Change: In terms of day to day sales.
Speaker Change: We are being much more aggressive in terms of managing.
Speaker Change: The levels of staffing on a day to day basis.
Speaker Change: We're in the second quarter like I said I don't think we.
Speaker Change: We missed it by much we'd come into the year expecting a strong second quarter with storm carryover from from last year as I said with the.
Julian: We'd come into the year expecting a strong second quarter with storm carryover from last year. As I said, what we saw on really good days was what we'd anticipated. We called the market; what we obviously couldn't call was the weather.
Speaker Change: What we saw on really good days was what we had anticipated.
Julian: And that certainly had an impact on how we managed it. We think we'll work our way through that and get that back to where it should be. I don't know if Prith had anything to add in terms of specifics, but that's really what drove it. Yeah, maybe just a couple points of color.
Speaker Change: We call the market.
Speaker Change: Obviously couldnt call was the weather.
Speaker Change: And that certainly had an impact on how we manage it.
Speaker Change: Think will work our way through that and get that back to where it should be.
Speaker Change: This got anything to add in terms of specifics.
Speaker Change: That's really what drove it.
Speaker Change: Yes, just maybe just a couple of points of <unk>.
Speaker Change: Sure.
Prithvi Gandhi: So a couple of other things in terms of the overall OPEX. It's a $37, $63 million increase year over year. 27 of that came from the M&A and Greenfields, and I think when we spoke with you all in May, our expectation was that at least that component of the OPEX would be relatively flat. And if you remember, that was 22 million in Q1. And as we discussed, some of the acquisitions that we've done have, you know, significant work to, you know, bring them up to par and Create Value. And so we've, you know, we've had some timing issues with some of that. So that's part of the reason.
Speaker Change: So.
Speaker Change: A couple of other things in terms of.
Speaker Change: The overall opex of 37.
Speaker Change: $63 million increase year over year of 2000, and some of that came from the M&A and Greenfield.
Speaker Change: And I think when we spoke with you all in May our expectation was that that the stock component of the Opex would be relatively flat and if you remember that was $22 million in Q1, and as we discussed some of the acquisitions that we've done.
Speaker Change: Half.
Speaker Change: Significant work to do.
Speaker Change: To kind of bring them up to be.
Speaker Change: And create value and so.
Speaker Change: Have some timing issues with some of that so that's part of the reason as well.
Michael Rehaut: Great. Now, thank you for that. I appreciate all the detail there.
Speaker Change: Great well, thank you for that I appreciate all the detail there.
Michael Rehaut: Um, secondly, you know, just thinking about the bigger picture on the gross margin side, you know, I think, Julian, you highlighted some of the incremental benefits that you continue to get from the bottom quartile work. And obviously, there are a lot of other initiatives that you have in place on the gross margin side. So, you know, conceptually, how should we think about, you know, bottom quartile contributions over the next couple of years?
Speaker Change: I guess secondly, just thinking.
Speaker Change: Thinking about bigger picture on the gross margin side.
Julian: Julian you highlighted.
Julian: Some of the incremental benefit that you continue to get from the bottom quartile work.
Julian: And obviously there are a lot of other <unk>.
Speaker Change: Initiatives.
Speaker Change: But you have in play.
Speaker Change: On the gross margin side so.
Speaker Change: Culturally.
Speaker Change: How should we think about.
Speaker Change: Bottom quartile contra.
Speaker Change: Contributions.
Speaker Change: Over the next couple of years should be.
Julian: Should they, you know, continue to moderate in size, perhaps just given the low-hanging fruit impact from the prior year or, you know, from prior years, and it kind of gets incrementally tougher as you go forward? And maybe you could just kind of review other opportunities around gross margin over the next couple of years from a strategic initiative standpoint? Yeah, Michael, I'll touch on that briefly. Certainly, we've seen dramatic improvement, as you know, in the bottom quintile contribution to EBITDA margins. I think it's been one of the real highlights of the last few years, how the team has really come together and driven that.
Speaker Change: Continued moderate insight, perhaps just given.
Speaker Change: Low hanging fruit impact from the prior year.
Speaker Change: Or from prior years, and it kind of gets incrementally tougher as you go forward.
Speaker Change: And maybe you could just kind of review other opportunities around gross margin over the next couple of years from a strategic initiative standpoint.
Julian: It is incrementally harder now to drive a little bit more, but we reset the branches each year. And so we still believe there's opportunity. We've also expanded our thinking on this. And so we said, Look, you know, what the real opportunity is if we can get each of the sort of quintile groupings to get it up to the next quintile sort of thing. So we're exploring what it would take to really move all of those elements forward.
Speaker Change: Yes, Michael I'll touch on that briefly.
Speaker Change: Certainly we've seen dramatic improvement is no in the bottom quintile contribution to EBITDA margins I think it's been one of the real highlights over the last few years had the team has really come together and driven that.
Speaker Change: It is incrementally hard and add two to drive a little bit more but we reset the branches each year and so we still believe there is opportunity. We've also expanded our thinking on this and so we said looking at whats the real opportunity. If we can get each of the sort of quinto groupings.
Julian: And we think that, you know, the pricing model, the work we're doing on private label and digital, all of those initiatives are certainly contributing. I think we were probably challenged in the quarter on price coming through in the market. We saw, obviously, the shingle price increase in April. We had expectations probably for better realization in the quarter than we actually saw, and I think that was partly due to the variability of demand on a day-to-day basis in the market as well.
Speaker Change: To get it up to the next quintile sort of thing. So we're exploring what what it would take to really move all of those elements forward and we think that the pricing model. The work we're doing on private label in digital.
Speaker Change: All of those initiatives.
Speaker Change: Contributing.
Speaker Change: I think the.
Speaker Change: Probably challenged in the quarter on price coming through in the market we saw.
Speaker Change: Obviously, the shingle price increase in April.
Speaker Change: We had expectations probably to better realization in the quarter than we actually saw and I think that was partly due to the variability demand on a day to day basis in the market as well.
Julian: We saw very good realization where we had very strong markets, and we saw very low realization in markets, as we mentioned. You know, we've called out Florida before, and in fact, we called out Florida on our call in May as a place that we weren't expecting to see a lot of price, and that actually materialized.
Speaker Change: We saw very good realization, where we had very strong markets and we saw very low realization in markets. As we mentioned, we've called out Florida before and in fact, we called out Florida.
Speaker Change: Our call in May is a place that we werent expecting to see a lot of price in that actually materialize. So.
Julian: So you know, there's still a lot of work to be done on that, but I continue to believe that the private label, digital pricing model will continue to drive margin, and our bottom quintile branch process will continue. And like I said, I think we're looking for ways to expand that process to more branches to make sure that we're working the full gamut of the problem. So I continue to believe that we've got room to expand our gross margin on a product line basis, but as I said, the mix has shifted much more towards commercial. We were very deliberate about that.
Speaker Change: Yes.
Speaker Change: There's still a lot of work to be done.
Speaker Change: On that but I continue to believe that private label digital pricing model continued to drive margin and our bottom Quintile branch process will continue and like I said I think we're looking for ways to expand that process to more branches to make sure that we're.
Speaker Change: We're working the full gamut of the problem. So I continue to believe that we've got room to expand.
Speaker Change: Our gross margin.
Speaker Change: On a product line basis.
Speaker Change: The mix has shifted.
Speaker Change: Much more towards commercial we were very deliberate about that we think that.
Julian: We think that it has a great profile for return on capital, but it does have lower gross margins, so we continue to look for ways to improve that as well. Great. Thanks so much.
Speaker Change: It has a great profile for return on capital.
Speaker Change: But it does have lower gross margins. So we continue to look for ways to improve that as well.
Speaker Change: Great. Thanks, so much.
Stanley Elliott: As a reminder, if you would like to ask a question, please press star one on your touchtone phone. In order to allow everyone to ask a question, we please ask that you limit yourself to one question. Thank you. We now turn to Garik Shmois with Loop Capital. Your line is open, please go ahead. Oh, hi, thanks for taking my question. I was wondering if you could talk about the acceleration you're expecting on a daily sales basis here in the third quarter, you know, starting July up close to single digits, I think you're expecting to be up high single digits for the quarter.
Speaker Change: As a reminder, if you would like to ask a question. Please press star one on your touch timeframe.
Speaker Change: In order to allow everyone to ask a question. We please ask that you limit yourself to one question. Thank you.
Stanley Elliott: So if you can unpack the drivers of the stronger expected August and September, they'll be great. Yeah, look, Garik, the market overall has been good. Like I said, we saw record daily sales in the second quarter on a day-to-day basis. It just wasn't consistent, and we'd have a day where it dropped off.
Speaker Change: We now turn to carriage with loop capital. Your line is open. Please go ahead.
Speaker Change: Oh, hi, Thanks for taking my question I was wondering if you could talk about the acceleration you're expecting on a daily sales basis here in the third quarter, starting July up low single digits. I think you were expecting to be up high single digits for the quarter. So if you can unpack the drivers of the stronger expected August and September.
Speaker Change: Great.
Speaker Change: Yeah look I mean.
Speaker Change: The market overall has been good I like I said I mean, we saw record daily sales.
Speaker Change: In the second quarter on a day to day basis. It just wasn't consistent then we'd have a day, where it dropped off we think some of the weather impact in Q2 is going to get pushed into Q3.
Garik Shmois: We think some of the weather impact in Q2 is going to get pushed into Q3. And so we're expecting that demand hasn't gone away. I mean, if you need a roof, you're going to get a roof. And if it rains on one day, you're going to get to it the next day.
Speaker Change: And so we're expecting that demand hasn't gone away I mean, if you need a roof, you're going to get a roof.
Speaker Change: If it rains on one day, you're going to get with the next day. So we think there'll be some.
Julian: So we think there'll be some continued push into the third quarter with demand pretty good, and we're excited about that opportunity. We do think that there will be an August 1st price increase. The price increase went into effect today on shingles.
Speaker Change: <unk> continued push into the third quarter with demand.
Speaker Change: Pretty good and we're excited about that opportunity, we do think that there is.
Speaker Change: There is an August price increase the price increase went into effect today on shingles. So we'll see that pick up.
Julian: So we'll see that pick up on the top line in the rest of this quarter as well. And then, yeah, the back half of the year tends to be a little bit more biased to activity. So now, you know, if we're going to get 100-degree days across the entire country for the entire third quarter, we'll be watching that.
Speaker Change: On the on the topline in the rest of this quarter as well.
Speaker Change: And then the back half of the year tends to be a little bit more biased to activity. So.
Speaker Change: If we're going to get.
Speaker Change: 100 degree days across the entire country for.
Speaker Change: Until the third quarter.
Speaker Change: We'll be watching that but overall, we like I said, we feel pretty good about the market.
Julian: But overall, like I said, we feel pretty good about the market. We're probably a little bit more bullish on what than we were coming into the year on commercial, as we've said. Residential re-roofing has been very good.
Speaker Change: We're probably a little bit more bullish on what than we were coming into the year on commercial as we've said.
Speaker Change: Residential re roof has been.
Speaker Change: Very good.
Speaker Change: The.
Julian: The storm demand we think is going to come in around the 10-year average. That's kind of what we feel we're tracking. New res was slightly worse, but overall... We came into the year calling for a very healthy market, and that's what we've got. We think some of the demand got pushed out of Q2 and is probably going to appear in Q3. We now turn to Adam Baumgarten with Zellman & Associates. Your line is open. Please go ahead.
Speaker Change: The storm demand, we think is going to come in around the 10 year average and Thats, what kind of what we feel were tracking them.
Speaker Change: New res was slightly worse, but.
Speaker Change: Overall.
Speaker Change: We came into the year, calling for a very healthy market and that's what we've got we think some of the demand got pushed out of Q2 and is probably going to appear in Q3.
Speaker Change: We now turn to Adam Baumgarten with Zelman and Associates. Your line is open. Please go ahead.
Adam Baumgarten: Hey guys, do you have a sense for maybe how many days on the roof were lost in the second quarter? And was it across both residential and commercial? Or is it more focused on residential? So Adam, I'll let Prith touch on it, but we do have some statistics. I mean, look, I try to avoid being the weatherman. Transcribed by https://otter.ai, Well reported impact.
Adam Baumgarten: Hey, guys.
Adam Baumgarten: Give a sense for maybe how many days on the roof of lost in the second quarter and was it across both residential and commercial or is it more focused on residential control.
Adam: So adamant.
Speaker Change: Ill, let Chris touch on it but.
Speaker Change: We do have some statistics I mean, we.
Speaker Change: Try to avoid being the weatherman.
Chris: Since I joined the company and that's on it when we get whether every day I mean, there was clearly some.
Prithvi Gandhi: But, you know, in terms of the number of days, we do, we do watch that. But I think that's less indicative than the total market. As I said, we think it did have an impact. We think it's probably pushed some into Q3. Yeah, so look, it's generally biased towards the residential market because a lot of our deliveries are on top of the roof. So that's one point to make.
Chris: While reported impact.
Speaker Change: But in terms of in terms of the number of days.
Speaker Change: We do we do watch that but I think thats less indicative and the total of the market as I said, we think it did have an impact we think it's probably pushed into some into Q3.
Speaker Change: Yes.
Prithvi Gandhi: The other thing is, you know, between normal weeks and weeks where we've experienced weather, the kind of demand differences are, you know, about low single digits. And we think about a third of the weeks in the quarter were affected by weather. So thank you. Our next question comes from David Manthey with Baird. Your line is open, please go ahead. Thank you.
Speaker Change: Yes.
Speaker Change: Luca it's generally bias towards the residential market because a lot of our deliveries are on top of the roof. So so that's one point to make.
Speaker Change: Other thing is between normal weeks.
Speaker Change: Weeks, where we've experienced whether the kind of demand differences.
Speaker Change: About low single digits.
Speaker Change: And we think about a third of the weeks in the quarter were affected by weather. So.
Speaker Change: Thank you.
Chris: Our next question comes from David Manthey with Baird. Your line is open. Please go ahead.
David Manthey: Relative to your comments on the lack of expected inventory profits, I'm a bit confused as to what happened there. I think if you go back to the early part of the year, no one really thought that the shingle price increase was going to stick. And you're able to get low to mid single digits, but the gross margin fell short of your expectations. Anyway, I'm assuming you didn't play inventory chicken like we used to in the old days.
David Manthey: Yes, Thank you and good afternoon.
David Manthey: Relative to your comments on lack of expected inventory profits.
Speaker Change: Confused as to what happened there I think if.
Speaker Change: If you go back to the early part of the year and no one really thought that shingle price increase is going to stick.
Speaker Change: Youre able to get low to mid single digits, but the gross margin fell short of your expectations.
Speaker Change: Any way I'm, assuming you didn't play inventory chicken like we used to in the old days and maybe you could just help me understand the dynamic there.
David Manthey: And maybe you could just help me understand the dynamic there. Yeah, I'll touch on it, and Perth can maybe quantify some things. But, you know, coming into the quarter, we did expect much better price realization than we actually saw. We came out of the gate with pricing pretty healthy, but we normally see it climb over several weeks as we implement it across all of the customer base. So it usually takes some time to get it done.
David Manthey: Yes.
David Manthey: I'll touch on it and Chris can maybe quantify some things but.
Speaker Change: Coming into the quarter, we did expect much better price realization than we actually saw we came out of the gate on.
Chris: The pricing pretty healthy, but we normally see it climb.
Chris: Over several weeks as we implemented across all of the customer base.
Chris: It usually takes some time to get it done.
Julian: And so you continue to generate those inventory profits, but the spike is usually early on. In this one, we got good realization in markets where the demand was strong, but in weaker markets, there was some delay in getting the price put in place. And then as the quarter went on, we just didn't get it implemented throughout because demand remained weak in some of those markets.
Chris: And so you continue to generate those inventory profits with the Spike is usually early on in this one we got good realization in markets.
Chris: Where the demand was strong but in weaker markets.
Chris: There was there was some delay in getting the price put in place and then as the quarter went on.
Chris: Just didn't get it implemented throughout.
Chris: Demand remained weak in some of those markets and so we didn't generate any of the inventory profits we thought in certain markets when we generated.
Julian: And so we didn't generate any of the inventory profits we thought in certain markets, but we generated, you know, a good amount and what we would have expected in others. So, you know, when you add it all up, we thought we were going to get a much better realization across the entire country than we actually did. And so the delay in implementing some of the increases, you know, to meet some of the competitive situations, meant that we just didn't get the profits as our inventory cost rose through the quarter. The price rose slightly above it, but it didn't get the normal spike at the beginning. And then, and then flattening out, we sort of tailed off. And so you just don't generate inventory profits that way.
Chris: A good amount to what we would've expected and others. So on.
Chris: Added all up.
Chris: We thought we were going to get it much better realization across the entire country, then we actually did and so.
Chris: The delay in implementing some of the increases to meet some of the competitive situations.
Chris: We just didn't get the profits as the.
Chris: As our inventory cost rose through the quarter, the price rose slightly above it but it didn't get the normal spike at the beginning and then.
Chris: And then flattening out we sort of tailed up.
David Manthey: And so you just don't generate inventory profits that way.
Prithvi Gandhi: Yeah, I mean, the only thing to add, as you guys know, we use weighted average inventory costing, right? And so on days, even when you're not selling, the weighted average cost of inventory, if you're buying, continues to go up, and we were buying inventory throughout the quarter. Our next question comes from Mike Dahl with RBC. Your line is open, please go ahead.
Speaker Change: Yes, I mean, the only thing to add as you guys know, we use weighted average inventory costing right. So days, even when you're not selling the weighted average cost of inventory, which youre buying continues to go up and we were buying inventory throughout the quarter. So that's the only thing to add.
Speaker Change: Our next question comes from Mike Dahl with RBC. Your line is open. Please go ahead.
Mike Dahl: Thanks. Just as a follow-up to that, given what you just articulated around the path of realization for both price and inventory profits, can you be more specific about what's embedded in your 3Q and full year guidance with respect to the August price increase, both in terms of top line help and inventory profits? Well, in terms of, you know, the inventory profit for the quarter, you know, the August price increase, we expect a similar kind of progression as we've seen with the April price increase. I think what we said in the prepared remarks was, you know, 30 basis points improvement, a similar pattern to this crisis. We now turn to Trey Grooms with Stephens.
Mike Dahl: Alright, Thanks, just as a follow up to that just given what you just articulated around the path of realization.
Mike Dahl: But the price and inventory profits can you be more specific about what's embedded in your <unk> and full year guide with respect to the August <unk>.
Speaker Change: Increased both in terms of top line and inventory profit.
Speaker Change: Well in terms of the.
Speaker Change: England true profit for those.
Speaker Change: <unk> on the August price increase we expect similar kind of progression as we've seen with with the April price increase I think what we said in the prepared remarks was 30 basis points improvement.
Speaker Change: E <unk>.
Speaker Change: A similar pattern with this.
Speaker Change: Price increase.
Trey Grooms: Your line is open, please go ahead. Yeah, thanks. Just a kind of a quick bit of clarification here on the free cash flow comment, maybe being weighted a little bit more to the four cube. Could you go into a little bit more detail on that? I know it can kind of shift around a little bit seasonally, but any more color on the timing there?
Speaker Change: We now turn to Trey Grooms with Stephens. Your line is open. Please go ahead.
Speaker Change: Thanks.
Trey Grooms: Just kind of a quick bit of clarity here on the free cash flow.
Trey Grooms: Comment maybe being weighted a little bit more to the four Q could you go into a little bit more detail on that I know it can kind of shift around a little bit seasonally but.
Speaker Change: Any more color on the timing there. Thank you.
Prithvi Gandhi: Thank you. Yeah, I mean, look, we bought inventory throughout, you know, the second quarter. And as we discussed, you know, we were kind of expecting, roughly, you know, in the order of $500 million of free cash flow for the full year, plus or minus $500 million. And we've basically kind of burned cash in the first half to the order of $250 million. So we expect the back half of the year to produce, you know, call it, in the order of 750 million of free cash flow and roughly evenly spread between the two quarters.
Trey Grooms: Yes.
Speaker Change: We bought inventory inventory throughout.
Speaker Change: The second quarter and as we've discussed.
Speaker Change: Hello.
Speaker Change: We are expecting.
Speaker Change: Roughly.
Speaker Change: On the order of $500 million of free cash flow.
Speaker Change: For your.
Speaker Change: Yeah.
Speaker Change: Basically.
Speaker Change: Kind of burned cash in the first half to the order of $250 million. So we expect.
Speaker Change: The back half of the year or to produce call. It in the order of $750 million in free cash flow roughly.
Speaker Change: Roughly evenly spread between the two quarters.
Speaker Change: Okay got it.
Speaker Change: Sure.
Prithvi Gandhi: Okay, I got it. Yes, sorry. It's not unusual for us to build inventory in the first half of the year. I mean, it's, you know, the back half of the year is when most of the roofing activity gets done. So we come in a little heavy, and we expect to continue to bring product in during the third quarter because demand, we believe, will be pretty good. And then we expect to, you know, certainly diminish the inventory we have, but that'll probably just accelerate into the fourth quarter as demand falls off. We'll reduce our purchases.
Speaker Change: Yeah, sorry, it's not unusual for us to build obviously inventory in the first half of the year I mean, it's the back half of the year is when.
Speaker Change: Most of the roofing activity gets done so we come in a little heavy in.
Speaker Change: We expect to continue to bring product in during the third quarter because demand will be we believe will be pretty good and we expect to.
Speaker Change: Well, we'll certainly diminish the inventory we have but that will probably just accelerate into the fourth quarter as demand falls off will reduce our purchases.
Speaker Change:
Prithvi Gandhi: Unless we see some more demand come in, but that's why the shape of it is such. Okay, so I guess I'm just going to clarify again: is it when you say evenly split it, 3Q and 4Q should be roughly evenly split, or is it going to be 4Q weighted? I'm misunderstanding, sorry. Yeah, more in 4Q, but, you know, overall. You know, yes, let's call it 60-40 on that.
Speaker Change: Unless we see some.
Speaker Change: So more demand come in but.
Speaker Change: That's why the shape of it as such.
Speaker Change: Okay, So I guess I'm.
Speaker Change: Just to clarify again is it when you say evenly split.
Speaker Change: <unk> and <unk> should be roughly evenly split or is it going to be <unk> weighted.
Speaker Change: Misunderstanding, sorry, more than <unk>, but but.
Speaker Change: Overall.
Speaker Change: <unk>.
Speaker Change: Got it yes, let's call it 60 40 in that.
Speaker Change: In that order.
Prithvi Gandhi: Okay. All right. Well, thanks for clearing that up.
Speaker Change: Okay, alright, well, thanks for clearing that up I appreciate it. Thank you.
Rick: Thanks, Rick.
Trey Grooms: I appreciate it. Thank you. Thanks, Trey. Our next question comes from Philip Ng with Jeffreys. Your line is open. Please go ahead. Hey, guys. This is Maggie on Perfil.
Speaker Change: Our next question comes from Philip <unk> with Jefferies. Your line is open. Please go ahead.
Rick: Hey, guys. This is Matt.
Speaker Change: R&D personnel.
Philip Ng: Just going back to the organic volumes and 2Q's kind of sladdish, any color on the breakout between the segments would be helpful. And then could you give us a sense of the magnitude of what greenfields are contributing? I know you did maybe around 30 greenfield branches last year. So how much are those contributing to organic?
Speaker Change: Yes.
Speaker Change: Back to the organic volumes.
Speaker Change: <unk> kind of flattish any color on the breakout between the segments would be helpful. And then can you give us a sense.
Speaker Change: Yeah.
Speaker Change: The magnitude of what Greenfields are contributing.
Doug: I know you, Doug maybe around 30, Greenfield branches last year or so.
Speaker Change: How much are those contributing on the organic side.
Julian: Yeah, I think in terms of the Greenfields, I'll let Prith touch on the rest of it. In terms of the Greenfields, we said when we initially launched Ambition 2025 that we would do 10 a year. We ramped that up because it's been a very successful program for us. I think, in total, for the end of this year, we're estimating somewhere in the region, and Prith will correct me if I get this a little bit wrong, but somewhere in the region of $400 million plus in total revenue from Greenfields that we've started since Ambition 2025.
Speaker Change: Yes, I think.
Speaker Change: In terms of the Greenfield I'll, let <unk> touch on the rest of it in terms of the Greenfields.
Speaker Change: <unk> said that.
Speaker Change: We initially launched ambitious 2025, but we would do 10 a year.
Speaker Change: We ramped that up because it's been a very successful program for us I think in the.
Speaker Change: In total for at the end of this year.
Speaker Change: We're estimating somewhere in the region.
Speaker Change: Peripheral correct me, if I get this a little bit wrong, but somewhere in the region of $400 million plus of total revenue from.
Speaker Change: Greenfields.
Speaker Change: That we've started since ambition 2025.
Prithvi Gandhi: And I think that's the number that we're looking at. So it's pretty substantial. You know, across those, 58 plus by the end of the year in terms of total revenue. Yeah, it's actually over 500 million.
Speaker Change: I think thats all right.
Speaker Change: The number that we're looking at so it's pretty substantial.
Speaker Change:
Speaker Change: Those 58, plus by the end of the year.
Speaker Change: In terms of total revenue.
Prithvi Gandhi: So, you know, it's a great contribution overall. In terms of the actual, you know, organic demand for the quarter, roughly 2.8% of the 6.8% in revenue growth comes from organic growth, and that includes both the existing branches as well as. We now turn to Kathryn Thompson with Thompson Research Group. Your line is open, please go ahead.
Speaker Change: Yes, it's actually over $500 million.
Speaker Change: Good.
Rick: Great.
Rick: Contribution overall in terms of the actual.
Speaker Change: Organic demand for the quarter it's.
Speaker Change: Roughly two 8% over the six 8% and revenue growth comes from organic and that includes both the existing branches as well as the greenfields.
Rick: We now plan to you Kathryn Thompson with Thompson Research Group. Your line is open. Please go ahead.
Rick: No.
Kathryn Thompson: Hi, thank you for taking my question today. I just wanted to focus on the commercial segment, which, as you pointed out, is improving despite the ABI readings. But we, you know, we would argue, and based on our feedback from the field and the companies we talked to, the ABI is becoming less relevant, in part because it doesn't capture some of the megaprojects. So, for instance, when you look at the numbers for put in place, the manufacturing segment, subsegment, in and of itself, has doubled to more than 15% of the total MEG since 2018. With that in mind, Do you have any additional color or numbers you can frame around the mix shift?
Kathryn Thompson: Hi, Thank you for taking my question today.
Speaker Change: The focus on the commercial segment.
Kathryn Thompson: As you pointed out it's improving.
Rick: Despite the API meetings.
Speaker Change: We would argue and based on our.
Speaker Change: Keep atkins telephone companies and top tier to api's, becoming less relevant.
Speaker Change: In part because it doesn't capture some of the Mega projects.
Rick: For instance, when you look at put in place numbers the manufacturing segment subsegment in of itself has.
Rick: Doubled.
Rick: With 15%.
Rick: Of the total mix since 2018.
Rick: With that in mind.
Speaker Change: Do you have any additional color or numbers you can frame around the mix shift.
Julian: and types of projects that you're servicing today and maybe even in the quarter, and the commercial end segment and how that has changed, and in particular, parsing out between new and repair and remodel within the commercial segment. Thank you. Yeah, Kathryn, I'll try to get to some of that.
Speaker Change: And types of projects that you're servicing today and maybe even in the quarter in our commercial lines segment.
Speaker Change: And how that has changed and.
Speaker Change: Parsing out between noon and repairing our model within the commercial segment. Thank you.
Speaker Change: Yes, Catherine I'll try to I'll try to get to some of that.
Julian: So certainly, what we have seen is that coming into the year, we were expecting the installed volume to be down, as we said, and specific to Beacon, because of the contractor behavior last year, we were expecting volumes to grow. But coming into the year, we were certainly watching the overall demand level very carefully, and it's actually held up pretty well. Our bidding and quoting activity across the board has been good. We've seen good results. A good amount of government work, schools have come through, and they are generally repair and remodel, repair, and re-roof markets.
Speaker Change: So certainly what we have seen is coming into the year, we were expecting it would be installed volume to be down as we said in specific the beacon because of the contract that behavior last year, we were expecting volumes to grow.
Julian: We think some of that got pushed out. As we said, it shifted more towards new construction during COVID. Those would be big jobs that were getting done.
Speaker Change: But coming into the year, we were certainly watching the overall demand level very carefully and it's actually held up pretty well, our bidding and quoting activity.
Speaker Change: Across the board has been good.
Rick:
Rick: We've seen.
Rick: <unk>.
Rick: We've seen good.
Rick: A good amount of government work.
Speaker Change: Schools that come through and they are generally repair and remodel.
Speaker Change: Repair and re roof markets and we think some of that got pushed out as you said it biased more towards new construction during COVID-19 those would be big jobs that were getting done.
Julian: The re-roof work is clearly getting done more now, and that's been a boost for us as well. It's a little bit of a mixed shift in product, but overall, that's good. Obviously, office and retail have been a little bit softer, but certainly, we get mixed in with multifamily.
Rick: The re roof work is clearly getting done more now and.
Rick: Thats been a boost for us as well, it's a little bit of a mixed shift in product.
Rick: Overall, that's good.
Rick: The office and retail has been a little bit softer.
Rick: Certainly we sort of get mixed with multifamily multifamily has been way off.
Julian: Multifamily has been way off. Some of that is more commercial roofing than residential roofing. And then office has been a little bit soft, but most of the segments that we look at have actually been holding up pretty well. And it's more of this shift towards repair and replace work than new. And I think that's, I think it's reflected in the ABI index in terms of why it's so weak; there's more of this shift away from new construction, which I think ABI biases towards.
Speaker Change: Some of that is more commercial roofing then.
Speaker Change: Residential roofing.
Speaker Change: And then office has been there.
Speaker Change: There has been a little bit soft, but most of the segments that we look at have actually been holding up pretty well and it's more of this shift towards.
Speaker Change: The repair and replace work than the new and I think thats.
Speaker Change: It reflected in the Abi index in terms of why it's so weak because theres more of this shift away from the new construction, which I think abi by biases towards so.
Speaker Change: Yes.
Speaker Change: I think if you think about it.
Julian: I think if you think about the Commercial Real Estate Market as a whole, I think we reflect that pretty well, where the segments are strong and where the segments are weak. You mentioned manufacturing, you mentioned data warehouses, and warehouses, in general, those remain pretty good. We continue to see, like I said, good bidding and quoting activity going out into the fourth quarter now and even early next year. We remain quite bullish, and I think that we began focusing on this a couple of years ago as a market that we thought we could create a lot of value in. And we think we've been doing very well in that market as well, so we're very pleased with the results. We now turn to Keith Hughes with Truist.
Speaker Change: The commercial real estate market as a whole.
Speaker Change: I think we reflect that pretty well.
Speaker Change: Where the segments are strong and where the segments are weak. So you mentioned manufacturing you mentioned data, whereas is warehouses and in general.
Speaker Change: Those those remain.
Speaker Change: Those remain pretty good and we continue to see.
Speaker Change: Good bidding and quoting activity going out into the fourth quarter now and even early next year. So we remain quite bullish and I think that.
Speaker Change: We began focusing on this a couple of years ago was as a market that we thought we could create a lot of value in and we think we've been we've been doing very well in that market as well. So we're very pleased with the results there.
Keith Hughes: Your line is open, please go ahead. Thank you. Are you assuming your residential roofing units, you may have said this earlier, are you assuming they're down one single divot or, let me put words in your mouth, just what's the view there? Sorry Keith, you weren't that clear coming through there. Okay, let me, let me just say it again.
Speaker Change: We now turn to confuse with cherished. Your line is open. Please go ahead.
Speaker Change: Thank you.
Speaker Change: I guess in the second half built into this guidance.
Speaker Change: Are you assuming you are relatively stable.
Speaker Change: Residential roofing.
Speaker Change: Most of this earlier.
Speaker Change: Assuming they're down low single digits or let me put words in your mouth, just what's kind of the view there.
Speaker Change: Sorry, Keith you didn't you weren't clear.
Speaker Change: We're coming through that.
Speaker Change: Okay. Let me, let me just say it again in the second half guidance.
Keith Hughes: In the second half guidance and sales guidance, what do you have implied on units and residential roofing year over year, roughly? Yeah, so I'm, you know, for, Uh, just one second, Keith.
Speaker Change: Sales guidance, what do you have implied on units and residential roofing year over year.
Speaker Change: Absolutely.
Speaker Change: Yes.
Speaker Change: Sure.
Speaker Change: Just one SEC and Keith.
Prithvi Gandhi: Yeah, so for the full years. For Q3 in terms of residential, you know, we're expecting... in terms of, you know, price and volume, kind of low single digits on price and a little bit better on volume. And, you know, I'm for that. Yeah, go ahead.
Speaker Change: Cell phone.
Speaker Change: So four for the full year.
Speaker Change: Yes.
Speaker Change: For Q3 in terms of the residential we're expecting.
Speaker Change: In terms of.
Speaker Change: Price and volume kind of low single digits on price and a little bit better on volume.
Speaker Change: And further pricing I think.
Speaker Change: Yes go ahead.
Prithvi Gandhi: And on Q4, kind of mid-September, you know... Negative mid-single digits on volume for Q4 year-over-year. Okay, and you were confident you did double-digit positives in the second half of units last year, but the numbers were about right. Yeah, that would have been about right.
Speaker Change: And on Q4.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: No negative mid single digits on volume for Q4 year over year.
Speaker Change: Okay and your face you did double digit positives in the second half in units last year, but those numbers about right.
Keith Hughes: Obviously, we had a strong storm come through towards the end of last year, which was a particularly strong finish to the year, particularly in Q4. So Q4 residential comps this year are going to be tough because there was such a big storage demand towards the end of last year. So we would expect to We would certainly expect that to be down. But we expect the overall order to see growth organically. Okay, great.
Speaker Change: Yes that would that would have been about right. It's obviously we had.
Speaker Change: Strong storm come through towards the end of last year, which.
Speaker Change: Which was particularly strong finish to the year.
Speaker Change: Particularly in Q4, so Q4 residential comps this year.
Speaker Change: I'm going to be tough because there was such a such a big student demand towards the end of last year. So we would expect to we would certainly expect that to be down, but we expect the overall quarter to see growth organically.
Speaker Change: Okay, great. Thank you.
Keith Hughes: Thank you. Our next question comes from David MacGregor with Longbow Research. Your line is open, please go ahead. Yeah, thanks. Good afternoon.
Speaker Change: Our next question comes from David Macgregor with Longbow Research. Your line is open. Please go ahead.
David Macgregor: And thanks for taking the question. And apologies for the background noise. But Julian, I just wanted to ask you a question on how you respond to a changing macro. And, I guess tactically, what can you do differently to protect margins if it becomes clear that we're heading into a harder landing max? Yeah, LV. David, the fact is that, you know, we fundamentally believe that, you know, the macro economy is not the overall driver of re roofing demand, which represents 80% of the business. It's really driven by the total number of houses out there and the total number of buildings.
David Macgregor: Yes, thanks, and good afternoon, and thanks for taking the question I apologize for the background noise here, but Julian I just wanted to ask a question on how you respond to a changing macro I guess tactically.
Speaker Change: Differently to protect margins if it becomes clear that we're heading into a harder landing Michael.
Speaker Change: Yes.
Speaker Change: David.
Michael Rehaut: The fact is that we.
Michael Rehaut: We fundamentally believe that.
David Manthey: The macro economy is not the overall driver of re roofing demand, which represents 80% of the business.
Speaker Change: Yes.
Speaker Change: It's really driven by the.
Speaker Change: The total number of houses out there.
Speaker Change: And the total number of buildings.
Julian: And as I've said for several years now, there are always more buildings at the end of the year than there are at the beginning. We consistently build more. So we continue to expect to see a good demand environment. We believe that the aging housing stock, and the aging commercial stock, presents real opportunities for us.
Speaker Change: Said for several years now there is always more buildings at the end of the year than there are at the beginning we consistently build more so we continue to expect to see a good demand environment, we believe that the aging housing stock the aging commercial.
Speaker Change: Stock presents real opportunity for us.
Speaker Change: But in terms of where I think your question is going is really around of our operating posture.
Julian: But in terms of where I think your question is going, it's really around our operating posture. And look, we've been very focused on driving efficiency at the branches, trying to make sure we've got good cost control. I think we had a very difficult second quarter to manage.
Speaker Change: We've been very focused on driving efficiency at the branches trying to make sure. We've got good toss control I think we had a very difficult second quarter to manage and I think we learned.
Speaker Change: How to do that through the quarter and we expect to get we expect to get better but really.
Julian: I think we learned how to do that through the quarter, and we expect to get better. But really, it is hours management at the branch. Are we making sure that we're being efficient? Are we staffed at the right level on a day-to-day basis? Are we getting the right efficiency out of the branches?
Speaker Change: Yes. It is al is management at the branch are we making sure that we're being efficient we staffed at the right level on a day to day basis.
Speaker Change: And are we getting the right efficiency out of the branches that we focused on.
Speaker Change: Our bottom quintile process.
Speaker Change: To yields.
Speaker Change: The margins and then I think that ultimately we are looking at private label digital on our pricing model in order to give us a little bit of boost on the on the margin side as well. We think these are all <unk>.
Julian: Are we focused on our bottom quintile process to yield margins? And then, I think that ultimately, we are looking at private label, digital, and our pricing model in order to give us a little bit of a boost on the margin side as well. We think these are all significant contributors. We need to execute against those. We have not yet seen the impact of the pricing model that we're putting in.
Speaker Change: Significant contributors.
Speaker Change: We need to we need to execute against those we have not seen yet the impact of the pricing model it that.
Speaker Change: And that we're putting in we should be we should be complete with that the certainly the first half maybe at the end of the first quarter of 2025.
Julian: We should be complete with that certainly by the end of the first half, maybe the end of the first quarter of 2025. We think that's exactly what we thought it was, and we said we believed it would yield 50 basis points of improvement in gross margin. So, there's a lot of work that we continue to do both at the gross margin level and, more importantly, at the EBITDA level to enhance our margin, not just protect it. And we think we can do that.
Speaker Change: And we think Thats exactly what we thought it was and we said we believed it would.
Speaker Change: Yields 50 basis points of improvement in gross margin. So there's a lot of work that we continue to do both at the gross margin level, but more importantly at the EBITDA level.
Speaker Change: To enhance our margin not just protect it and we think we can we can do that and we were a little.
David Macgregor: I'll be honest, we were disappointed with the performance on OPEX in the second quarter, but we'll bounce back from that, and we'll get it right, and we'll move forward, and we'll continue to drive operating performance. Thanks, Julian. Thanks for the question, David. Our final question comes from Reuben Garner with the Benchmark Company. Your line is open, please go ahead.
Speaker Change: I'll be honest, we were disappointed with the performance on Opex in the second quarter, but.
Speaker Change: We'll bounce back from that and we'll get it right and we'll move forward and we'll continue to drive operating.
Speaker Change: Operating performance.
Joe: Okay. Thanks, Joe.
Speaker Change: Thanks for the question David.
Speaker Change: Our final question comes from Reuben Garner with Benchmark Company. Your line is open. Please go ahead.
Reuben Garner: Thank you. Good evening, everybody. Um, forgive me if I mischaracterize this, but it would seem that your outlook, at least for organic kind of top line for the second half, is pretty comparable to what you're looking for before. Maybe a touch better, but in your prepared remarks, or in the press release, I can't remember where I got it, you mentioned something about being proactive to respond to market conditions by adjusting resources and, and inventory.
Reuben Garner: Thank you good evening everybody.
Reuben Garner: Forgive me, if I missed characterizing it but.
Reuben Garner: With whom that you or your outlook at least for organic tunnel topline for the second half of <unk>.
Speaker Change: Pretty comparable to what Youre looking for before.
Speaker Change: Maybe a touch better but in your prepared remarks and the.
Speaker Change: Costs related to former where I got it you mentioned something about being proactive to respond.
Speaker Change: The market conditions by adjusting resources and an inventory I was just curious if you can kind of square those comments during because it seems like.
Reuben Garner: I'm just curious if you kind of square up those comments, Julian, because it seems like, you know, you remain pretty bullish and things have been good outside of some, some weather, but you're talking about kind of making adjustments. So if you could just kind of clarify that for me, that'd be great. Thanks, guys. Yeah, absolutely, Reuben.
Speaker Change: We remain pretty bullish on things have been good outside of some from weather, but you're talking about kind of making adjustments I think it just kind of clarify that for me would be great.
Julian: I mean, look, I think that the reality of the market today has been that we've got some very good markets, some particularly bad markets, and it's been, you know, very variable. And the difference is that, you know, our branches aren't able to move around.
Speaker Change: Yes, absolutely Ruben I mean look.
Speaker Change: Think that the.
Speaker Change: The reality of the market today has been the <unk>.
Speaker Change: Got.
Speaker Change: Some very good markets, some particularly bad markets.
Speaker Change: And it's been a very variable.
Speaker Change: The difference is.
Speaker Change: That.
Speaker Change: All branches unable to move around I mean, the manufacturing move shingle shipments around the country that waterfall it in and they can flow where the demand is we still have to operate branches even in weak markets and serve those markets. I mean, if you pick Florida for example.
Julian: I mean, the manufacturers can move shingle shipments around the country, they can waterfall them, and they can flow where the demand is. But we still have to operate branches, even in weak markets, and serve those markets. I mean, if you pick Florida, for example, you know, I think you'd see that armor shipments there are off, you know, [inaudible] I think we've executed prices in those markets and continue to see things go through, but we've got to be able to get staffing levels right. The flip side is in markets where it's been particularly good.
Speaker Change: I think you'd see that on the shipments there are off.
Speaker Change: 40% to 50% maybe.
Speaker Change: 50%, 40% for the year.
Speaker Change: We still it's still a very large market and we have to adjust to make sure that we've got the right staffing levels in those markets and we've got the right resources that that market is awful lot and making sure that you know.
Speaker Change: You get ahead of it is important.
Speaker Change: We've got several markets that.
Speaker Change: A quite weak I think we've executed price in those markets and continue to see.
Speaker Change: Things things go through but we've got to be able to get staffing levels right.
Speaker Change: Flip side is in markets, where it's it's been particularly good.
Julian: We've got to make sure that we've got the right level of people in those markets as well so that we can take advantage of strong markets. And I think that we will adjust after the second quarter, where I don't think we executed on that as well as we could have done. We need to get better at that, we need to adjust, and that's really where our comments come from. The volatility of the markets; we've got to make sure we get it right.
Speaker Change: We've got to make sure that we've got the right level of people in those markets as well so that we can take advantage of strong markets.
Speaker Change: And I think that we will adjust after the second quarter, where I don't think we executed on that.
Speaker Change: As well as we could have done.
Speaker Change: We need to we need to get better at that we need to adjust and that's really where our comments come from the variability of the markets. We got to make sure we get it right.
Reuben Garner: Got it. Very helpful. Thanks, guys. Good luck going forward. Thanks very much for your question, Reuben. That concludes the questions.
Speaker Change: Got it very helpful. Thanks, guys. Good luck going forward.
Speaker Change: Thanks very much for your question Reuben.
Julian: Now, I would like to turn the call back over to Mr. Francis for his closing comments. Thank you, Elliott. I just want to say thank you to all of you for your interest in Beacon and your continued support of our efforts to improve the business. We continue to be very pleased with our top-line performance and the growth that we are seeing. We believe we've demonstrated that we have multiple paths for growth. We also believe we have multiple paths for margin-enhancing initiatives that are driving success at the bottom line as well, and we continue to believe that there's further opportunity in this business.
Speaker Change: That concludes the questions now I would like to turn the call back over to Mr. Francis for his closing comments.
Francis: Thank you Elliot.
Francis: Just wanted to say thank you to all of you for your interest in Beacon and your continued support.
Speaker Change: Of our efforts to improve the business.
Speaker Change: We continue to be very pleased with our top line performance and the growth that we are seeing we believe we've demonstrated that we have multiple paths for growth. We also believe we've got multiple paths for margin enhancing initiatives that are driving.
Speaker Change: Success at the bottom line as well and we continue to believe that there is further opportunity in this business. So with that thank you very much for your attention. Thanks very much for attending and thanks.
Julian: So with that, thank you very much for your attention. Thank you very much for attending. Ladies and gentlemen, today's call is now concluded. We'd like to thank you for your participation. You may now disconnect your lines.
Speaker Change: Yeah.
Speaker Change: Ladies and gentlemen, today's call is now concluded we'd like to thank you for your participation you may now disconnect your lines.
Speaker Change: [music].