Beacon Roofing Supply, Inc.

Good afternoon, ladies and gentlemen, and welcome to the Beacon Third Quarter 2022 Earnings Conference Call. My name is Megan, and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be conducting a question and answer session toward the end of this call. At that time, I will give you instructions on how to ask a question. If at any time during the call you require assistance, Please press star followed by zero, and a coordinator will be happy to assist you. As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the call over to Bennett Songvi, President, Capital Markets, and Treasurer. Please proceed, Mr. Songvi.

Thank you, Megan. Good afternoon, everybody, and thank you for taking the time to join us on our call today. Julian Francis, Beacon's Chief Executive Officer, and Frank Linegro, our Chief Financial Officer, will begin with prepared remarks that will follow the slide deck posted to the investor relations section of Beacon's website. After that, we will open the call for questions. Before we begin, please reference slide two for a couple of brief reminders. First, this call will contain forward-looking statements about the company's plans and objectives and future performance. Future-looking statements can be identified because they do not strictly relate to historic facts or current facts and use words such as anticipate, estimate, expect, believe, and other words of similar meaning. 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 factor section of the company's 2021 Form 10-K. Second, the forward-looking statements contained in this call are based on information as of today, November 3rd, And except as required by law, the company undertakes no obligation to update or revise any of these forward-looking statements. And finally, this call will contain references to certain non-GAAP measures. The reconciliation of these non-GAAP measures to the most comparable GAAP measures is set forth in today's press release 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, let's begin with opening remarks from Julian.

Thanks, Bennett, and good afternoon, everyone. Let's begin on slide four. Today, Beacon reported record third-quarter results from the top line to the bottom line, including our 11th straight quarter of year-over-year increase in adjusted EBITDA, continuing our track record of profitable growth. Our team's focus on the day-to-day execution of our strategic initiatives delivered higher volumes across all three lines of business. driving our highest quarterly net sales in history. The strong volume growth also began to unlock the investment we have made in our inventory, resulting in our best quarterly cash flow since the second quarter of 2020. Non-discretionary re-roofing demand continued to provide us with opportunities to deliver value to our customers. Commercial roofing demand remained healthy while residential growth was supported by repair and re-roofing activity across most markets. A few heavy new residential construction markets did slow, but I remind you that 80% of our sales comes from repair and replacement activity. We continue to make strategic investments in value-creating initiatives towards achieving our ambition 2025 targets, which is underpinned by the financial flexibility our balance sheet provides. We took an important step this week with the acquisition of coastal construction products one of the largest independent distributors of specialty waterproofing and associated products in the U.S., which we will discuss in detail a bit later. We also accelerated greenfield investments, creating capacity, expanding our branch footprint, and enhancing service to our core customers. Along with our share buyback program, our balanced capital allocation demonstrates our commitment to creating shareholder value and confidence in our Ambition 2025 strategic plan. I'm very pleased with the progress we've made towards our goals, and we will continue to invest in generating profitable growth and returns for our shareholders. Now, please turn to page five. For those of you who've listened to our calls or attended our Investor Day, you are well aware that we have a detailed strategy called Ambition 2025. It is a structured roadmap with initiatives that are targeted and measurable. As a reminder, the goals we laid out are to grow the business to more than $9 billion of sales by 2025. an 8% compound annual growth rate from our 2021 baseline, and to deliver EBITDA of about $1 billion in 2025, approximately a 10% annual growth rate. Now on to page six. I'll provide a brief update on our strategic initiatives, which will give you a better idea of how we intend to achieve these goals. Let me start by highlighting a couple of examples of how we are building a winning culture. We established Beacon Cares two years ago to assist employees with unexpected financial crises and are proud that the fund is supporting our colleagues facing a variety of difficulties, including the impacts of Hurricane Ian. The program also gives our employees the opportunity to help teammates and have their support matched by the company. Also, as we discussed in our last quarterly call, we announced a new national partnership with the charity, Rebuilding Together, a nonprofit organization providing home repairs for underserved communities. Everyone deserves a safe home, and I'm pleased to report that volunteers from our field team, along with the Rebuilding Together, recently held a volunteer day to make essential repairs to a home for a family in need. We started in Boston, where Beacon was founded over 90 years ago, and helped a couple improve the accessibility features of their home so that they can remain in the neighborhood that they love. We are also driving above-market growth and enhancing margins through a set of targeted initiatives. Expanding our footprint is a major lever in our growth plans, which includes strategic investments in greenfields and tuck-in acquisitions. I'm very pleased to report that we have accelerated our investment in our pipeline of greenfield locations. Our team has ramped up quickly, commissioning nine branches since the beginning of the year. And while we had originally discussed opening a total of 10 facilities in 22, we are on track to deliver 15 new branches this year. Our set of initiatives designed to grow margin is also gaining momentum. We are confident that we provide the most complete digital offering and continue to expand our capabilities to serve customers in the way that brings them the most value. Our most recent digital integration with Acculinks a leading provider of all-in-one business management software for roofing contractors, is another example of a value-added offering that is driving growth. This integration has helped us achieve a quarterly record with nearly 19% of residential sales going through our digital platform. We are building upon our technology leadership by continuing to invest in making it easier for customers to do business with us anywhere and anytime. During the quarter, we announced the launch of our new Beacon Pro Plus mobile app. The new app is custom designed for iPhone and Android devices, specifically tailored to meet the needs of contractors who spend their days on the go. Likewise, we also had a record quarter for our higher margin private label sales. Sold under the Tribelt brand, these products deliver professional-grade results and permit our customers to differentiate themselves from their competitors. As we have discussed for several quarters, we are enhancing productivity and capacity through our continuous improvement and operational excellence initiatives. Over the last two years, our focus on the bottom quintile branches has generated tangible results, and this year is proving to be even better. We have generated approximately $32 million in year-on-year EBITDA improvements in the first nine months. You will recall that we targeted a total of $75 million contribution in our ambition 2025 target, so we have a very strong start on that goal. Finally, our strategic initiatives are designed to create shareholder value, and we are committed to improving returns. Let me highlight that we have repurchased and retired nearly 6 million shares year-to-date. The share buybacks are part of a $500 million share repurchase authorization announced at Investor Day during the first quarter of this year. The share repurchases demonstrate both our commitment to delivering value to shareholders and our confidence in the future. 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 needed to achieve our ambition 2025 targets. Now please turn to page seven of the deck. As I mentioned earlier, this week we announced the acquisition of Coastal Construction Products, adding national capabilities in the growing and still fragmented $5 billion specialty waterproofing market. I'm thrilled to welcome the Coastal team of more than 200 employees to Beacon and look forward to the capabilities and accelerated growth opportunities that this combination brings. This acquisition fits squarely in the middle of our strategic plan. As most of you are aware, we have two core markets, residential and commercial roofing, and our complementary products overlap with the needs of both, providing us with above-market growth opportunities. As we mentioned at our investor day, one of the big areas within complementary that overlaps with commercial roofing is the waterproofing business. This includes caulking, sealants, and different types of barrier products. essential products and services to our commercial contractors building envelope solutions both above and below grade. With Coastal, we require a team that is widely regarded as the leading technical authority in the field with specialized expertise. I'm particularly pleased that Coastal's senior team will be joining Beacon with CEO Martin Harrell reporting to me leading Beacon's new specialty waterproofing division. Moving to slide eight, Coastal is expected to have approximately $250 million in 2022 net sales with around $25 million in EBITDA. Coastal's 18 locations serving the Southeast and Midwest will be combined with Beacon's 13 branches that are dedicated to specialty waterproofing to form our new waterproofing division. The resulting combination creates an unparalleled coast-to-coast footprint to better serve customers locally, regionally, and nationally. At the same time, the waterproofing market is still highly fragmented, offering us ample opportunity to be acquisitive if we find the right fit and room to add new locations as we build on Beacon's existing capabilities. This includes storm exposed regions where waterproofing is essential to protecting buildings, adapting to stricter building codes, and meeting heightened maintenance standards. After realizing synergies, which include plans for organic growth and footprint expansion, combined with our procurement capabilities, OTC network, digital platform, and private label offering, the pro forma transaction multiple is lower than Beacon's current trading multiple. This is in line with the acquisition criteria we laid out at our investor date. Lastly, I'd like to note that this is the fifth transaction we have done in the last 12 months. All have been made possible by the balance sheet strength that we restored early last year. With Coastal, we are able to create a platform for accelerated growth with a transaction that immediately enhances our bottom line while maintaining net debt leverage at less than 2.5 times. I couldn't be happier with the potential we have together, and now I'll pass the call over to Frank for some more detail on our third quarter results.