Beacon Roofing Supply, Inc.

My name is Matt, and I'll be your coordinator for today. At this time, all participants are in listen-only mode. We'll be conducting a question-and-answer session towards the end of this call. At that time, I will give you instructions on how to ask a question. If at any time during the call you 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 Mr. Binnick Sanghvi, Vice President of Capital Markets and Treasurer. Please proceed, Mr. Sanghvi.

Thank you, Matthew. Good afternoon, everybody, and as always, 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. Forward-looking statements can be identified because they do not relate strictly to historic or current facts and use the 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 factors section of the company's 2022 Form 10-K. Second, the forward-looking statements contained in this call are based on information as of today, November 2nd, 2023, 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 the opening remarks from Julian.

Thanks, Bennett, and good afternoon, everyone. I'll begin on slide four. Once again, BEACON's third quarter results reflect our team's collective ability to execute on our ambition 2025 strategic plan, the power of our business model, and the resiliency of our core markets. Once again, we demonstrated that we have multiple paths to growth and can deliver results in a variety of conditions. The foundation of our end markets are the repair and replacement of exterior weatherproofing products on residential and commercial buildings. This activity is driven primarily by necessity and is much less subject to interest rate changes, consumer sentiment, or commercial financing. While core demand for residential housing remains robust, Clearly, macroeconomic factors are negatively impacting both new builds and existing for sale units. Commercial construction activity has been slower than we anticipated at the start of the year, and channel destocking has been a larger headwind. Nevertheless, the Beacon team has delivered yet another record quarter, aided by tailwinds from storms, but primarily as a result of executing well on our strategic plan. In the third quarter, we grew daily sales by approximately 9% year over year, at the high end of our 7% to 9% expectations. Our gross margin came in at 26%, above our guidance of mid to high 25% range. As our team worked diligently to execute on the August shingle price increase, manage a dynamic non-res market, and mitigate product cost increases. In addition, we delivered value to our customers especially in the essential products and services we provide in storm impacted areas. We stayed focused on labor productivity and carefully managed our indirect cost inputs in the face of continued inflation. As a result, we achieved record setting top line and strong bottom line performance, including a record for quarterly adjusted EBITDA and the highest calendar third quarter EBITDA margin in our history. Operating profits and our active management of working capital, in particular our inventory, continued to generate substantial cash flow, allowing us to deploy capital to both gross initiatives and returns to our shareholders. We continue to execute on the acquisition pipeline, with five since the end of the second quarter, and in October we added to our industry-leading waterproofing footprint by acquiring Garvin construction products. The Garvin acquisition adds strength to our position in the Northeast, adding five locations from the DC Metro up to Boston, as we continue to develop and enhance our capabilities in the growing waterproofing category, which we believe, like roofing, is largely non-discretionary. As discussed in the last earnings call, we also continued returning capital to shareholders. In July, we deployed a little over $800 million to repurchase all of the outstanding preferred shares, on top of the $100 million of common share repurchases that we've completed so far this year. Impressively, we have invested nearly $1.1 billion this year in shareholder returns and growth capital, including the highest CapEx in our history, while at the same time maintaining our net debt leverage at less than 2.7 times, a true testament to the cash-generating ability of our business. At our investor day last year, we said that we would unlock the potential of Beacon, and I can confidently say today that we are well on the way to achieving that goal. Now please turn to page five of the deck. Early last year, we laid out our targets to drive above-market growth, deliver double-digit adjusted EBITDA margins, build a great organization, and generate superior shareholder returns. Creating value for our customers is central to achieving these goals, and our team has relentlessly focused on doing that every day. Let me provide you with an update on our strategic initiatives, starting with how we are building a winning culture. Our branches are heavily trafficked with large pieces of equipment and heavy materials. Our findings show that newer employees are at greater risk of injuring themselves, and we continue to enhance our onboarding practices. One way this manifests itself is that our new employees now wear a green hard hat for the first 90 days with us, This signals to teammates that they are in a learning phase and require additional direction and coaching on safe and efficient operations, as well as preparing these employees to be top-notch operators and coaches themselves. In addition to caring for our people, we are caring about the environment to support the communities in which we work and live. During the quarter, our Corporate Social Responsibility Council developed a program to engage all employees in building better for the environment, a program designed to create ownership and accountability and ask our employees to be an active environmental steward at all levels of the organization. We are already generating ideas and buy-in on how we can engage more deeply with local environmental initiatives. And for example, in Canada, we have introduced an EV car program for our sales force. 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. This includes our investments in greenfields and acquisitions. Our dedicated greenfield team continues to execute on our pipeline. Year to date, we have opened 19 new branch locations, which enhances our ability to serve new and existing customers. We started the year with plans for at least 15 locations. and each time we add a new location, we are adding sales resources and reducing the average distance and time for us to serve our customers' orders. This enhances our overall value proposition, giving us the opportunity to earn market share. We have now opened 36 new branches since the beginning of last year and will exceed our initial Ambition 2025 goal. These new branches are ramping up ahead of expectations and will contribute nearly $250 million to the top line this year alone. On acquisitions, we discussed the recent purchase of Garvin, providing a delivery footprint for waterproofing products in the Northeast. But we also completed four other acquisitions since the end of the second quarter, including All-American Vinyl Siding Supply, S&H Building Materials, Crossroads Roofing Supply, and this week, H&H Roofing Supply. I'm pleased to report that our acquisition portfolio is performing well and delivering better than expected results. Since announcing our Ambition 2025 plan, we have acquired 14 companies, adding 43 branches, which together are generating around $400 million in annual revenues and, like our greenfield strategy, expanding our ability to serve our customers across the country. Our online capability continues to be a clear competitive differentiator for Beacon. since we provide the most complete digital offering in the industry. Sales through our online platform deliver approximately 150 basis points better margin compared to offline channels. We continue to expand our offering to serve customers in the ways that brings the customer the most value. Our digital integrations with solutions providers drove an impressive 22% year-over-year increase in digital sales in the third quarter and the highest percentage of residential sales ever at 22%. We have plans to build on our digital leadership by continuing to invest in this area of differentiation. Moving on, for those of you who have listened to our calls in the past, you know that we are enhancing productivity and expanding capacity through our continuous improvement and operational excellence initiatives. Our focus on the bottom quintile branches generated significant contributions to EBITDA in the third quarter. Our disciplined process for diagnosing and addressing issues has been core to our operational improvements the last two years, and I'm pleased to report that the process contributed approximately $10 billion of EBITDA year-over-year in the third quarter. As we have discussed on previous calls, we have chosen to operate our branches as a network in larger MSAs. They operate on a single P&L and work together to provide optimized service to the customer. We have coined this approach OTC, or on-time and complete. OTC provides four key benefits. First, improved customer service levels. Second, a lower cost to serve. Third, the ability to optimize inventory levels. And fourth, it enhances local talent development critical to us achieving our ambition 2025 goals. These initiatives combined with our branch revitalization have been key to delivering on our productivity improvements and generating the operating leverage that Frank will discuss shortly. And lastly, I'll talk about how we are creating shareholder value. As we discussed on the last call, we successfully repurchased the entirety of the outstanding preferred shares, reducing the as-converted share count by 9.7 million, or 13% of the equity outstanding, and eliminated the related cash dividend of $24 million annually. In addition, we continue to execute on our current authorization to repurchase our common stock, Year-to-date through July 31st, we repurchased approximately $100 million, or approximately 1.5 million shares. Since the start of Ambition 2025, we have deployed nearly $1.3 billion, reducing the as-converted share count by more than 21%. It is worth repeating the impressive highlights I mentioned in my opening remarks. Even with the purchase of our shares, the investment M&A, and the record spending on GrowthCapX, we have maintained leverage well within our stated target range of two to three times. In summary, we have a differentiated approach and have built the tools to enable multiple paths of growth, margin expansion, and value creation through the cycle. Our ambition 2025 plan has seamlessly stitched it all together to amplify the resiliency of our business model and unlock our potential. Now I'll pass the call over to Frank to provide a deeper focus on our third quarter results.