Beacon Roofing Supply, Inc.

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

Thank you, Victoria. Good evening, everybody. And as always, we thank you for taking the time to join our call. Today, I'm joined by Julian Francis, our Chief Executive Officer, and Carmelo Caruba, Beacon's Interim Chief Financial Officer. Julian and Carmelo will begin today's call with prepared remarks that will follow the slide deck posted to the Investor Relations section of Beacon's website. After that, we will open the call 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 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, but not limited to those set forth in the risk factor section of the company's 2022 Form 10-K. Second, the forward-looking statements contained in this call are based on information as of today, February 27, 2024, and except as required by law, the company undertakes no obligation to update or revise any of these forward-looking statements. And finally, this call will contain references to certain non-GAAP measures The reconciliation of these non-GAAP measures to the most comparable GAAP measures is set forth in today's press release and the appendix to the presentation accompanying the call. Both the press release and the presentation are available on our website at BECN.com. Now, let's begin with opening remarks from Julian.

Thanks, Bennett. Good afternoon, everyone. And let's begin on slide four. I'm very pleased to report that we have strong finish to the year. The Beacon team delivered a record fourth quarter as a result of executing on our strategic plan, Ambition 2025. Sales were up nearly 17% year over year to $2.3 billion, a fourth quarter record and above our expectations from our third quarter call. Demand for our services drove organic sales growth across all three lines of business. We continue to create value for our customers, especially by enhancing our service proposition. allowing them to maximize the productivity of the scarce labor resources they have. Acquired and newly opened greenfield branches contributed approximately 6% growth to the top line. Our gross margin came in at 25.7% above our guidance of 25.5% that we provided on our third quarter call. We stayed focused on labor productivity and our bottom quintile branch initiative delivered. As a result, we achieved a fourth quarter record for adjusted EBITDA of $217 million. I'm particularly pleased with our management of working capital, which generated record fourth quarter cash flow of $262 million. This enabled us to deploy capital towards our ambition 2025, including greenfield locations and acquisitions, while maintaining our balance sheet capacity. We've completed four acquisitions since the end of the third quarter. This includes adding to our industry-leading waterproofing footprint by acquiring Metro Sealant and Waterproofing Supply earlier this month. Metro, along with Garvin Construction Products acquired in October, enhances our position on the Eastern Seaboard as we continue to become recognized as a national leader in specialty waterproofing distribution. We also completed the acquisition of Roofers Supply of Greenville, adding commercial roofing branch locations in North and South Carolina. The Rufus Supply team has great talent and strong capabilities, and we welcome them to Beacon. At our Investor Day two years ago, we said that we would unlock the potential of Beacon, and I can confidently say today that we are well on our way to achieving that goal. We demonstrated once again that we have multiple paths to growth and can deliver results in a variety of conditions. Now please turn to page five. At that Investor Day, we laid out our targets to drive above-market growth deliver consistent double-digit adjusted EBITDA margins, build a great organization, and generate superior shareholder returns. Creating value for our customers is central to achieving these goals, and our team is relentlessly focused on doing that every day. Let me provide you with an update on our strategic initiatives, starting with how we are building a winning culture. One of our core values is do the right thing, and this applies to our efforts to build better for the environment by engaging our employees and improving the climate in our communities. During the quarter, we launched a Turn It Off campaign to educate our truck and forklift drivers about their role in reducing non-productive engine idling. Our drivers have pledged to turn off their vehicles whenever they can to contribute to cleaner air at our branches, on job sites, and throughout the community. In addition, we contracted to power over 30 of our branches with renewable energy from community solar installations. We're proud to support investment in community solar, which allows underserved neighborhoods to receive discounts on their energy bills. 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 leader in our growth plans. This includes our investments in green fields and acquisitions. Our dedicated team continues to execute on our pipeline of Greenfield locations. In the fourth quarter, we opened 11 new branches. Each time we had a new location, we had sales resources and reduced the average distance and time for us to reach our customers. This enhances our overall value proposition, giving us the opportunity to earn market share. We have now opened 45 new branches since the beginning of 2022. exceeding our original Ambition 2025 goal. These branches have contributed more than $290 million to our top line over two years. It also demonstrates our ability to adjust to prevailing market opportunities. We've seen the impact these new branches have had on our results and accelerated the program. On acquisitions, we discussed the recent additions of Rufus Supply and of Metro Sealants, as well as Garvin. We also acquired H&H Roofing Supply strengthening our presence in the Central Valley of California, adding Bakersfield to our service area. Since announcing our Ambition 2025 plan, we have acquired 16 companies, adding 50 branches. Our online capability continues to be a clear competitive differentiator for Beacon. Sales through our online platform deliver approximately 150 basis points better margin compared to offline channels. Our value-added integrations are driving performance, And in the fourth quarter, we grew digital sales nearly 28% year over year. Digital sales to our residential customers were a highlight as we achieved adoption of nearly 22%. We have plans to build on our digital leadership by continuing to invest in this area and to differentiate ourselves and build upon our competitive advantage in the marketplace. Our third pillar involves driving operational excellence and expanding capacity through our continuous improvement and productivity initiatives. Our focus on the bottom quintile branches generated a significant contribution to EBITDA in the fourth quarter. Our disciplined process for diagnosing and addressing issues has been core to our operational improvements the last two years. I'm pleased to report that the process added approximately $15 million to the bottom line year over year in the fourth quarter. And fourth, let's review how we're creating shareholder value. In July, we deployed a little over $800 million to repurchase the entirety of the outstanding preferred shares from CD&R, reducing the ad's converted share count by 9.7 million. Since then, CD&R sold off its remaining stake in our common stock and exited its board representation. In addition, we continue to execute on our current authorization to repurchase our common stock, retiring 8.4 million shares in the last two years. Since the start of Ambition 2025, we have deployed more than $1.3 billion to shareholder returns, reducing the as-converted share count by approximately 21%. And impressively, even with the purchase of our shares, the investment in M&A, and the record spending on growth CapEx, we exited the year with net debt leverage at 2.4 times. In summary, we have a differentiated approach and have built the tools to enable multiple paths of growth, margin expansion, and value creation through the cycle. Our Ambition 2025 plan brings it all together to amplify the resiliency of our business model and unlock our potential. Now let me introduce our Interim Chief Financial Officer, Carmelo Caruba. First, let me say that I'm delighted that Carmelo has accepted this interim responsibility until a permanent CFO has been appointed. Carmelo has extensive executive, functional, and operational experience creating value serving in various roles. I was pleased when he joined us in April of 2022 as Vice President of Strategy and Transformation and as a member of Beacon's Executive Committee. In these key leadership positions, Carmelo shares responsibility for creating and supporting the value creation framework to drive that successful execution of Beacon's Ambition 2025 plan. With that, I'll pass the call over to Carmelo to provide the details on our fourth quarter result.