Beacon Roofing Supply(BECN) - 2023 Q4 - Annual Report

PART I Business Beacon is North America's largest publicly traded distributor of roofing and building products, focusing on re-roofing demand and growth via acquisitions and digital tools - Beacon is the largest publicly traded distributor of roofing and complementary building products in North America, with 533 branches serving nearly 100,000 customers as of year-end 2023[23] - The company's addressable market is estimated to be over $55 billion annually, split between roofing distribution (over $30 billion) and complementary products (over $25 billion)[26] - Demand is primarily driven by re-roofing activity, estimated at 80%, which is less cyclical than new construction[27] - The "Ambition 2025" strategy focuses on growth through acquisitions, organic expansion via greenfield branches, and enhanced digital customer service tools[40] - Since January 1, 2022, the company expanded its footprint by opening 45 new greenfield branches and acquiring 14 companies, adding a total of 43 branches[13][41] - As of December 31, 2023, the company employed 8,063 people, with approximately 14% women and 35% racially and ethnically diverse[64] Risk Factors The company identifies several key risks, including potential disruptions in product supply, vendor relations, and the successful integration of acquisitions - The company is vulnerable to supply chain disruptions and price volatility for raw materials like asphalt, which could result in lost revenues and reduced margins[53][56] - The growth strategy, including Ambition 2025, relies on successfully identifying, completing, and integrating acquisitions, which involves numerous risks such as unforeseen difficulties and potential loss of key employees[59][85] - The business is subject to cyclicality tied to the construction market and seasonality, with net sales and income typically being lowest in the first quarter due to winter weather[106][67] - Interruptions or breaches of information technology systems, including cybersecurity attacks, pose a material risk to operations, customer service, and financial results[109][88] Outstanding Debt as of December 31, 2023 | Debt Instrument | Amount Outstanding | | :--- | :--- | | Asset-based revolving line of credit | $84.0 million | | 4.50% senior secured notes due 2026 | $300.0 million | | 4.125% senior notes due 2029 | $350.0 million | | 6.50% senior secured notes due 2030 | $600.0 million | | Senior secured term loan due 2028 | $975.0 million | Unresolved Staff Comments The company reports that it has no unresolved staff comments from the Securities and Exchange Commission - None[123] Cybersecurity Beacon maintains a cybersecurity risk management program integrated into its enterprise risk framework, overseen by the Audit Committee of the Board - The company's information security program is aligned with the Center for Internet Security (CIS) Critical Security Controls and is part of its broader enterprise risk management framework[124][125] - Governance is provided by the Audit Committee of the Board, which receives quarterly briefings from the Chief Technology Officer on cybersecurity matters[133][134] - The company utilizes third-party security firms for annual assessments and regular penetration testing and maintains a written incident response plan[128][130] - To date, the company is not aware of any cybersecurity threats that have materially impaired its business, operations, or financial condition[131] Properties As of December 31, 2023, Beacon operated from 539 locations, including 533 branches and 6 non-branch facilities, primarily leased Property Overview as of December 31, 2023 | Location Type | Leased | Owned | Total | | :--- | :--- | :--- | :--- | | Branch Facilities | 515 | 18 | 533 | | Non-Branch Facilities | 6 | 0 | 6 | | Total | 521 | 18 | 539 | Geographic Distribution of Branches | Region | Branches | | :--- | :--- | | United States | 515 | | Canada | 18 | | Total | 533 | Legal Proceedings The company is involved in various legal proceedings but does not expect them to have a material adverse impact on its financial position - The company is subject to legal proceedings in the ordinary course of business but does not expect them to have a material adverse impact[138][315] - A notable case involves a 2018 vehicle accident that resulted in a fatality; the company has appealed a trial court's decision for a new phase of the trial and has not accrued any loss[368] Mine Safety Disclosures This section is not applicable to the company's operations - Not applicable[140] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Beacon's common stock trades on Nasdaq, and the company does not pay cash dividends, retaining earnings for reinvestment and executing share repurchases - The company's common stock trades on the Nasdaq under the symbol "BECN"[143] - No cash dividends have been paid, and the company does not anticipate paying them in the foreseeable future, intending to retain earnings for reinvestment[144] Q4 2023 Share Repurchases | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Oct 2023 | 0 | N/A | | Nov 2023 | 140,000 | $78.52 | | Dec 2023 | 0 | N/A | - As of December 31, 2023, approximately $389.1 million remained available for future repurchases under the authorized program[428] [Reserved] This item is reserved and contains no information Management's Discussion and Analysis of Financial Condition and Results of Operations In fiscal year 2023, Beacon achieved net sales of $9.12 billion, an 8.2% increase, driven by strong performance and strategic growth, while managing gross margin and executing significant capital allocation Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposures are related to interest rates, foreign currency exchange, and commodity prices, which are managed through derivatives and cost pass-through - The company is exposed to interest rate risk from its variable-rate borrowings and uses interest rate swaps to convert a portion of this debt to a fixed rate[522][524] - Foreign currency exchange risk is limited, as Canadian operations accounted for only 3.0% of net sales in 2023[525] - Commodity price risk, particularly from energy and raw materials like asphalt, is managed by passing on cost inflation to customers[526][495] Financial Statements and Supplementary Data This section includes the company's audited consolidated financial statements for fiscal year 2023, with an unqualified opinion from Ernst & Young LLP, detailing assets of $6.21 billion and net income of $435.0 million Controls and Procedures As of December 31, 2023, management concluded that disclosure controls and internal control over financial reporting were effective, with no material changes reported - Management concluded that disclosure controls and procedures were effective as of December 31, 2023[385] - Management's assessment concluded that internal control over financial reporting was effective, and this assessment was supported by an unqualified opinion from the independent auditor[386][409] - There were no changes in internal control over financial reporting during the fourth quarter of 2023 that materially affected, or are reasonably likely to materially affect, internal controls[392] Other Information This section discloses that on December 8, 2023, the Chief Technology Officer entered into a Rule 10b5-1 trading arrangement for the potential sale of up to 7,850 shares - On December 8, 2023, the Chief Technology Officer entered into a Rule 10b5-1 trading plan for the potential sale of up to 7,850 shares[413] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[577] PART III Directors, Executive Officers, Corporate Governance, Executive Compensation, and Other Matters Information for Items 10 through 14 is incorporated by reference from the company's definitive proxy statement for its 2024 Annual Meeting of Stockholders - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the registrant's definitive proxy statement for its 2024 Annual Meeting of Stockholders[395][415] PART IV Exhibits and Financial Statement Schedules This section lists the financial statements and exhibits filed as part of the Annual Report on Form 10-K, with financial statement schedules omitted as not applicable - This item lists the financial statements contained in Item 8 and the exhibits filed with the 10-K[417] - Financial statement schedules were omitted because they were not applicable or the required information was disclosed elsewhere[417] 10-K Summary This section indicates that a summary of the 10-K is not provided in this filing - No 10-K summary is provided in this section of the report[421]