Beacon Roofing Supply(BECN) - 2022 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Beacon Roofing Supply reported over $2.4 billion in total net sales for Q3 2022, representing a nearly 29% year-over-year increase, driven by higher volumes across all business lines and increased average selling prices [24][25] - Adjusted EBITDA continued to show year-over-year growth for the 11th consecutive quarter, indicating a strong track record of profitable growth [7][10] - Operating cash flow reached $268 million, the highest since Q2 2020, largely due to a $160 million sequential reduction in net inventory [31][32] Business Line Data and Key Metrics Changes - Residential net sales grew by 22% year-over-year, supported by re-roofing activity and units under construction, despite below-average storm-related volumes [25][26] - Non-residential roofing sales increased by over 54%, driven by price execution and increased volumes, with supply chain improvements aiding backlog conversion [26] - Complementary sales rose approximately 17% year-over-year, with higher volumes across product categories, including siding and waterproofing [27] Market Data and Key Metrics Changes - The backlog remained high, with over 50% weighted towards non-residential orders, indicating strong future demand [24][43] - The company noted that while some heavy new residential construction markets slowed, 80% of sales come from repair and replacement activity, which remains robust [9][35] Company Strategy and Development Direction - The company is focused on its "Ambition 2025" strategy, aiming for over $9 billion in sales by 2025 and approximately $1 billion in EBITDA, with a compound annual growth rate of 8% and 10% respectively [11][12] - Recent acquisition of Coastal Construction Products enhances capabilities in the specialty waterproofing market, expected to generate approximately $250 million in net sales for 2022 [19][21] - The company is committed to balanced capital allocation, including investments in greenfield locations and share buybacks, to create shareholder value [10][18] Management's Comments on Operating Environment and Future Outlook - Management expects stable market fundamentals, with non-discretionary repair and replacement activity supporting demand in both residential and commercial roofing [35] - Rising interest rates may soften new residential construction, but the company remains confident in its ability to grow through strategic investments and operational improvements [39][62] - For Q4 2022, total sales growth is expected to be between 15% and 17% year-over-year, with gross margin anticipated to be in the 25% range [37][38] Other Important Information - The company has repurchased nearly 6 million shares year-to-date as part of a $500 million share repurchase authorization, demonstrating commitment to shareholder returns [18][33] - The company has seen a significant increase in private label sales, contributing to higher margins [17] Q&A Session Summary Question: Regarding bottom quintile branches contributions, how are you thinking about that over the next 1 to 2 years? - Management has seen good traction on initiatives focused on bottom quintile branches and believes there is room for improvement across all branches [41][42] Question: Can you provide more color on customer backlogs across your business segments? - Backlogs peaked in Q2 and remain significantly higher than pre-COVID levels, with over 50% on the non-residential side [43] Question: Can you provide insights on commercial gross margins and sustainability as we head into 2023? - Commercial gross margins have improved due to effective price execution, and management is confident in sustaining these margins despite potential inventory profit roll-off [45][46][47] Question: How much of the 100 basis points down on the margin was due to cost rising past prices versus mix shift to non-residential? - Price-cost was about 60 basis points unfavorable, with the mix shift contributing about 40 basis points to the decline [49][50] Question: Can you provide an update on the M&A pipeline? - The M&A pipeline remains robust, with the company actively pursuing acquisitions that fit its strategic goals [75]