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Edited Transcript of BECN earnings conference call or presentation 7-Feb-19 10:00pm GMT

Q1 2019 Beacon Roofing Supply Inc Earnings Call

PEABODY Feb 11, 2019 (Thomson StreetEvents) -- Edited Transcript of Beacon Roofing Supply Inc earnings conference call or presentation Thursday, February 7, 2019 at 10:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* C. Eric Swank

Beacon Roofing Supply, Inc. - COO

* Joseph M. Nowicki

Beacon Roofing Supply, Inc. - Executive VP & CFO

* Paul M. Isabella

Beacon Roofing Supply, Inc. - CEO, President & Director

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Conference Call Participants

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* David John Manthey

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Elad Elie Hillman

JP Morgan Chase & Co, Research Division - Analyst

* James A. Morrish

Evercore ISI Institutional Equities, Research Division - Analyst

* Jeffrey Stevenson

Longbow Research LLC - Research Analyst

* Kathryn Ingram Thompson

Thompson Research Group, LLC - Founding Partner, CEO and Director of Research

* Keith Brian Hughes

SunTrust Robinson Humphrey, Inc., Research Division - MD

* Matthew Schon McCall

Seaport Global Securities LLC, Research Division - MD and Furnishings & Senior Analyst

* Michael Benjamin Eisen

RBC Capital Markets, LLC, Research Division - Senior Associate

* Philip H. Ng

Jefferies LLC, Research Division - Equity Analyst

* Trey Grooms

Stephens Inc., Research Division - MD

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen, and welcome to Beacon Roofing Supply's First Quarter 2019 Earnings Conference Call. My name is Latif, and I will be your coordinator for today. (Operator Instructions) As a reminder, this conference call is being recorded for replay purposes. This call will contain forward-looking statements, including statements about its plans and objectives and future economic performance. Forward-looking statements are only predictions and are subject to a number of risks and uncertainties. Therefore, 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 latest Form 10-K. These forward-looking statements fall within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 regarding future events and the future financial performance of the company, including the company's financial outlook. The forward-looking statements contained in this call are based on information as of today, February 7, 2019. And except as required by law, the company undertakes no obligation to update or revise any of these forward-looking statements.

Finally, this call will contain references to certain non-GAAP measures. The reconciliation of these non-GAAP measures is set forth in today's press release. The company has posted a summary, financial slide presentation on the investor section of its website under Events and Presentations that will be referenced during management's review of the financial results. On the call today for Beacon Roofing Supply will be Mr. Paul Isabella, President and CEO; Mr. Eric Swank, Chief Operating Officer; and Mr. Joe Nowicki, Executive Vice President and Chief Financial Officer. I would now like to turn the call over to Mr. Paul Isabella, President and CEO. Please proceed, Mr. Isabella.

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Paul M. Isabella, Beacon Roofing Supply, Inc. - CEO, President & Director [2]

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Thank you. Good afternoon, and welcome to our first quarter 2019 earnings call. We're extremely pleased to report a solid beginning to 2019. First quarter results are above our internal expectations and the Street consensus for both adjusted EPS and EBITDA. Gross margins were fantastic and operating costs were in line with our expectations and consistent with typical seasonality. A great start to fiscal 2019. Our gross margin execution continues to be a positive highlight for Beacon. The price-cost relationship was positive during the first quarter, our third consecutive quarter of outperformance, an impressive accomplishment driven by our disciplined approach to pricing as well as showing the value distribution provides within the roofing and building product supply chain. I'm excited to give you an update on several of our important strategic initiatives. Starting with the Allied integration, we have just recently passed the 1-year anniversary of the acquisition, and the integration process remains on track and ahead in some areas. The branch consolidations have gone very well, and we expect these will be completed over the next 1 to 2 quarters. We are utilizing both the Allied combination and a build-out of the RSA service model to improve profitability and service.

Our focus is around central dispatch and launching electronic delivery tracking. Lastly, systems conversions are going very well with only interiors remaining and that will be wrapped up this spring. It's also important to emphasize another important part of the Allied integration, the Allied team. The Allied acquisition added many extremely talented people, including 2 of our current division Presidents and field and functional team leaders.

They've added valuable insights to our organization and the cultural fit has been -- has exceeded our expectations. Their contributions, combined with our very talented Beacon legacy team, have built an even stronger company whose future is brighter than ever.

As many of you saw firsthand on our Investors day, our digital platform is an important element of our organic growth plan.

We have a substantial leadership position in this area, and we believe this creates unique competitive advantages for Beacon. But we're not resting. We continue to add separation between ourselves and our competitors in this area. We are adding functionality, including the delivery tracking feature I mentioned earlier, and a contractor project management platform aimed at improving their productivity. These have generated great customer feedback and we're rolling them out nationally later this quarter and throughout the rest of the year.

These efforts are generating results. Customers using Pro+ continue to rise, and we're seeing higher percentage of online purchases from digital customers. Great progress but still a tremendous runway ahead as we push towards our $1 billion sales goal in this channel. Private label continues to be a major initiative for Beacon, a great example of how we drive sales and margin benefits from acquired companies.

Remember that Beacon did not begin building out its private label offering until we closed on the purchase of RSG 3.5 years ago. We now have adopted Allied's private label brand TRI-BUILT, and we are adding new product categories and improving the private label penetration in existing areas. We believe this will enhance sales growth, increase gross margins and build customer loyalty. We remain focused on driving organic growth. Key avenues include the previously mentioned digital and private label, but also Complementary products and new greenfield openings. Had we not wavered on our long-term focus on growth from acquisitions, Beacon has many growth avenues available both within traditional roofing distribution and our newer Complementary products channels. There are many potential opportunities, but we'll always balance these with balance sheet management. Joe will comment more about our 2019 guidance in his remarks, and we're optimistic about our outlook. I will say that January is off to a good start, as we delivered organic growth in the 5% to 6% range. Finally, I want to provide a brief introduction of Eric Swank. In January, Eric was appointed to the newly created Chief Operating Officer position, a well-earned promotion for Eric after 14-plus years at Beacon, which included leadership roles in HR, sales and marketing and operations. Hopefully, many of you had the opportunity to meet with him during our 2016 and 2018 Investor Days, and he will be more visible on our future Investor Relation activities. I'm going to pass the call over to Eric before we move on to Joe's financial comments. Eric?

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C. Eric Swank, Beacon Roofing Supply, Inc. - COO [3]

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Thank you, Paul. As mentioned, I've been with Beacon since 2004, and participated in the company's growth from $600 million in sales to what is now a $7 billion company. The past several years, I've been at the forefront of some of Beacon's most exciting growth initiatives, including our digital platform. I see a company that has unique ability to lead this industry because of our size, innovative spirit, corporate culture, and vision. Through small and large acquisitions, we create a powerful platform. But it is our differentiation, innovation and dedication to customer service that will spur significant outperformance in the future. I'm very excited to have this new opportunity. I look forward to working with all of you in the investment community. Joe, now I'll pass the call over to you to finish our quarterly review and guidance update.

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Joseph M. Nowicki, Beacon Roofing Supply, Inc. - Executive VP & CFO [4]

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Thanks, Eric, and congratulations again. Good afternoon, everyone. I'll now provide additional detail on our first quarter and an update on our 2019 guidance. But first just to hit the highlights. I am very pleased to say that we have exceeded both our internal and Street estimates for sales, adjusted EPS and adjusted EBITDA. We did what we said we would do and more. First quarter adjusted EPS was $0.60, which is $0.05 over our estimates and the Street estimates. Adjusted EBITDA was a record at $121.7 million, representing more than a 40% year-to-year increase. First quarter revenues increased 53%. Organic daily sales declined 3.5%, which reflects 1 additional selling day during the quarter. Total and organic sales were both above our expectations as well as being meaningfully above the Street consensus.

Overall, pricing was up approximately 7 percentage points with gains across all 3 product categories. The price increases reflect the previously discussed inflation occurring during the spring and summer 2018. There were no new price increases implemented. It is great to see that the industry pricing remained seasonally firm during the early winter months. Now moving on to gross margins. First quarter gross margins increased a strong 130 basis points year-to-year from 24% to 25.3%. Overall, gross margins benefited by approximately 110 basis points due to the favorable margin profile of our acquired businesses, as well as synergy contributions related to Allied. Our existing market gross margins improved 20 basis points as price-cost was again positive. This marks the third consecutive quarter of price -- positive price-cost impact, another strong achievement. Our strategic initiatives around product procurement, customer pricing and private-label expansion are all paying significant collective dividends to our gross margin performance, and they have only just begun. Adjusted operating expenses were $336.4 million, which was within a couple of million dollars of our internal projections. This represented 19.5% of sales and was in line with our normal sequential patterns as a percentage of sales. If you look back over the last couple of years, you will see the same trend in rate of change. So again, no big surprises in the OpEx line this quarter, but still something we're continuing to work hard on improving. Cost improvement has always been a part of our culture. With regard to synergies, we remain on track for our full run rate target of $120 million, and our fiscal 2019 objective of $100 million. As Paul outlined, all of our integration efforts are progressing as expected. Before I move onto an update of our 2019 guidance, I want to spend a few minutes providing some additional color on our balance sheets. Our debt balance rose to $3.1 billion, primarily as a result of a 338(h)(10) election tax election as part of the Allied acquisition, coupled with the timing of AP payments. As you may recall from our prior discussions, we were able to structure the Allied transaction in a way that would allow us to benefit from a greater amount of tax savings. This election cost us $164 million in Q1 but will provide almost $400 million in future tax benefits.

We remain committed to lowering our debt and reaching a 3.0x target for net debt leverage. Lastly, I want to speak briefly on our 2019 guidance. At this early stage of the year, we believe it's appropriate to keep our sales, adjusted EBITDA and adjusted EPS outlooks unchanged. We are off to a great start to the year with Q1 results exceeding our Street estimates and our forecast by $0.05, and January sales seeing solid positive organic growth. Our industry is very healthy and our strategy is on target. We certainly have a bright future ahead of us. I'll now turn the call back to Paul before we open up the line for your questions.

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Paul M. Isabella, Beacon Roofing Supply, Inc. - CEO, President & Director [5]

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Thanks, Joe. And to reiterate, we are extremely excited about the great results to begin fiscal 2019. And as Joe said, we're comfortable in our outlook for the remainder of the year. And as always, we will update our view each quarter. Organic growth programs, including digital, are performing very well. We remain committed to expanding EBITDA margins this year and beyond through continued price-cost execution and leverage of operating cost. As I've said many times in the past, we're in a great industry with many solid fundamentals, such as the high R&R content, which is in the 70% to 75% range for us. I'm bullish about our future of growth, expanding margins and a strong balance sheet. With that, I'd like to turn the call back to the operator and initiate the Q&A portion of the call. Thanks.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Matt McCall of Seaport Global.

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Matthew Schon McCall, Seaport Global Securities LLC, Research Division - MD and Furnishings & Senior Analyst [2]

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So maybe, a little bit more insight into the SG&A outlook specifically as we move through '19, and I want to kind to tie this into the op margin expectations. I think our published model has some year-over-year margin expansion returning next quarter on the operating lines. So just wondering, what's assumed in the unchanged guidance on either of the -- either or both the SG&A and op margin lines?

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Joseph M. Nowicki, Beacon Roofing Supply, Inc. - Executive VP & CFO [3]

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Yes, Matt, we don't actually give guidance at the level of margins or operating expenses to that level. We really focus on the EPS and also on the adjusted EBITDA range to it. What I will say on the operating expenses for the current quarter, we are in line with where we had expected to be both from an existing market perspective but also, even more important, from a total operating expense perspective as well too. We're seeing -- when you do the math on our total operating expenses, adjusted, we're seeing that the synergies that we talk about are showing in the numbers, is providing the benefit that we had hoped to, and we think that will continue.

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Matthew Schon McCall, Seaport Global Securities LLC, Research Division - MD and Furnishings & Senior Analyst [4]

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Okay, okay, all right. What about free cash flow? Expectations for this year? And then, I'd like to hear some updated thoughts on the leverage target and the EBITDA guidance didn't change. The outlook for '19 didn't change. Did anything change from a deleveraging perspective?

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Joseph M. Nowicki, Beacon Roofing Supply, Inc. - Executive VP & CFO [5]

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Yes, so from a long-term strategic perspective, Matt, nothing's changed from a debt leverage perspective. Our intention is still to get to the 3.0x point. So that element of it has not changed for us. And as we've said, that's all a function really of one, our continued paying down of debt as we will, combined with our EBITDA generation piece, right. And both of those 2 on track, that will affect the timing of how we quickly, we get down to the 3.0x, that's still the path that we're on. Free cash flow, I think which is to confirm the same numbers that we had mentioned last time. As we said last quarter, we gave our guidance for the full year, and we talked about the free cash flow number in the range of $200 million to $300 million for the full year based on the guidance that we gave that's built into the numbers outlined. Hope that helps.

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Operator [6]

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Our next question comes from Trey Grooms of Stephens Inc.

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Trey Grooms, Stephens Inc., Research Division - MD [7]

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So sales were very strong, better than you were expecting. If -- was there anything specific you could point to, any geographic region that outperformed. So if you could just talk to where you may have seen that better-than-expected volume?

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Paul M. Isabella, Beacon Roofing Supply, Inc. - CEO, President & Director [8]

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Yes, I mean, I'll just comment on that without getting into an awful lot of detail. I mean, it really follow what we had talked about very closely, to some extent, on the fourth quarter call, right, that the East side of the country saw reasonably good volume, and the West -- our Western regions had that same challenge that they had throughout the year and were down. So I mean, we actually saw some good organic growth in our non-Western divisions, which is very encouraging, right, as we went through the quarter. But it couldn't overcome the deficit that the West created.

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Trey Grooms, Stephens Inc., Research Division - MD [9]

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Got it. And on my follow-up, so there's several -- the manufacturers on residential side are out with price increases for coming March, April time frame. How are you guys thinking about price action internally, timing and just kind of the outlook as we go through the year? I think I know the answer to this, but just kind of the outlook as we look through the year on price-cost, given that we -- there are a few announcements out there currently for that March, April time frame?

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Paul M. Isabella, Beacon Roofing Supply, Inc. - CEO, President & Director [10]

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Yes, we know that. And as we've said at this time of the year in the past, it's really too early for us to tell. We'll continue to watch it, we continue to watch how that might impact the markets, will it be accepted? And then we'll react from there. As you know for 2019, we had said that we would not see any new price. We said that on the last earnings call, which implied that we would just run through the increases that we saw and then they eventually would lap and go through the balance of the year. So we feel we're -- we feel comfortable right now, right, because we're pretty good at gauging the market. And then we'll make our judgment as we go through these next 2 months as to what we're going to do in terms of us announcing, et cetera.

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Operator [11]

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Our next question comes from the line of Trey Morrish of Evercore ISI.

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James A. Morrish, Evercore ISI Institutional Equities, Research Division - Analyst [12]

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So the first question I want to get on is also talking about a little bit of pricing but taking a different angle on it. So you've definitely shown the ability to get price in an inflationary environment, and you just talked about how in 2019, you don't really anticipate pricing sticking. But given the industry's history of existing within price deflation for the last several years, excluding last year, could you talk about the potential challenges that you -- if this turns into a deflationary environment, how you would think about holding where your price is at?

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Paul M. Isabella, Beacon Roofing Supply, Inc. - CEO, President & Director [13]

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Yes, well, first, we didn't say that prices wouldn't stick. We said every year, the manufacturers typically announce at this time. We do our analysis of the market and then we react from there. Last year we reacted, and we reacted multiple times, and we did quite well. And from a deflationary standpoint, we have also -- if you look in the past, when there is heavy deflation, right, as economy-based, I think we did quite well at controlling pricing, vis-à-vis COGS input cost as we went through the year. So of course, we cannot predict what's going to happen this year at all, just as you can't, but we'll react to it. We believe because of our size, because of our sophistication that we'll -- in either scenario, we'll do quite well because our team reacts very well to either one of those. And we've proven that through time.

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James A. Morrish, Evercore ISI Institutional Equities, Research Division - Analyst [14]

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All right. And then turning to your revenues generated from Allied and from other acquisitions. Last quarter, you were kind of talking about that being a $600 million number in the quarter but that clearly was end up being more north at $700 million. Could you talk about if there's anything in excess of what happened in the larger environment that was stronger at those Allied or the Allied, Beacon combined branches relative to what you saw in your legacy branches?

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Joseph M. Nowicki, Beacon Roofing Supply, Inc. - Executive VP & CFO [15]

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So I'll just give a general overview, and then I'll let Paul kind of comment some as well too. First, just -- yes, the sales number for the acquired, roughly that $700 million, $713 million for the quarter. One of the things that makes the challenges when we do combined branches, so when we will combine some branches together, so part of our synergies was taken 2 branches that were close to each other combined. When we combined them, we move all of those combined revenues into the acquired buckets, so we start to call them acquired. So even if there was a Beacon branch that previously was existing, we roll it into the acquired number. We do that because we want our existing to really be an apples-to-apples comparison for you, right. We didn't want -- we wouldn't want to have it be artificially inflated. So some of what you see with the number growing is some of those combined branches in there. Overall, I don't think the results of operations from our acquired company in Allied really were any different than the operations on the Beacon side of business. Paul?

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Paul M. Isabella, Beacon Roofing Supply, Inc. - CEO, President & Director [16]

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No, I think, very consistent as we look at them. And again, as you know now, we're in the lapping period, right. So we're all one big Beacon because Allied has been with us after that quarter for a year. And there's no doubt as we've talked about it at the Investor Day, as we launch RSA, which is all the great -- productivity we're driving within these big markets, dense markets, there is movement between branches in terms of where products to ship from, right. So that's going to change some of this. So -- and really, what I'm saying is, it doesn't matter now. I mean, we have branches that are all Beacon, and we're moving forward in that fashion and each one is measured by themselves.

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Operator [17]

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Our next question comes from Michael Eisen of RBC Capital Markets.

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Michael Benjamin Eisen, RBC Capital Markets, LLC, Research Division - Senior Associate [18]

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Just wanted to start off in looking at some of the industry data and what we're seeing on the ground. It looks like there was a lot of shipments out from the OEMs. And looking at the inventory levels that you guys post today, that seems a little high too. Can you talk a little bit about what you're seeing in the channel? And what inventory builds looks like if there's anything to take note of there?

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Paul M. Isabella, Beacon Roofing Supply, Inc. - CEO, President & Director [19]

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Yes, there isn't. Our inventory is actually -- when you look at it, it's in great shape. Sequentially, in past years, we've seen a slight build from Q4 to Q1, that's natural. I'm not going to comment too much on Irma other than as you would expect. With Irma, there was product that we shipped in to storm regions, East Coast mainly, because of the hurricane. And then in the areas that are, we've seen some challenges with, there were less shipments sent. So the correlation, again, between Irma and sales is pretty wide, and we just don't like using that. From a channel perspective, I really don't have too much intelligence other than our own inventory. And as I said, we're in actually a great position with that level as we go into -- through this quarter and as we go into the spring. So nothing unusual has happened with us.

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Michael Benjamin Eisen, RBC Capital Markets, LLC, Research Division - Senior Associate [20]

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Got it, that's really helpful. And then if I can follow up with a little clarity on a couple of points you guys made in the prepared remarks. First, on the January organic growth, you mentioned 5% to 6% across the portfolio. You also talked about, in the fourth quarter, pricing of 7% across the portfolio. Can you give a little granularity across the different segments how -- is it the same everywhere or some segments outperforming others?

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Paul M. Isabella, Beacon Roofing Supply, Inc. - CEO, President & Director [21]

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Yes, we're not -- we won't comment on that level of detail as we haven't in the past for the first months. We do have that total number. We're very pleased with it and from a pricing perspective, going into January, we wouldn't comment other than as you can imagine, it's going to be very similar to what we saw as an exit rate for our Q1, right. So when you look overall, it's healthy for us. It's a change from the fourth quarter organic growth price and then -- but again, it's January, but it's positive for us, and we're happy about it.

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Operator [22]

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Our next question comes from Garik Shmois of Longbow Research.

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Jeffrey Stevenson, Longbow Research LLC - Research Analyst [23]

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This is Jeff Stevenson on for Garik. My first question is on the rate of gross margin, it's as documented well ahead of expectations due to digital, private label and other things mentioned in the prepared remarks, but just wanted if you could comment on how sustainable you think that is throughout the year?

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Joseph M. Nowicki, Beacon Roofing Supply, Inc. - Executive VP & CFO [24]

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Yes. This is Joe. So we feel really good about the gross margin rate that we saw in the quarter, and for all the reasons that you mentioned, right. Everything that we've done through our procurement teams, through the synergies, through the Allied acquisition, not to mention the elements around digital and private label, and all of those will be continuously go through. We feel pretty good about our ability to continue to sustain our gross margins through the rest of the year. It's very positive.

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Paul M. Isabella, Beacon Roofing Supply, Inc. - CEO, President & Director [25]

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Yes, and as we've said in the past, we don't give -- we're not going to give quarterly guidance on gross margin but there is no doubt. We're seeing a nice benefit from the Allied acquisition, which we've talked out for sure, and our continued improvement from a process standpoint on pricing, et cetera. So we believe we're in a good position when it comes to gross margins as we go forward, and we're going to continue to focus very, very hard on it.

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Joseph M. Nowicki, Beacon Roofing Supply, Inc. - Executive VP & CFO [26]

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As always, there is seasonality in our gross margins that impacted by quarter. Traditionally, you'll see that gross margins in -- if you look historically over our numbers, you'll see the gross margins in the second quarter, the one we're in right now, usually be a little bit lower. So I suspect you'll see seasonality, but sustainability for the long term? Absolutely.

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Jeffrey Stevenson, Longbow Research LLC - Research Analyst [27]

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Okay. Great. And now shifting to the interiors business. Just wondering from what you're seeing, is there any change in market outlook, giving deceleration concerns on the housing side?

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Paul M. Isabella, Beacon Roofing Supply, Inc. - CEO, President & Director [28]

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Yes, we -- again, in terms of specific to our interior business, we haven't give public comments. I can say that, of course, we watch economic indicators. At this point, I don't have any concerns I mean, we have a very solid business. We like the interior business, and I'll just leave it at that. We're performing very well.

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Operator [29]

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Our next question comes from the line of Kathryn Thompson of Thompson Research.

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Kathryn Ingram Thompson, Thompson Research Group, LLC - Founding Partner, CEO and Director of Research [30]

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This is really for both interior and exterior products. Could you quantify or add some color on the weather impact in the quarter? And also, just as a follow on to that, what if any impact you saw in January with polar vortex because if you're growing kind of that 5% to 7% even with that impact that would imply a better growth rate. So really just helping us understand that impacts for the quarter reported and for January?

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Paul M. Isabella, Beacon Roofing Supply, Inc. - CEO, President & Director [31]

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Yes, in terms of the weather, I'm not going to sit here and pick through the quarter. There's no doubt rain did not help us during pieces of the quarter. I mean, I won't -- I'm not going to quantify the impact, right, we talk a lot about weather. And there is no doubt in January, a little bit -- I think in that cold weather, we saw kind of evened out the month from a weather perspective. Interior is, obviously, less impacted by that, which means, as we've said in the past, it's very consistent from a, as a percent of sales shift per quarter, which is very positive for us.

I think I'd leave it at that without going blow by blow by month. I mean, you can go, look to that rain data, and there was a lot in the quarter, but there was also some decent weather here and there that we're able to drive sales with.

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Joseph M. Nowicki, Beacon Roofing Supply, Inc. - Executive VP & CFO [32]

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As we've said the last quarter, we tried to get away from too much trying to be the weather person on these calls and only really trying to address when there's major events. So I guess, to Paul's comments, nothing major to report there really, Kathryn.

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Kathryn Ingram Thompson, Thompson Research Group, LLC - Founding Partner, CEO and Director of Research [33]

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Yes, no, really the spirit of the question is, just the applied growth -- growth rate would actually be better ex some onetimes. And just to clarify, on a earlier question in terms of your bogey for the delevering in 2019. I believe you had said that you had wish to take it out about another onetime turn into '19? Is that accurate or is it more of 0.5 turns? Just really wanted to get that for a clarification purposes?

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Joseph M. Nowicki, Beacon Roofing Supply, Inc. - Executive VP & CFO [34]

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No, what we initially said a year ago during the Allied transactions was that we would try to get to some around 0.5 turn a year with our initial kind of goal. But really, as we've said, it was trying to get -- 3.0 is the point, that's exactly what we're trying to get to. It's just a matter of the timing, is it -- and that's really just dependent on a lot of the EBITDA and the sales generation piece too, right. Those are the 2 big elements that play into. We can get there quicker. We can get there slightly slower but it all depends on the EBITDA generation element to it. Clearly, we're on the path to continue to pay down the debt. We demonstrated that last quarter when we did that as well too. So you'll see that continue. Nothing's changed in our outlook that way, Kathryn. Still heading towards getting it to 3, the specific timing by year will really depend on that sales EBITDA flow.

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Operator [35]

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Our next question comes from Keith Hughes of SunTrust.

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Keith Brian Hughes, SunTrust Robinson Humphrey, Inc., Research Division - MD [36]

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Question on margin, the guidance implies mid point about 8% EBITDA margin, and you were off year-over-year in this quarter. With the synergy rolling in, do you think you'll get on the positive side of margins year-over-year starting in the second, or is it going to be in the seasonally stronger second half?

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Joseph M. Nowicki, Beacon Roofing Supply, Inc. - Executive VP & CFO [37]

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Usually, it's the seasonally stronger second half, when you'll see the margins get on the upside of that. As you know, this quarter that we're in is usually the most challenging one because of the lower revenue piece to it. So...

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Keith Brian Hughes, SunTrust Robinson Humphrey, Inc., Research Division - MD [38]

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Even on a year-over-year basis, you still think you'll be up, year-over-year?

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Joseph M. Nowicki, Beacon Roofing Supply, Inc. - Executive VP & CFO [39]

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Well, yes, if you look at the each of the quarter, second, third and the fourth quarter, should probably be up each, correct.

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Keith Brian Hughes, SunTrust Robinson Humphrey, Inc., Research Division - MD [40]

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Okay. And quick question on demand. The -- with 7% or so pricing, units were down pretty meaningfully in the fourth. Looks like it's gotten somewhat better here in the first. With the unit decline primarily roofing-driven or did you see it in all of the segments?

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Paul M. Isabella, Beacon Roofing Supply, Inc. - CEO, President & Director [41]

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Well, for the quarter, in all segments, but as we've talked about in the past, roofing takes the more brunt of that because of the weather impact and what happened in the West.

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Keith Brian Hughes, SunTrust Robinson Humphrey, Inc., Research Division - MD [42]

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Okay. I assume if the pricing stays where it is right now while it contribute another 6, 7 points in the first -- excuse me, in the second quarter as well?

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Paul M. Isabella, Beacon Roofing Supply, Inc. - CEO, President & Director [43]

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Yes, we haven't -- Keith, we haven't given that pricing guidance by quarter. We did, as I said earlier, we just talked about the fact that it's going to run itself out through the year with no incremental price. So all you really have to do is go back quarter by quarter and look at the lapping and that change that's going to occur once we start hitting those positive comps that occurred really in Q3 and Q4.

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Joseph M. Nowicki, Beacon Roofing Supply, Inc. - Executive VP & CFO [44]

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At Q4 and then will get back to 0. So just takes it from there.

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Operator [45]

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Our next question comes from the line of Michael Rehaut of JPMorgan.

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Elad Elie Hillman, JP Morgan Chase & Co, Research Division - Analyst [46]

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This is Elad on for Mike. I just wanted to follow up little bit on that. Did I hear -- did you say -- did you mention that volume came in a little bit flat towards the end of the quarter? And maybe if you could just comment a little bit on the monthly trends throughout the quarter. I saw on the press and I think stabilizing organic net sales trends, so I was just wondering how much of that related to volume versus price?

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Joseph M. Nowicki, Beacon Roofing Supply, Inc. - Executive VP & CFO [47]

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On your first question regards to comment on the demand during the quarter, no, we didn't say anything about demand kind of decreasing to the quarter. But the comments you heard from Paul was, obviously, in January, we saw our year-over-year get better as we said that positive kind of 5% to 6% growth number or so. I think of it the opposite. So we didn't at all talk about it declining anyway, and there was a second question in there that I missed? Sorry, could you repeat the second question?

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Elad Elie Hillman, JP Morgan Chase & Co, Research Division - Analyst [48]

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I was more talking about the monthly trends of the quarter and then how much of the January 5% to 6% organic growth related to volume?

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Joseph M. Nowicki, Beacon Roofing Supply, Inc. - Executive VP & CFO [49]

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Yes, the second question that was about that January. And I think, Paul mentioned that before, we really don't give the price elements on a monthly basis, especially not at this point.

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Elad Elie Hillman, JP Morgan Chase & Co, Research Division - Analyst [50]

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Okay. And one more thing I want to check up on or follow up on was at the Investor Day, once again, you mentioned, you completed about 12 RSAs and were in process of creating 3 additional RSAs. I was just wondering where you're holding out with the rollout and how that's progressing?

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Paul M. Isabella, Beacon Roofing Supply, Inc. - CEO, President & Director [51]

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Yes, without getting into specific details it's going quite well, as we talked about on the Investor Day, we're starting to see benefits, we really haven't talked about those benefits, but they will increase as we go through time and we do view it, as I said, at Investor Day, said it on the prepared remarks, we view it as a good differentiator for us and most importantly, a big help to our customer base. So it's going quite well.

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Operator [52]

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Our next question comes from David Manthey of Baird .

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David John Manthey, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [53]

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So last quarter, I think that back in fourth quarter, you told us that you had a $25 million in synergy cost savings. What was that number in the first quarter? And what is your expectation for the second quarter, just to give us an idea of how the OpEx should walk?

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Joseph M. Nowicki, Beacon Roofing Supply, Inc. - Executive VP & CFO [54]

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For the full year, we're expecting that $100 million-ish kind of target to it. And in terms of by the quarterly spread, we really haven't given it too much by quarter. You may see a little more in the first quarter when it was a little bit higher. So if you just take the $100 million that's a $25 million a quarter. First quarter was a little bit higher because you have all those procurement savings that would kind of roll into it, and then they kind of go away after it in the second, third and fourth. But besides that, the remaining quarters would be pretty level.

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David John Manthey, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [55]

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Okay. And historically, looking at those trends, 2Q was typically been plus or minus a few million dollars sequentially from 1Q. Any factors other than what you just talked about their Joe, that we should think about as it relates to that OpEx walk from the first quarter to the second fiscal quarter?

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Joseph M. Nowicki, Beacon Roofing Supply, Inc. - Executive VP & CFO [56]

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That's a good question, Dave. Nothing comes to mind for me that I think would impact the traditional trend we see from quarter to quarter on the OpEx piece to it. So no, I don't think there should be anything. Synergies, of course, as we just kind of describe, affect the total, but beside that, no, I don't think there's anything else unusual that I'd expect.

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Operator [57]

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Our next question comes from the line of Phil Ng of Jefferies.

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Philip H. Ng, Jefferies LLC, Research Division - Equity Analyst [58]

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Your commercial business has been a little weaker the last few quarters. Just curious, what's driving some of the softer trends? And how you're thinking about growth in that market? Some of the new Dodge momentum index actually has softened a touch but it is always tough to gauge because it's such a broad-based end markets?

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Paul M. Isabella, Beacon Roofing Supply, Inc. - CEO, President & Director [59]

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Yes, I'm sorry, it was difficult to hear, you're talking about commercial market?

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Philip H. Ng, Jefferies LLC, Research Division - Equity Analyst [60]

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Yes, it's the commercial business, seem to be a little weaker the last few quarters. Just curious what's driving the weakness?

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Paul M. Isabella, Beacon Roofing Supply, Inc. - CEO, President & Director [61]

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Yes, no, I think -- one, we have a very large commercial business, we're very intent and very focused on growing it and I think -- but there, just based on a lot of factors, there's going to be variation from quarter to quarter. It's not going to necessarily match what, Carlisle, for instance, might announce just because of the geographies that they're in and that we're in. But we know over time, and more than a quarter, we're going to continue to grow that business effectively.

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Philip H. Ng, Jefferies LLC, Research Division - Equity Analyst [62]

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Okay. There wasn't any like weather-related issues or anything like that?

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Paul M. Isabella, Beacon Roofing Supply, Inc. - CEO, President & Director [63]

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Well, again, if we got into the regional piece and broke it out. I mean, it does follow suit with what we've talked about in general. What I mentioned earlier, East Coast is relatively strong, West of the country and Mississippi West, not so strong, they sell a lot of commercial so that's part of it, right, as we go through, and it's not a surprise, not unusual for us, and that's just how we lay out geographically, which is a huge benefit for us because of our density and positioning in these markets. So we estimate that we're going to continue focus on it, and it will grow.

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Philip H. Ng, Jefferies LLC, Research Division - Equity Analyst [64]

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Got it, that's really helpful. In your interior business, both the wallboard and tailing manufacturers have increases out there, early in the year. If I heard you correctly, you guys aren't really planning to raise prices at this juncture for any of your businesses. So is your view that it's not going to see much freighting or you're expecting some modest price-cost squeeze?

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Paul M. Isabella, Beacon Roofing Supply, Inc. - CEO, President & Director [65]

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No, no. I mean, my comment was only geared towards saying, when we see a price increase or we get news of potential price increase, we don't immediately knee-jerk, I mean, we sit and evaluate what the markets are doing, what the markets are saying, where we're positioned or the manufacturers are positioned, and then we react. And as I said last year, we reacted appropriately by raising price multiple times and you can see it in our results, now 3 quarters in a row, positive price-cost. Obviously, that will bleed through this year. So no, it's -- we're at a position as we have been really for years at this point in the year to just evaluate what the markets look like and then from there we react.

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Operator [66]

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That concludes the questions. Now I'd like to turn the call back over to Mr. Isabella for his closing comments.

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Paul M. Isabella, Beacon Roofing Supply, Inc. - CEO, President & Director [67]

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Great, thank you. Thanks for your participation in today's call. As always, we appreciate the continued support from the analyst and investment community. And as always, we offer a special thanks to our valued customers, supplier partners and our employees. Have a good rest of the evening. Thank you.

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Operator [68]

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Ladies and gentlemen, that concludes the program. You may disconnect your lines at this time, have a wonderful day.