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True to its name, the building products company creates materials for roofing as well as other building products in every state in the U.S.

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A seller of residential and non-residential roofing products, Beacon grew net sales by 10.7% in 2019.

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This year's Fortune 500 marks the 61st running of the list. Wal-Mart claims the top spot again. See who made the list.

Wal-Mart stayed on top as its sales crept closer to half-a-trillion dollars. Apple moved into the top five. And UnitedHealth Group continued its steady climb. 

Key Financials (last Fiscal Year)

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Beacon Roofing Supply distributes roofing and other building products to professional contractors, homebuilders, building owners, lumberyards, and retailers in the U.S. and Canada. It offers roofing materials and provides siding, decking, windows, skylights, gutters, drywall, and tools as well as safety gear to support construction and renovation projects.

Q4 2024

Q3 2024

QXO Building Products Company Profile, Stock Price, News, Rankings

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QXO Building Products

qxo building products

Good morning, ladies and gentlemen, and welcome to the Beacon Third Quarter 2024 Earnings Call. My name is Ezra, and I will be your coordinator for today. At this time, all participants are in 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.

As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the call over to Mr. Beni Sangavi, Vice President, Capital Markets and Treasurer. Please proceed, Mr. Zangavi.

Thank you, Ezra. Good morning, 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 Chris Gandhi, Deacon's Chief Financial Officer. Julian and Chris 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'll open the call for questions.

Before we begin, please reference Slide 2 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, including, but not limited to, those set forth in the Risk Factors section of the company's 2023 Form 10 ks. 2nd, the forward looking statements contained in this call are based on information as of today, October 31, 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 of 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 opening remarks from Julian.

Thanks, Bennett, and good morning, everyone. Let's begin on Slide 4. Beacon's 3rd quarter results continue to demonstrate the resilience of our industry and this team's execution on our ambition 2025 plan. We have multiple paths to top line growth and margin expansion and continue to deliver record numbers for the company. Our end markets are underpinned by the repair and replacement cycle of exterior weatherproofing products on residential housing and commercial buildings.

The majority of this demand is non discretionary. And while core demand remains good, the overall level of activity came in lower than we anticipated in the Q3. Nevertheless, the Beacon team has delivered by continuing to focus on our strategic plan and areas within our control. In the Q3, we grew daily sales by nearly 6% year over year, driven primarily by our acquisitions. Our gross margin came in at 26.3 percent above our prior guidance through our team's disciplined margin management.

Notably, we were price cost positive across all three lines of business. We stayed focused on cost management and continuous improvement. During the quarter, we took action to lower operating expenses and align cost with market conditions. As a result, we achieved record top line and strong bottom line performance, including a record for quarterly adjusted EBITDA. We continue to use our cash flow and balance sheet capacity to reinvest in organic growth, conduct M and A and return capital to shareholders.

We have acquired 7 companies since the end of the Q2. I'd like to highlight the addition of Passaic Madeline Building Supplies. Headquartered in Clifton, New Jersey, Passaic adds strength to our commercial solutions footprint with 8 branches in New Jersey and 1 in New York. For more than 100 years, the Goodman family has built a reputation for providing commercial contractors in the region the most professional service and technical support. This acquisition significantly strengthens our position in commercial roofing and related businesses in the state.

Our ambition 2025 plan is entirely about unlocking the potential of Beacon. And I can confidently say today, we are well on our way to achieving that goal. Now please turn to Page 5. As most of you know, we laid out our targets at Investor Day to drive above market growth, deliver consistent double digit adjusted EBITDA margins, build a great organization and generate superior shareholder returns. A relentless focus on our customers is central to how we operate and for achieving those goals.

Our team works every day to deliver a great customer experience. Let me provide you with an update on our strategic initiatives, starting with a few ways that we are building a winning culture. 1 of our community support pillars is empowering people to build skills and achieve their goals. In the past few quarters, we have donated funds and expertise to the Roofing Industry Center at Clemson University. The center's top goal is attracting and training professionals in the industry.

I'm pleased to say that online courses are already available to anyone considering a career in roofing and a number of our own employees have advanced their skills by completing the 8 week course. Further in September, our team announced that Beacon has officially partnered with the U. S. Army's Partnership For Your Success or PACE program. This exciting new collaboration highlights our unwavering commitment to supporting veterans by providing them with rewarding career opportunities across our nationwide footprint.

The PACE program connects soldiers with top employers, ensuring that they have a clear path to civilian careers after their military service. As a PACE partner, Beacon guarantees soldiers an interview that allows them to showcase their skills, discipline and leadership in addition to learning about career opportunities. And for those of you who've listened to our calls in the past, you may recall that we established Beacon Cares 4 years ago. Beacon Cares is an employee crisis relief support fund that provides grants to employees coping with unexpected financial hardships resulting from natural disasters or other personal situations. 100 of our team members live and work in the path of the recent storms.

And during the quarter, the Beacon team made donations totaling $100,000 to the fund. I'm thankful that all of our employees are safe and that we have a program in Beacon Cares to ease some of their hardship. Our second pillar is driving above market growth and enhancing margins through a set of targeted initiatives. Our Greenfield team continues to execute on our pipeline of new locations and we have opened 17 branches year to date. Each time we open a new location, we add sales resources and reduce the average distance and time it takes us to reach our customers.

This enhances our overall value proposition, giving us the opportunity to earn market share. We have now opened 62 new branches since the beginning of 2022, well ahead of our original ambition 2025 goal of 40 total. Turning to acquisitions. We discussed our recent purchase of POSEIC earlier. We also highlighted the acquisition of Rufusmart, Extreme Metal and Integrity Metals on our call in August.

We completed 3 other acquisitions since the end of the Q2, including SSR in Canada, Chicago, Metallic Supply and Ryan Building Products in Massachusetts. Collectively, these acquisitions add to our commercial footprint and enhance our customer solutions. 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 24 companies adding 83 branches, which together are generating around $1,000,000,000 in annual revenue. In the Q3, we grew digital sales approximately 28% year over year.

Digital sales to our residential customers were once again a highlight as we achieved our highest quarterly adoption ever at more than 28%. Our online capability continues to be a clear competitive advantage for Beacon and sales through our digital platform increased customer loyalty, generate larger basket ciders and enhanced margin by roughly 150 basis points when compared with offline channels. And in September, we announced the launch of Beacon Pro Plus in Canada. Now our customers there can enjoy our robust, no cost digital tool that is used by thousands of U. S.

Roofing contractors to manage their business and sales process anywhere at any time. Many of you know that our private label line of products sold under the TriVolt brand delivers professional results for customers at a competitive price and yields between 502,000 basis points of additional margin versus branded alternatives. I'm pleased to report that TriBuild ISO, our newest addition to our expanding private label line launched in the 2nd quarter is off to a great start and helped drive private label sales higher by 12% year on year. As customers have come to rely on private products available exclusively through Beacon and we will continue to support them through our extensive and growing catalog of product offering. 3rd, and as we have discussed for several quarters, we are enhancing productivity, capacity and safety through our continuous improvement and operational excellence initiatives.

Our focus on the bottom quintile branches has generated meaningful contributions to EBITDA and this year is no difference. Our disciplined process for diagnosing and addressing issues has been core to our operational improvement in the last 4 years. I'm pleased to report that the process contributed approximately $9,000,000 of EBITDA year over year in the Q3. And as you may recall from our Q1 call, we held our annual company wide safety stand down in which all of our branches and employees paused and recommitted to making every day safer. This year, we put a spotlight on newer employees who are at greater risk of injuries through strains and sprains.

And I'm pleased to report that our focus has already resulted in tangible improvements. We are well on our way to achieving our goal of reducing the strains and sprains by 50% this year. 4th, let's review, we are creating shareholder value. As previously announced, during the Q2, we entered into an additional accelerated share repurchase program in the amount of $225,000,000 The share buyback program demonstrates both our commitment to delivering value to shareholders and our confidence in the ambition 2025 plan. Since the start of ambition 2025, we have deployed more than $1,500,000,000 to share buybacks, reducing the as converted share count by approximately 23%.

In summary, we have a differentiated service model and have built the tools to enable multiple paths to growth, margin expansion and value creation through the cycle. Our Envision 2025 plan has seamlessly stitched it altogether into an operating model to amplify the resiliency of our business model and unlock our potential. Now I'll pass the call over to Chris to provide a deeper focus on our Q3 results.

Thanks, Julian, and good morning, everyone. Turning to Slide 7, we achieved nearly $2,800,000,000 in total net sales in the 3rd quarter, up more than 7%, primarily driven by the impact of acquisitions. Adjusting for the one additional day in the Q3 of this year, net sales increased by almost 6%. Higher average selling prices also contributed to the annual growth in sales. Organic volumes, including those from greenfields, decreased approximately 1% to 2% per day, while overall price contributed 1% to 2%.

Acquisitions completed within the last 12 months are performing well and contributed a little more than 5.5% in total sales year over year. Residential roofing sales per day were higher by less than 1% as higher prices resulting from our diligent execution of the August price increase contributed low single digits percent year over year. Acquisitions also offset lower organic volumes versus a high single comparable in the prior year period. While our residential volumes were down in the quarter, we estimate that our volumes were in line with the overall market. Non residential sales per day increased by nearly 8% based on strong R and R activity and the solid market execution by our team.

Prices remained stable on a sequential basis and declined in the low single digits year over year. Bidding and quoting remain at healthy levels. We also continue to see a shift from new construction to repair and reroofing activity in the Q3. Complementary sales per day increased by more than 15% driven by acquisitions. We have acquired 20 new waterproofing branches in the last four quarters, significantly expanding our specialty waterproofing products division.

Selling prices in complementary were flat year over year. Please keep in mind that our complementary product category now has approximately 70% residential and 30% non residential exposure. Turning to Slide 8, we'll review gross margin and operating expense. Gross margin was 26.3% in the 3rd quarter, up 30 basis points year over year and higher than our forecast. It is worth noting that this is the 4th consecutive 3rd quarter gross margin of 26% or higher.

As Julian highlighted, this was driven by higher price cost across all three lines of business. In total, price cost was up approximately 50 basis points year over year as higher average selling prices were partially offset by product inflation. In addition, higher sales through our digital channel and growth of our private label products continue to be accretive to Beacon's gross margin. These favorable contributions were partially offset by higher non residential sales and the dilutive impact of M and A we've conducted in the past year that has yet to be fully synergized. Adjusted operating expense was CAD443 1,000,000 an increase of approximately CAD48 1,000,000 compared to the prior year quarter.

Adjusted operating expense as a percentage of sales increased to 16%, up 70 basis points year over year. Expenses associated with acquired and greenfield branches contributed approximately $34,000,000 or about 70% of the increase in adjusted OpEx. Inflationary wages and benefits as well as warehouse operating costs also contributed to the increase in adjusted OpEx. As you may recall, from our Q2 call, we said that we would adjust market conditions and balance operating efficiency and high service levels in the second half of the year. And in the third quarter, we did exactly that by taking action to align our OpEx with the level of activity that we are seeing in our markets.

Restructuring charges associated with the cost actions consisting of one time severance and employee benefit costs were approximately $11,000,000 in the quarter and the full impact of the savings will be only realized in Q4 and beyond. We estimate the annualized impact of these actions to be approximately $45,000,000 in reduced operating expenses. Going forward, we will continue to build on our track record of agility and stand ready to respond to changing market conditions. At the same time, we are focused on investing to drive and support above market growth and margin enhancement as part of Vision 2025. These investments include initiatives related to our sales organization, private label, pricing tools, e commerce technologies and branch optimization.

Turning now to Slide 9. Operating cash flow in the quarter was solid at nearly CAD250 1,000,000 largely attributable to the CAD117 1,000,000 sequential reduction in net inventory. That said, as a result of the recent hurricane activity, we will be balancing conversion of inventory with ensuring we have adequate product availability for our customers in the storm impacted regions of the country. On a year over year basis, inventory was higher by CAD186 1,000,000 driven mostly by inventory from acquired branches and greenfield load ins. Inflation in our product costs also contributed to the increase.

As of the end of the Q3, our net debt leverage at approximately 3.1 times was slightly above our targeted 2 to 3 times range. We continue to expect solid cash generation in the 4th quarter, the majority of which will be used to pay down our seasonal borrowings and bring net debt leverage within our targeted range. More generally, our capital allocation will continue to be balanced between deploying cash in our existing business, executing on the active value creating acquisition pipeline and providing returns to our shareholders in the form of share repurchases. For 2024, we expect to invest approximately CAD125 1,000,000 in capital expenditures to drive organic growth and to upgrade our fleet and facilities in support of our customers and employees. While Julian previously covered the share repurchase program, let me remind you of some additional details that may be helpful.

In the Q2, we entered into a $225,000,000 accelerated share repurchase plan that resulted in the retirement of approximately 1,900,000 shares or $180,000,000 As a result, net of share issuances for stock based compensation, we reduced our common shares outstanding to CAD 61,900,000 on September 30 versus CAD 63,600,000 at March 31. The remaining $45,000,000 equity forward contract is expected to settle in the Q4 of 2024 and result in the estimated repurchase and retirement of approximately 600,000 additional shares based on our stock price as of the end of the quarter. With that, I'll turn the call back to Julian for his closing remarks.

Thanks, Chris, and please reference Page 11 of the slide materials. So before we head to Q and A, I'd like to update you on our outlook for the remainder of the year. As we look forward, we expect the current conditions will continue in the Q4. New housing starts and existing home sales are expected to remain subdued. Commercial sentiment remains favorable and we continue to expect repair and reroof to outpace new construction in this area.

With respect to hurricane demand, let me first say that the communities impacted are in our thoughts and we will continue to support local communities as they recover. In terms of business impact, initial estimates show the volumes required to repair and reconstruct will be approximately 3,000,000 squares or around 2% of annual industry shipments. Keep in mind that these volumes will be spread over the next 6 quarters. In October, we believe we will set a record for monthly sales of more than $1,000,000,000 up 6% year over year on a daily basis. For the Q4, we expect total sales per day growth to be up mid single digits percentage year over year.

Please remember that we will be lapping a record 4th quarter which we saw significant volumes across all three lines of business. We expect gross margin to be in the mid-twenty 5 percent range. For the full year, assuming a normal seasonal slowdown, we now expect adjusted EBITDA in the lower half of our previously communicated guidance. And importantly, as Prith mentioned, we expect to finish the year with significant cash flow. Our focus remains on the areas within our control, including safety, customer experience, operational excellence and pricing execution.

We will continue to deploy capital on initiatives that we expect will result in accelerated growth, including executing on acquisitions and delivering on our greenfield locations, which we expect to be around 20 branches in 2024. Looking forward, we plan to continue making investments in our sales organization and our service model, our digital offering and our private built private brand categories. As we end the year, I'm pleased with the progress this team has made. Over the last 3 years, we have improved our operations, delivered results and invested for the future. We have built capabilities resulting in accelerated performance.

We have demonstrated that our business model is resilient and we can deliver strong results in any market. We're looking forward to a strong finish to the year and helping our customers build more. And with that, Ezra, we'll open it up for questions.

Thank you, Mr. Francis. Our first question comes from Philippe Angie with Jefferies. Philippe, your line is now open. Please go ahead.

Hey guys. Congrats in a solid quarter in a choppy environment. I guess first question and obviously uncomfortable to ask about hurricanes. But from a setup standpoint for you guys, Florida has generally been a little weaker market for you and just the broader industry, lack of storm demand. I'm curious how are you set up from an inventory standpoint to kind of meet that demand?

And just more broadly, the industry is pretty tight from allocation standpoint. So just kind of help us think through what this could mean for you from an uplift standpoint and how this kind of ramps up. You're guiding a mid single digit growth number in the Q4. Are you going

Phil, thanks for the question and for your comments. So let me take a step back and sort of set it up and then touch on what we saw. I mean, we've seen Florida weak all year and we've commented on it pretty much for the whole year. Obviously, this was coming off Hurricane even a couple of years ago. So that was it.

I mean, and coming into Q3, we were sort of expecting a pickup in demand across the entire country from the weather we've seen in Q2, we thought that was going to be more delayed into Q3. So we expected a bigger pickup in Q3 than we actually saw. And we saw additional softening in some markets, including Florida. And that's ultimately why we decided to make the adjustments with our cost structure as well. But as the storms rolled in, I mean, coincidentally, I think we had 3 hurricanes impact to the U.

S. During Q3. The Debbie, Francine and Helene also rolled through in the quarter and obviously that shuts things down as well. Obviously Helene was pretty devastating. And then Milton came through at the start of the Q4 and obviously impacted there.

With so getting back to kind of your original question around the impact that we'll see. So look, Helene looks to us like there's a lot of there was a lot of flooding. Obviously, Western North Carolina was impacted pretty dramatically. There's a lot of infrastructure work that needs to get done with Helene. We don't expect that to have a significant impact on demand this year.

There's just so much rebuilding that has to get done before it really impacts our results. And quite frankly, in the 1st few weeks of the quarter in October, it was difficult. We couldn't get trucks on the road and stuff because of that, because of all the infrastructure damage. So that's going to be a very slow burn. In terms of Milton, obviously, that sort of rolled into impact the majority of Florida.

Again, there was a lot of destruction. What we're seeing and what we experienced with Ian is that it took 2 to 3 months for the demand to really start pick up. We see an immediate impact on sort of so it's necessary tops and stuff that people have to do to sort of remediate immediate problems. But the reconstruction doesn't really start for probably a couple of months. So we would expect to see something in December, but we don't believe we'll see a lot of demand pick up in the region until next year.

And that's why we sort of indicated that it would be sort of 4 to 6 quarters before we really see the full impact come through. So getting back to sort of the product side of things, obviously, the Southeast has been weak all year. The manufacturers have had some availability. We've been managing that very carefully. Obviously, in the Q4 now, we want to make sure that we're getting the product that we need into the markets that need it.

We are also redirecting products from other parts of the country, both from manufacturers and through what we have in other parts into the storm impacted regions. So it will we do believe it will be tight and this will certainly have an impact, but it's impacting the part of the country that was already slow. So we think that in the short term, availability will be okay, but obviously going into 2025, things will continue to be relatively tight. Hopefully, that gives you some color.

That's super helpful. Julien, sorry to sneak one more in. Would your waterproofing business benefit from some of the recovery work or largely on the residential single side of

things? Look, our total business, these work obviously with when you talk about sort of the infrastructure work, the commercial construction, I mean, it's not just about shingles. Obviously, the housing damage is what you see, but windows getting blown out, things needing to get recouped, some of the work that needs to get done on a lot of this business. So yes, we would expect to see it in commercial and in our waterproofing division. We would expect to see a pickup from this impact.

And obviously, with the acquisition of Coastal a couple of years ago, they had a tremendous strength in Florida. So we would expect to see some benefit from that.

Our next question is from Kathryn Thompson with Thompson Research Group. Kathryn, your line is now open. Please go ahead.

Hey, good morning. This is actually Brian Biros on for Catherine. Thanks for taking my question today. On the non res market, can you maybe just touch on how maybe specific verticals are performing and kind of that shift from new to R and R, I think you mentioned in the prepared remarks. You mentioned you're seeing commercial or care demand accelerating or maybe is that from pent up demand or is that storms or it's only in certain verticals.

I guess just how would you characterize the non res market heading into 2025? Thank you.

Yes, absolutely. Thanks for the question. We've touched on this a little bit before, but I'll also rewind a little bit and give you hopefully some of the color you need. During when COVID hit, you had all the supply chain disruptions and the product availability was really challenging. New construction was prioritized over repair and replace because obviously, I mean, there's so much more money tied up in getting that finished into completion.

With the disruptions in the supply chain there and the product availability, the new construction side of things got prioritized. So that got done. So as that all of that eased and we sort of came out of the stocking, destocking and all of the movement in the supply chain that we saw, The new construction started to fade a little bit, but the delayed repair and replace on the commercial side has really started to pick up. And that's been actually particularly strong. You'll remember during, I think it was a sort of 'twenty two time period, there was an explosion in warehouse construction and that is eased a little bit, but it's still a very large portion of the overall industry that's being developed.

Warehouses, data centers, these tend to be low flat buildings, which demand a lot of roofing. And so the shift towards the repair and replace is a little bit of a product mix shift for us, a little less insulation relative to new construction. But overall, we've seen that be probably held up a little bit better than we'd anticipated. If you remember the comments on the Q1 call, actually the Q4 call, I said, the area that I was most concerned about was the commercial segment. But in fact, it's held up very well.

Repair and replace has been good. And I think as a company, we're executing very, very well in that space. So I'm actually remaining sort of again to use a well worn phrase, cautiously optimistic about the commercial outlook. It's I think it's actually been quite constructive. Yes.

A couple of just small adds to what Julian said. Other vertical areas that we've had good strength is in hospitals and the school segments, just a lot of infrastructure rebuild and retrofit and so forth. And then the other thing is with the high interest rate environment, we expect the

construction side to remain somewhat muted. So that could change towards the second half of next year as interest rates come down per expectations. So I mean that's all I would add.

Yes. Our next question is from Ryan Merkel with William Blair. Ryan, your line is now open. Please go ahead.

Hey, thanks. Good morning. I wanted to ask about 4th quarter gross margins guidance is for mid-twenty 5. Is that normal seasonality? Because it looks like it's a little more than normal seasonality.

So talk about some of the drivers there, please.

Yes. Ryan, I'll touch on it and then Brook can extend it in some more detail. I mean, the part of this is normal seasonality. The higher margin region of the countries, as we've talked about before, are in the North. You need higher gross margins in that part of the country because rents in the largest cities in the north tend to be much higher.

So we need to cover them. So as those start to slow down in the winter months, you start to see gross margin deteriorate a little bit. That doesn't mean EBITDA margin deteriorates, but it does mean gross margin deteriorates. So there's a little bit of a shift in geography, both on the P and L and in terms of the product shipment. So some of it is just sort of normal product flows.

The other part of it would be as price increases finally flush through the system and making sure that we've got the product cost flowing through fully. There's a piece of that that's still out there. But for the most part, it's primarily geography. The other thing that happens is there's a little bit of product mix. The product mix tends to tilt a little bit back towards commercial and complementary, a little bit more than sort of the shingle side and the residential side, which has higher gross margin.

Again, we don't believe it impacts bottom line margin in the same way as it does gross margin.

Yes. Again, just a couple of other points of color. In the South, there is more new construction, so that also tends to be at a little bit lower gross margins. And then if you look at the what's implied in the guidance and the Q4 margin, it's consistent with our post COVID margins with the exception of the really high inflationary environment of 2021 2022.

Our next question is from Ketan Mamtora with BMO. Ketan, your line is now open. Please go ahead.

Good morning and thanks for taking my question. Perhaps, Julian, can you talk a little bit about sort of underlying growth trends in the waterproofing business, excluding kind of the hurricane impact in Q3. I'm just curious kind of how that business is performing, your growth expectations in that? And how are the margins in that business relative to sort of the peak and average?

Yes. I really appreciate the question about Waterproofing. So as you know, we acquired Coastal, which is the first of our acquisitions in this space at the end of 2022. Beacon had a West Coast presence in specialty waterproofing distribution, but we really felt we needed to grow that segment. We fundamentally believe that it's a higher growth segment than the core roofing business.

And the post tragic Surfside condominium collapse, the Champlain Towers, if you'll remember, has really emphasized the importance of this category to construction. That tragedy was fundamentally blamed on lack of waterproofing remediation and that needed to be done that wasn't. We've seen local municipalities as well as Florida Dade County, things like this, impose new requirements on buildings in terms of backing up the reserves in order to ensure that they get spent on waterproofing to maintain the integrity of the building. So we think that that along with the sort of recognition of changes in climate, significant weather conditions is going to continue to drive that. And it's a little bit poorly understood that this is not something that is just related to sort of the coast and the south.

This goes all across the country. We operate pretty much everywhere now. And it's been we're excited about where that's taken us. We've gone from roughly, give or take, mid $100,000,000 of sales towards the end of 2022 to a run rate of $700,000,000 plus. So we've really grown that business.

We've acquired multiple businesses to build out the only nationwide specialty waterproofing distribution platform. And that's been really exciting. In terms of the margin profile, it's more like residential than it is commercial. And we're very pleased with that. We expect to see that be enhanced over time.

The leadership team there has got a plan and they want to make sure that they're operating above our average gross margins and EBITDA margins for the company in the long run. We've got some work to do to get there. I mean the acquisitions that we brought in this year particularly we need some work to get there, but we're excited about that platform. And like I said, we think it's a fundamentally faster growing segment of the construction market. It ties in very nicely with our commercial roofing business as well.

So very excited about it and thank you for the question.

Our next question is from Michael Rohit with JPMorgan. Michael, your line is now open. Please go ahead.

Thanks. Good morning, everyone. Thanks for taking my questions. Maybe kind of a 2 parter, if I may. Just first off, wanted to get better understanding and apologize if we hit on this earlier on the drivers of now expecting to achieve the full year EBITDA guidance in the lower half of the prior range?

And secondly, I know it's a little early perhaps to look into 2025, but at the beginning of the year when you gave the initial guidance for 2024, you cited with margins actually expected to come down a little bit, a headwind from a lot of new branches and M and A and maybe temporarily having those margins being a little dilutive as one of the challenges that you saw going into this year. So the core of my question is going into 2025 with a continued high level of acquisitions, I was wondering if we should expect a similar type of drag or given your continued focus on your various profit improvement initiatives, we should expect margin expansion to resume?

Thanks, Mike. So I'll let Chris talk about the Q4 guidance, some of that. But let me just touch on sort of the big picture thing about margin expansion. I mean, that's one of our key focuses. So yes, this year with particularly with the greenfields that we launched really early in the year, which was a little bit of a shift from prior years where it was so early in the year, they were a little bit of a drag.

We had softer market conditions and some of the acquisitions that we completed this year were mid- to low single digit EBITDA margin. So you end up with there was a drag there. We haven't obviously fully synergized those. I think Chris mentioned that in his comments. And we would not expect to see quite such a drag going forward.

And we also think that with the improvement initiatives, which we are seeing come through, I mentioned that we're very pleased with our performance of our acquisitions. They're ahead of our plans, and we are seeing demonstrable results from the acquisitions we've done this year, both in terms of top line growth and in bottom line improvement. So that's been good. The first half of the year when you're bringing them in and getting them on our platform and then working on what needs to get done to improve them. There's still work to be done there.

We came into the year expecting to see some margin pressure because we saw some of the overall market dynamics coming in. I think our original guide on margin was about flat year over year for the full year. I think that we feel pretty good about that guide. We think we got that. And then for the guide overall, before I hand it over to Chris to touch on Q4, look, I think we're one of the few companies that actually maintained our guide for the full year.

We've certainly coming in lower than anticipated. We would certainly like the market to have been a little bit better, but we've maintained broadly our guidance for the full year. So

Yes. Thanks, Julien. So Mike, thanks for the question. So if you look, I think your question was about the full year guidance. And so if you go back to kind of what we said on the Q2 earnings call, what we said was that for Q3, we expected high single digit growth in sales per day on a year over year basis.

Well, we actually finished the quarter at about 6%. And so therefore, that's one of the big drivers to now expect that the full year sales per day growth on a year over year basis will be in the mid to high single digits. Where we previously thought we would finish the year in the high single digits. On a gross margin basis, we really haven't changed anything. We continue to expect a full year gross margin rate in the mid-twenty 5 percent range.

And then on the OpEx side, the actions we took in Q3, we expect to finish the full year at an adjusted OpEx to sales rate in the low to mid-seventeen percent range, which is slightly above our targeted annual adjusted OpEx rate. We try to manage the business to about 17%. And so we'll be well positioned at the end of the year to bring it down within the target of 2025. So when you put all of this together, you should end up within the lower half of our previously communicated guidance of $930,000,000 to $970,000,000 of adjusted EBITDA.

Thank you. Our next question is from Mike Dahl with RBC. Mike, your line is now open. Please go ahead.

Hey, thanks Julian and Chris for taking the question. I want to pick up on the OpEx comments. Obviously, that's been kind of a pain point the last couple of quarters, a focus area for you. The actions you're taking, you're characterizing as kind of headcount actions. So that could be construed as maybe somewhat temporary and you'd bring those back on as or if volume comes back.

But what can you tell us about kind of how you're thinking about this? Or structurally, are there more structural parts of what you're doing? And as you look at next year, kind of Mike's prior question and Prithya's comment, managing back towards that lower target, I mean, what else are you thinking about in terms of programmatic actions to bring that back down?

Thanks, Mike. So you'll recall from previous earnings calls that we highlighted things like sales per hour work and sales productivity and the progress we've made. And I think this year certainly it's been a question mark around our performance and we're very aware of it. Part of this is that we came into the year expecting good demand from sort of some carryover storms in the last. And we were expecting to see more of that in Q1 and we thought it would come in Q2 and it never did.

In Florida, which we talked about all year as being particularly weak, the Southeast more broadly was weak, but Florida was particularly weak. We've been taking actions in Florida almost from the start of the year in order to maintain our OpEx ratio from a headcount standpoint. So part of this is you need to make sure you've got the people to deliver the product. And in the end, as we went through the year and particularly as we went into the Q3, we realized that even on what we thought was sort of a regular day, the demand levels were below what we had anticipated. And so we took action in the Q4 that we adjust sorry, yes, in the Q3 to adjust down what we needed to.

QXO Building Products Q3 2024 Earnings Call Transcript

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