QXO, Inc. Q3 FY2023 earnings call

• Building a winning culture: Enhanced onboarding practices, new employees wear Green Hardhat for first 90 days; Corporate Social Responsibility Council developed environmental engagement program.
• Driving growth: Opened 19 new branch locations year-to-date, with 36 new branches since start of last year contributing nearly $250 million to top line; completed 5 acquisitions since end of second quarter, including Garvin Construction Products; digital sales increased 22% y-o-y in Q3 with 22% of residential sales through online platform.
• Productivity and operational excellence: Focus on bottom quintile branches contributed ~$10 million of EBITDA y-o-y; operating under OTC (on time and complete) model for branches in larger MSAs, providing benefits like improved customer service, lower cost to serve, optimized inventory levels, and talent development.
• Creating shareholder value: Repurchased outstanding preferred shares and common stock, reducing as-converted share count by over 21% since start of Ambition 2025; maintained net debt leverage well within target range.

In the third quarter, Beacon achieved nearly $2.6 billion in total net sales, up 7%. Adjusting for one less selling day, net sales increased almost 9%. Organic volumes (including Greenfields) increased approximately 1% to 2%, and overall price contributed less than 1%. Acquisitions, including Coastal Construction Products, contributed nearly 5% to daily net sales year-over-year. Residential roofing sales per day were higher by more than 15%. Non-residential roofing sales declined by approximately 6% per day. Complementary sales per day increased 14.5%. Gross margin came in at 26%, above the mid to high 25% guidance range. Adjusted OpEx was $395 million, an increase of $21 million, but adjusted OpEx as a percentage of sales decreased to 15.3%.

For the fourth quarter, expected sales per day growth to be approximately 11% to 13% year-over-year, in line with October pacing of ~13%. Expect all three lines of business to show positive growth, including non-residential business. Gross margin expected to be in the 25.5% range. Increased full-year 2023 adjusted EBITDA guidance to $910 million to $930 million. Expect to resume share repurchase program under remaining authorization.

• Macroeconomic factors: Interest rate changes, consumer sentiment, commercial financing negatively impacting new builds and existing for-sale units, slower commercial construction activity and channel destocking.
• Supply chain and labor: Labor productivity challenges, continued inflation affecting indirect cost inputs, potential supply chain constraints in certain regions.
• Inventory management: Need to balance product availability with inventory reduction and growth investments.

Q: Private label metrics and blend with organic space relative to '25 targets?

A: Private label up year-over-year, ballpark ~$250 million in Q3; adoption rate stable, introducing new products; more of a margin play than revenue play, continuing to push adoption and introduce new products in mature categories, with expectation to meet '25 targets through continued investment and growth in private label offerings.