QXO, Inc. Q4 FY2023 earnings call

• Strong fourth quarter finish with sales up nearly 17% to $2.3 billion, a fourth quarter record, and adjusted EBITDA of $217 million, a fourth quarter record.
• Executed on Ambition 2025, with acquisitions including Metro Sealant & Waterproofing Supply, Roofers Supply of Greenville, etc.
• Launched 'Turn it Off' campaign to reduce engine idling and contracted to power over 30 branches with renewable energy.
• Opened 11 new branches in Q4, with 45 new branches opened since 2022 contributing over $290 million to top line.
• Digital sales grew nearly 28% y-o-y, with residential customer adoption nearly 22%.
• Focus on bottom quintile branches added approximately $15 million to EBITDA in Q4.
• Deployed over $1.3 billion to shareholder returns since Ambition 2025 started, reducing as-converted share count by ~21%.

In the fourth quarter, Beacon achieved nearly $2.3 billion in total net sales, up nearly 17% year-over-year. Residential roofing sales were higher by more than 20% driven by resilient underlying R&R demand and storm activity. Nonresidential sales increased more than 11% on solid R&R activity. Complementary sales increased by 16% year-over-year as new waterproofing platforms grew. Organic volumes, including those from greenfields, increased approximately 12% to 13%, while acquisitions contributed approximately 4% to net sales growth.

• Expect full year net sales growth in mid-single-digit percent range, upward revision from prior low single-digit expectation, including acquisitions.
• Gross margin expected mid-25% range, with structural improvements from private label and digital sales somewhat offset by higher non-residential mix, price costs neutral.
• Adjusted EBITDA range between $920 million and $980 million.
• Cash flow expected strong with conversion from adjusted EBITDA above 50%.
• Plan to invest in ~25 additional greenfield locations and continue with acquisitions.

• Forward-looking statements may differ from actual results due to factors in Risk Factors section of 2022 Form 10-K.
• Labor tightness challenges, though efforts are made to ensure proper staffing.
• Impact of insurance changes on homeowners and potential disruption to roofing business.
• Execution risks related to new pricing model implementation.

Q: Ryan Merkel asked about gross margin decline in Q1 and improvement through the year.

A: Julian Francis said it's due to new greenfields and M&A not fully synergized early on, but expects improvements as they ramp up and mix shifts to residential.

Q: Doug Wardlaw asked about trends in Q4 and market development in 2024.

A: Julian Francis said residential remained strong with season stretching despite cold weather, commercial volumes rebounded with lapping of contractor destocking, and waterproofing business shifted to repair and replace.

Q: Sid Ramesh asked about OpEx cadence.

A: Julian Francis said higher OpEx in Q1 due to staffing for greenfields and initiatives, with OpEx expected to be flat full year and leverage in Q2 and Q3.

Q: Garik Shmois asked about residential pricing.

A: Julian Francis said they factored in price increase, expect to recover costs, and new pricing model to have impact in second half.

Q: David Manthey asked about insurance changes and E-Verify.

A: Julian Francis said insurance changes don't create major challenges for roofing business as people find ways to finance, and E-Verify impact in Florida came back over time with contractors mitigating losses.

Q: David MacGregor asked about new pricing model.

A: Julian Francis said they're committed to 50 basis points margin improvement, early rollout with good adoption, and expect to see impact by end of third quarter next year.