QXO, Inc. Q1 FY2024 earnings call

• The team executed well, delivering record first quarter sales with all 3 lines of business posting growth. Sales increased by over 10% y-o-y.
• Acquired and greenfield branch locations contributed more than 5% growth.
• Gross margin was 24.7%, above the guidance of 24.5% from the fourth quarter call.
• In February, acquired Smalley & Co., an industry leader in waterproofing.
• Held annual safety stand-down, aiming to reduce sprain/strain injuries among newest employees by 50%. Piloted AI-enabled dash cams in fleet.
• Held inaugural Women's Summit to foster diverse culture.
• Digital sales grew nearly 28% y-o-y, with 23% adoption among residential customers.
• Launched commercial acceleration initiative in pilot markets, seeing above-market growth.
• TRI-BUILT ISO added to commercial product line.
• Refinanced term loan, reducing interest rate spreads and saving over $25 million in cash interest.

Total net sales in the first quarter reached over $1.9 billion, up more than 10% year-over-year. Residential roofing sales were higher by more than 9% due to resilient repair and remodel demand and low single-digit price increases. Nonresidential sales increased nearly 18% driven by R&R activity and destocking. Complementary sales grew by more than 5%. Gross margin came in at 24.7%, approximately 80 basis points below the first quarter of last year but above the guidance provided on the fourth quarter call.

• Expect total sales growth in the high single-digit range year-over-year for the second quarter, in line with April sales growth of 7% per day.
• Gross margins expected to be in the 26% range for Q2, including inventory profit.
• Full year net sales expectation is growth in the mid-single-digit range, including acquisitions.
• Adjusted EBITDA guidance raised to between $930 million and $990 million, inclusive of recently acquired businesses.
• Full year gross margin expected in the mid-25% range, price cost neutral.

Q: Brian Biros asked about nonres sales outlook and if double-digit growth would continue.

A: Julian Francis said commercial sentiment better than anticipated, destocking largely completed, and commercial acceleration initiative having impact.

Q: Trey Grooms asked about cadence for the year.

A: Julian Francis and Carmelo Carrubba said second quarter growth due to lower comps and carryover, second half more optimistic with commercial momentum.

Q: Michael Rehaut asked about EBITDA guidance and margin expansion.

A: Julian Francis said long-term EBITDA growth expected to outpace top line, acquisitions with low margins but can improve, greenfields and initiatives starting to contribute.

Q: Michael Dahl asked about inventory and gross margin benefit.

A: Carmelo Carrubba said built inventory in Q1 to serve market and take advantage of price increase, Q2 gross margin benefit from inventory and pricing.

Q: Reuben Garner asked about M&A and pipeline.

A: Julian Francis said complementary acquisitions can be improved with operational capabilities, pipeline remains robust.

Q: Ketan Mamtora asked what drives EBITDA guidance top end.

A: Julian Francis said storms, commercial sentiment, M&A, greenfields, and initiatives contribute.

Q: Garik Shmois asked about geographic mix impact.

A: Julian Francis said geographic mix shift affects gross margin but not EBITDA margin.

Q: Adam Baumgarten asked about commercial roofing weather benefit and nonresi pricing.

A: Julian Francis said weather impact on roofing days, nonresi pricing increases expected to fare well with improved outlook.

Q: Stanley Elliott asked about Home Depot's move into the space.

A: Julian Francis said no major disruption expected, emphasized valuation gap between public and private markets.