QXO, Inc. Q2 FY2024 earnings call

• Beacon delivered solid execution on growth initiatives, with a record quarterly sales. The Ambition 2025 plan has created multiple paths to growth. • Acquired 21 branches including Roofers Mart of Southern California, Extreme Metal Fabricators and Integrity Metals. • Online capability is a competitive advantage, with digital sales growing ~22% year-over-year in Q2, and residential digital sales adoption at nearly 26%. • Launched an upgraded employee assistance program focusing on mental and physical health. Issued the third Annual Corporate Social Responsibility Report, showing progress on emissions intensity goal. • Focused on commercial roofing solutions, launched a new training program for employees on commercial roofing basics. • Enhanced productivity and capacity through continuous improvement and operational excellence initiatives, generating ~$3 million additional EBITDA from bottom quintile branches.

In the second quarter, Beacon achieved nearly $2.7 billion in total net sales, up nearly 7% year-over-year. Average selling prices were up low-single digits year-over-year. Residential roofing sales were higher by more than 2%, with the R&R market remaining resilient. Non-residential sales increased by more than 11% based on strong R&R activity. Complementary sales increased by more than 12% year-over-year. Gross margin was 25.6%, approximately 20 basis points above the second quarter of last year but below expectations due to lower inventory profit contribution from the April price increase.

• Expect momentum from first half to continue into Q3. Total sales per day growth in Q3 expected in high single-digit range year-over-year. • Full year net sales expected to grow in the 6% to 8% range, including acquisitions. • Gross margin expected in mid-25% range for full year. • Adjusted EBITDA expected between $930 million and $970 million inclusive of recently acquired businesses. • Strong cash flow generation expected in second half, weighted towards Q4.

• Weather conditions can impact roofing days and demand, as seen in Q2 with wet weather and excessive heat. • Market demand variability, including differences in regional market performance and shifts in construction activity focus (e.g., from new construction to repair and reroofing). • Challenges in integrating acquired branches, which may have dilutive impact in near-term initially.

Q: Good afternoon and thanks for taking my question. Wanted to first zero in a little bit on the SG&A in 2Q...

A: Thanks, Michael. This is Julian. And yes, I mean, I think it's the question that's going to be on everyone's minds for our second quarter. So – it was a really difficult sort of second quarter to manage at a branch level. So we saw record daily sales but we didn't see it consistently because of the weather. So we were staffed up to serve that really high demand level. But it was never consistent. And managing that on a day-to-day basis, we didn't do it as well as I'd hoped, but I think that, that was a big driver of it. Obviously, we added a number of greenfields and acquisitions earlier in the year this year than we've done previously. And so that adds to our total OpEx count. And so you've sort of flatlined it this year will be similar number of branches opened in the first half and the second half, which was a little bit more back-end weighted last year. So that drove year-over-year increase as well. But the big thing with this variability in day-to-day volume, we were staffed ready – the inventory was ready for it, and we think it was just so variable on a day-to-day basis in the markets that it became tricky to manage and so we were a little bit – we missed a little bit on that side of things in terms of our overall management. Now as you also asked about sort of looking forward and how does that adjust? We've sat down with our operating groups and sort of sat down and said, look, we've got to get this back in line. We've got to create operating leverage from sales growth, and we're going to have to manage that more aggressively. We've already started doing that. We've taken action in June and July to make sure that we've got the right level of staffing for the demand that's in the market. We're seeing – still seeing some variability in terms of day-to-day sales. But we are being much more aggressive in terms of managing sort of levels of staffing on a day-to-day basis than we were in the second quarter. Like I said, I don't think we missed it by much, we'd come into the year expecting a strong second quarter with storm carryover from last year. As I said, with the what we saw on really good days was what we had anticipated. We call the market. What we obviously couldn't call was the weather. And that certainly had an impact on how we manage it. We think we'll work our way through that and get that back to where it should be. I don't know if Prith has got anything to add in terms of specifics. But that's really what drove it.

Q: Hi, thanks for taking my question. I was wondering if you could talk about the acceleration you're expecting on a daily sales basis, here in the third quarter, starting July up low single digits. I think you're expecting to be up high single digits for the quarter. So if you can unpack the drivers of the stronger expected August and September, that will be great.

A: Yes. Look, Garik, I mean, the market overall has been good. Like I said, I mean, we saw record daily sales in the second quarter on a day-to-day basis. It just wasn't consistent and would have a day where it dropped off. We think some of the weather impact in Q2 is going to get pushed into Q3. So we're expecting that demand hasn't gone away. I mean if you need a roof, you're going to get a roof. And if it brings some one day, you're going to get to with the next day. So we think there'll be some continued push into the third quarter with demand pretty good, and we're excited about that opportunity. We do think that there's – there's an August 1 price increase. The price increase went into effect today on shingles. So we'll see that pick up on the top line in the rest of this quarter as well and then the back half of the year tends to be a little bit more biased to activity. So now if we're going to get 100-degree days across the entire country for the entire third quarter, and we'll be watching that. But overall, we – like I said, we feel pretty good about the market. We're probably a little bit more bullish on what – than we were coming into the year on commercial, as we’ve said. Residential reroof has been very good. The storm demand, we think is going to come in around the 10-year average. That’s what kind of what we feel we’re tracking. New res was slightly worse. But overall, we came into the year calling for a very healthy market, and that’s what we’ve got. We think some of the demand got pushed out of Q2 and is probably going to appear in Q3.