Good evening, ladies and gentlemen, and welcome to the Beacon First Quarter 2024 Earnings Call. My name is Joel, and I will be your coordinator for today. Operator provided instructions to participants. As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the call over to Mr. Binit Sanghvi, Vice President, Capital Markets and Treasurer. Please proceed, Mr. Sanghvi. Apologies, we'll hold briefly. One moment, please. Technical difficulty occurred. Ladies and gentlemen, thank you for your patience. Again, welcome to today's Beacon First Quarter 2024 Earnings Call. I would now like to hand the call over to Binit Sanghvi with Beacon. You may proceed.

Thank you, Joel. Good evening, 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 Carmelo Carrubba, Beacon's Interim Chief Financial Officer. Julian and Carmelo 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 will 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 always relate strictly to historical 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-K. Second, the forward-looking statements contained in this call are based on information as of today, May 2, 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 to 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, Binit, and good afternoon, everyone. We are beginning on Slide 4. The team executed well to start the year, delivering record first quarter sales. Once again, we demonstrated that our Ambition 2025 plan has created multiple paths for us to grow. Sales increased by more than 10% with all three lines of business posting growth year-over-year. This was slightly higher than expected and is indicative of a supportive market environment. Nondiscretionary repair and reroofing demand continues to underpin the need for our products and services. Acquired and greenfield branch locations contributed more than 5% growth in the first quarter. Our strategy to grow in any environment is proven, and we have recorded 15 consecutive quarters of year-over-year sales growth. This is because we continue to add value to our customers, enhancing our service proposition and allowing them to maximize the productivity of their scarcest resource: labor. Our gross margin came in at 24.7%, approximately 80 basis points below the first quarter of last year but above the guidance of 24.5% that we provided on our fourth quarter call. In February, we highlighted the expected impact to both the gross margin and OpEx of recent greenfield additions and M&A that are not yet fully mature. As a reminder, this reflects 21 acquired branches and 28 newly opened locations over the last 12 months through March 31. Our dedicated teams have been executing at a high level since we announced our Ambition 2025 plan two years ago. And I'm pleased to say that both our acquired and greenfield portfolios are performing better than expected and creating value for our shareholders, which I will comment on more later in the call. We continue to invest in future growth and expand our footprint. Year-to-date, we opened five greenfields and have made four acquisitions, significantly enhancing our customer service and reach. We took an important step yesterday, adding to our rapidly growing nationwide waterproofing platform with the acquisition of Smalley & Co., an industry leader in both new construction and restoration markets. Headquartered in Denver, Smalley had 11 locations throughout Colorado, Arizona, California, Nevada, New Mexico and Utah. Since 1967, the Smalley team has built a track record of providing value-added technical know-how in waterproofing solutions to contractors. As we enter a key part of the construction season, our team members are well positioned to provide our customers the high caliber of service they expect. We're investing in improving our operations, delivering results today while also preparing for the future, including investments in our leading digital platform, private label offerings, commercial acceleration initiatives and our pricing model. Coming into the year, we said that residential reroofing market demand would be lower, driven by our assumption that storm activity would revert to the 10-year average. At the same time, nonstorm repair and reroofing will grow as the number of older roofs grows, and we also expected new residential construction to improve over last year. Regarding commercial roofing, we said that there will be a contraction in install activity in the first half of the year based on the Architectural Billing Index, but that our volume would grow because of last year's destocking. In summary, the fundamentals of end market demand have performed as we expected, and our team has executed well. Now please turn to Page 5 of the deck. Two years ago, we laid out our target to build a great organization, drive above market growth, deliver consistent double-digit adjusted EBITDA margins and generate superior shareholder returns. Creating value for our customers is central to achieving these goals, and our team is relentlessly focused on doing that every day. Let me provide you with an update on our strategic initiatives, starting with how we are building a winning culture. One of our core values is to make every day safer. And as you may recall from prior calls, newer employees are at greater risk of injuring themselves. In March, we held our annual company-wide safety stand-down in which all of our branches and 8,000 employees paused and recommitted to making every day safer with a focus this year on strains and sprains. We will continue to emphasize the importance of stretching and lifting safely as well as using innovative tools and techniques to reduce injuries. We have set a goal to reduce sprain and strain injuries occurring amongst our newest employees by 50% this year. We have also begun piloting AI-enabled dash cams in our fleet to further influence safe driving behavior. These cameras use technology to continuously analyze road and cab conditions, helping drivers reduce unsafe practices. By flagging these types of behaviors in real time and providing alerts and warnings, drivers and fleet managers have another tool to prevent accidents. Another of our core values is to put people first. And in February, we held our inaugural Women's Summit, bringing together female leaders from across the organization in a forum to learn and network. This event and our sponsorship of national Women in Roofing will foster a more diverse and inclusive culture and help us to compete for hires, retain and develop the best talent in the industry. Our second pillar is driving growth above market and enhancing margins through a set of targeted initiatives. Expanding our customer reach continues to be a major lever in our growth plans, including our investments in greenfields and acquisitions. Our dedicated greenfield team continues to execute on our pipeline of new locations, and we have opened five branches year-to-date. Each time we add a new branch, 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 60 new branches since the beginning of 2022, exceeding our original Ambition 2025 goal of 40 total. On acquisitions, we discussed our purchase of Smalley earlier, and we highlighted the acquisition of Roofers Supply of Greenville and of Metro Sealants on our call in February. We have also acquired General Siding Supply in April, strengthening our complementary building product offering and adding locations in the Midwest including Omaha and the surrounding areas. Since announcing our Ambition 2025 plan, we have acquired 18 companies adding 66 branches to date. In total, we have deployed approximately $640 million in capital towards these acquisitions, adding base year revenue of more than $750 million. Our online capability continues to be a clear competitive advantage for Beacon and sales through our digital platform increases customer loyalty, generates larger basket sizes and enhances margin by 150 basis points when compared to offline channels. In the first quarter, we grew digital sales nearly 28% year-over-year. Digital sales to our residential customers were a highlight as we achieved our highest quarterly adoption ever at 23%, close to our Ambition 2025 target of 25%. We have plans to build on our digital leadership by continuing to invest in this area to differentiate ourselves and build upon our competitive advantage. Commercial roofing is one of the key growth initiatives of our Ambition 2025 plan. In the last year, we launched our commercial acceleration initiative in pilot markets. We gathered best practices from our top-performing commercial locations and are systematically replicating them throughout the organization. I'm happy to report that where we have adopted these practices, we are seeing above-market growth. We have plans to extend this program through the year, touching the top 20 commercial roofing markets. Furthermore, we have a full line of products for our commercial customers, and insulation is a growing part of the commercial roofing system; evolving building codes and a focus on sustainability has increased the amount of insulation required for the typical roofing job. At the same time, our customers have come to rely on the quality of our private label TRI-BUILT branded products to grow their business. So I'm pleased to announce that TRI-BUILT ISO is the newest addition to our expanding commercial product line. TRI-BUILT ISO is a professional-grade roof insulation designed to meet the specifications of a diverse range of commercial roofing systems. Not only does it offer energy efficiency, but it also benefits our contractor and building owner customers. Its eco-friendly features make it a sustainable choice for our customers' projects, and our customers have come to rely on TRI-BUILT products. We will continue to support them through our expanding catalog of product offerings. Our third pillar involves driving operational excellence through continuous improvement initiatives. Now let me give you an update on the rollout of our pricing model. This is much more than just pricing an individual product. It involves strategy, goals and positioning as well as governance tools and processes. And most importantly, it is not just a new system, but a fundamental shift in our approach and a new way of thinking that is supported by technology. I'm pleased to say that our initial pilot results are delivering on our Ambition 2025 expectations of achieving a 50 basis point lift in margin. We're still early in migrating our branches, but I'm confident that the new system will elevate Beacon's competitive edge and help us respond to market dynamics and structurally improve performance. Let me also take a minute to talk a little bit about how our new fleet telematics software will improve efficiency. Leveraging this technology enables real-time fleet monitoring from hard braking to speeding and idling. The resulting data enables improvement in fleet operations, including route optimization, reduction in fuel usage and a reduction in emissions. And fourth, let's review how we're creating shareholder value. As mentioned earlier, we have acquired 18 companies adding 66 branches since the beginning of 2022. Our dedicated M&A team is executing at a high level and exceeding our original targets. I'm happy to report that our disciplined approach is paying off, and the acquisition portfolio is performing above our growth expectations. Our actual sales for the acquired branches exceeded our performance by more than 10%. Through strong employee retention and talent development and faster closing and integration, we are becoming an acquirer of choice, which will continue to provide a pipeline of value-creating opportunities going forward. Next, we took advantage of a window of opportunity to refinance our term loan, reducing interest rate spreads. The favorable market was due in part to economic factors, and we'd also received an upgrade from one of our credit rating agencies. As a result, we were able to reduce pricing by more than 65 basis points on our $975 million outstanding Term Loan B saving more than $25 million in cash interest over the remaining four-year life of the loan, generating additional free cash flow per share. And lastly, although there were no share repurchases in the first quarter of this year, we remain committed to shareholder returns and are evaluating the timing and amounts of additional buybacks. As a reminder, we have approximately $390 million in remaining authorization granted by our Board in February of last year. In summary, we're off to a good start to the year, and the market is developing at least as well as we anticipated. Now let me pass it over to Carmelo for more details on the quarter.

Thanks, Julian, and good evening, everyone. Turning to Slide 7. We achieved over $1.9 billion in total net sales in the first quarter, up more than 10% year-over-year primarily driven by organic volume growth as well as contributions from acquisitions. In the aggregate, average selling prices for our products were slightly positive year-over-year. Organic volumes, including greenfield, increased approximately 6% to 7%, while overall price contributed less than 1%. As we discussed, our acquisition portfolio is performing well and branches acquired over the last 12 months contributed more than 3% to daily net sales year-over-year. Residential roofing sales were higher by more than 9% as volumes were driven by resilient underlying repair and remodel demand, combined with the higher prices in the low single-digit range. Residential volumes in the quarter were strong and adjusting for channel restocking, we estimate that we grew in line with the market. We continue to see improvement in demand from new residential construction, in particular, single-family homebuilders. Nonresidential sales increased nearly 18% on solid R&R activity and destocking at our customer level that we experienced in the prior year period. And while prices declined in the mid-single digits year-over-year from a high comparable, they remain stable on a sequential basis. Bidding and quoting remains at healthy levels, which we expect will also be supportive of pricing, and we also see a continued shift from new construction to repair and reroofing activity as the year progresses. Complementary sales increased by more than 5% year-over-year, as our specialty waterproofing platform continues to grow. Lower volume of siding products partially offset the growth. Selling prices were stable year-over-year. Please keep in mind that our complementary product category now has approximately 70% residential and 30% nonresidential exposure. Turning to Slide 8, we'll review gross margin and operating expense. Gross margin was 24.7% in the first quarter, down approximately 80 basis points year-over-year, but higher than our expectations and solidly above pre-COVID Q1 gross margin levels. Slightly positive average selling prices were more than offset by higher product costs, especially in the nonresidential line of business. Price cost was down approximately 40 basis points year-over-year, and line of business mix also contributed to the decline in gross margin percentage. And as we mentioned, new greenfield locations and the M&A we've conducted in the past year has yet to be fully synergized and were dilutive as a percentage of sales. Higher digital and private label sales partially offset the declines. Adjusted OpEx was $404 million, an increase of $47 million compared to the prior year quarter. Adjusted OpEx as a percentage of sales increased to 21.1% or up 50 basis points year-over-year. The change in adjusted OpEx was driven primarily by expenses associated with acquired and greenfield branches, which contributed approximately $22 million of the increase. Additional headcount in our existing branches year-over-year also contributed to the increase. You will recall from our call in February that given the tight labor markets, we consciously made an effort to ensure that we are properly staffed to meet the ramp in seasonal activity and provide the high level of service our customers expect. Inflationary wages and benefits as well as rents also contributed to the increase in adjusted OpEx. We continue to focus on productivity initiatives with the goal of offsetting these inflationary pressures, and we have completed diagnostics on improvement and improvement plans for our bottom quintile class of 2024. This initiative has contributed to the bottom line for many years and is already showing favorable results also in 2024. Investments in Ambition 2025 priorities to drive above-market growth and margin enhancement continued in the quarter. These investments include initiatives related to our sales organization, customer experience, pricing tools, e-commerce technologies and branch optimization. Turning to Slide 9. Operating cash flow was negative $141 million in the quarter. Given the seasonal pattern of working capital needs in our business, we typically use cash in the first half of the year and generate cash in the second half of the year. Net inventory is $245 million higher compared to the end of the first quarter of 2023 to ensure that we have adequate product for the demand ramp and in advance of the manufacturing price increases. Higher inventory year-over-year is also attributable to inventory acquired through M&A and to support greenfields. Net debt leverage stood at 2.7x, as of the end of March, well within our stated target range of 2 to 3x EBITDA. As Julian mentioned, in March, we took advantage of the opportunity to reprice and refinance our term loan. At the same time, Moody's upgraded our long-term credit rating one notch, which will improve our access to capital and lower our overall cost of debt going forward. Given the strong demand, we decided to upsize and raise an incremental $300 million. The additional funds were used to pay down a portion of our revolving line of credit balance, which provided us with approximately $1.3 billion in liquidity at the quarter end. We continue to balance our capital allocation between organic and inorganic growth opportunities as well as shareholder returns. Our ability to invest in value-creating acquisitions is underpinned by ample balance sheet capacity and liquidity. We're also investing record amounts in our business and expect to deploy approximately $125 million in capital expenditures during full year 2024. This has not only included the investments in the greenfields already discussed, but also the upgrading of our fleet and facilities as well as building out the technology tools that will benefit us in 2024 and beyond. To wrap up, we are very pleased about the performance in the first quarter. We have significant momentum, and we are well positioned to realize our objectives by continuing disciplined execution of our strategic priorities as we enter the most important part of the year. Now let me turn the call back to Julian for his closing remarks.

Thanks, Carmelo. Please turn to Page 11 of the slide materials. Before we head to Q&A, I'd like to update you on our expectations for the remainder of 2024. We continue to believe that nondiscretionary residential market demand will be lower, driven by lower storm demand year-over-year which, at this point, appears to be on track to meet our assumptions of the 10-year average. We believe nonstorm-related demand will be higher in both new construction and aged replacement despite the higher interest rates. In our commercial roofing business, we see sentiment improving, but the Architectural Billing Index remains below 50, indicating contraction in activity. However, our volumes are expected to be higher year-over-year as we lap the contracted destocking effect that impacted us last year. For the second quarter, we expect total sales growth to be in the high single-digit range year-over-year, in line with the April sales growth of 7% per day. We announced a shingle price increase effective April 1, corresponding to the manufacturer's announcement. Our team is executing with discipline and realization will be determined by local market conditions. As a result, we expect gross margins to be in the 26% range, higher than in our first quarter and the prior year and include inventory profit. Operating expenses as a percentage of sales is expected to increase year-over-year, largely attributable to the higher expenses related to headcount from greenfields and acquired branches. We expect adjusted operating expenses as a percentage of sales to be modestly higher than the second quarter of last year. Our full year net sales expectation is for growth in the mid-single-digit range, including acquisitions announced year-to-date. On gross margin, we continue to expect structural improvements from our initiatives, including higher private label and digital sales to be somewhat offset by higher nonresidential mix relative to last year. Important to note that we expect price cost to be neutral resulting in a full year gross margin percentage in the mid-25% range. We are raising our full year adjusted EBITDA expectations to be between $930 million and $990 million, inclusive of recently acquired businesses. Meeting our customers' needs when and where they need our services is our priority. Near-term cash flow will continue to depend on the seasonal working capital requirements. For the full year, though, we expect to convert above 50% of adjusted EBITDA to free cash. Our focus will remain on the areas within our control, including enhancing our customer experience, pricing and daily execution on safety, service and efficiency. We will continue to deploy capital on initiatives that we expect will result in accelerated growth, including executing on our robust pipeline of acquisitions and delivering on a target of 25 greenfield locations for 2024 as well as investing in our branches to improve their quality for our customers and our employees. And we continue to be committed to generating returns for our shareholders, and we will be balancing growth investments with share repurchases. In summary, we are well positioned to outperform the market in any demand environment, creating value for all our stakeholders. We are looking forward to the rest of 2024 and helping our customers build more as we enter a key part of the construction season. And with that, Joel, we'll open it up for questions.

Operator provided instructions to participants. The first question is from the line of Kathryn Thompson with Thompson Research Group.

It's actually Brian Biros on for Kathryn. I guess I just want to ask on the nonres sales, they're probably stronger than expected, a little bit opposite from the general headlines about nonres overall at the moment. You touched on the things of why you guys are performing well, the destocking comps and just the demand out there currently that allows you to grow kind of when the industry was contracting overall. I guess can you just put a little more color around your outlook for nonres here going forward? And that kind of double-digit growth number continue for the rest of the year? I know you kind of mentioned growth in there, but maybe framing the size is there anything else to consider in the comps for the rest year would be helpful.

Thanks, Brian. Yes, we were pleasantly surprised by activity in the commercial arena in the first quarter. The first quarter is never a total indicator for the full year. But the destocking that we saw last year, obviously, we anticipated seeing growth. I would tell you that the overall market sentiment is probably better than we anticipated coming into the year. We had indicated that we believe that the overall market, the install market would be down. We don't perform only because of destocking last year. But I would tell you that I think that we see probably more positive sentiment in the market despite the fact that the index that we track, the Architectural Billing Index, ABI, is still below 50. I would tell you that sentiment feels a little better than that in the marketplace. So we think that the destocking was largely completed in the first half of last year. So we would expect to significantly outperform the overall market in the second quarter and get substantial growth. But I think our customers are giving us some indications now that they're starting to see quoting and bidding into the back half of the year, and they remain probably more optimistic than we were coming into the year. So we're excited about the opportunity. I also want to emphasize the work that we're doing with the commercial markets and the investments that we're making both in people and capabilities we have. I mentioned the TRI-BUILT line of insulation as well as the commercial acceleration initiative, the best practices sharing across the company. I'm very, very pleased with how that's going as well. That's been a long time coming, but I think it's really starting to have an impact on our business today.

The next question is from the line of Trey Grooms with Stephens.

I was hoping if we could maybe touch on kind of the cadence for the year. You guys gave us some good color with second quarter expectations and with the full year, we're clearly facing some tougher comps in the back half in the fourth quarter. But can you help us maybe frame up how to think about—any color you could give us on kind of the cadence for the back half. Given the backdrop of the tough comps but also your expectations for pricing improvement and that sort of thing? Any color would be helpful.

Sure. I'll try to give you a big picture and turn it over to Carmelo for a little bit more detail. But the way things are shaping up. Obviously, the first half of the year last year, as we got into the second quarter, we'd started to see the residential impact and the storms come in. So that had a positive impact last year. We continue to believe that there's good carryover demand from storms. We've seen a few early storms that were reasonably significant this year, nothing that we wouldn't have sort of anticipated in a 10-year average outlook, but there have been a couple of significant hail storms that have impacted some of the locations in the Midwest early on. So we would expect to see second quarter growth year-over-year, partly due to lower comps from last year and then partly due to good carryover as well. So that's the rest of the first half. In the second half of the year, I think there's a couple of things that we're still watching. Obviously, we've got to see the average of the storms play out. We continue now to be probably a little bit more optimistic, although we still expect some contraction in commercial. We're probably a little bit more optimistic there and our ability to grow into that environment, seeing positive impact in terms of what we believe our market share gains can be. So I think that we're becoming overall a little bit more optimistic about the second half of the year. And as I said, we have a slight raise in our overall guidance, a nice start to the year with greenfields that will start to produce towards the back half. I think we remain overall very positive on what we see this year, including on pricing.

Yes, exactly. Maybe that's the color that I would add. I think what we see then is more positive than we were expecting three months ago at this point on the commercial market. Now we see a little bit more momentum and also the work we're doing in executing our commercial acceleration gives us confidence that we will continue to see a positive trend even in Q3 and Q4. And we think also that this market environment will be supportive of pricing stabilization in the commercial segment for the rest of the year. Also, we also think we're going to benefit, of course, from the acquisitions that we executed earlier in the year. And as they get integrated in our systems and synergize a little more, I think we'll see benefit from that and also the maturation of some of our greenfields. The greenfields that we opened in the first part of the year will also contribute. So all in all, we're very positive about the year and the progression that we will see from Q2, Q3, and then in the second half of the year despite some of these tougher comps that you were mentioning.

The next question is from the line of Michael Rehaut with JPMorgan.

I wanted to circle back to the full year EBITDA guidance and you raised it by $10 million, about 1% at the midpoint. Still, we're kind of looking at a guidance—EBITDA growth at the midpoint that lags the top line outlook. And obviously, you still expect that this tends to be really driven by the greenfields and then the acquisitions and the costs associated with that, how should we think about that impact this year, perhaps on a dollar basis versus some of your other margin expanding initiatives as part of your Ambition 2025? And bigger picture as we look forward over the next couple of years, would you expect the drag this year from the greenfield and the acquisitions to be more of a one-time impact or over the next couple of years or in a more normal cadence would you expect EBITDA growth to be more in line or exceed even revenue growth?

Thank you for the question, Michael. The bottom line answer is that we would expect in the long run EBITDA growth to outpace our top line. There's a couple of things going on that I think are important. One, a few of the acquisitions we've done, particularly the larger ones, have been well below our average EBITDA margin. We like the revenue there. We know that we've got a process now certainly looking at our bottom-quintile process. We know how to improve the margins of the companies we're buying. So some of the more recent acquisitions we've done there have had low to mid-single-digit EBITDA margin. So that's proven to be a drag. Really nice revenue — when we look at that, we think we can improve that significantly. So that would add to it. As we start to get back into greenfield expansion, remember it's been only two years since we kind of got back into the greenfield process. They're still not mature. So they still represent a little bit of a drag. And in terms of the total portfolio of greenfields that we've got coming in, they probably represent a bigger percentage today of the overall revenue coming from that than they will in the future. So that will also be a diminishing drag over time. The third element is I think that what we're starting to see now is the impact of the initiatives that we put in place a couple of years ago, like the pricing model, like a private label product line that's expanding, like the digital initiatives; they are now starting to really get traction. And while we've been working on them, they really haven't contributed to our P&L in a significant way. So it is certainly something we're focused on. It's certainly something we feel confident about when we look at the underlying business. This is not solely a one-year phenomenon; it's not a multiyear drag. We will start to get back to EBITDA growth that would exceed our top line growth. Margin expansion is something we're certainly focused on continuing to deliver double-digit EBITDA margins on an ongoing basis. And more importantly, getting back to a point where we believe we can actually consistently grow EBITDA margins.

The next question is from the line of Mike Dahl with RBC.

I wanted to ask about inventory. Obviously, Carmelo articulated a number of the moving pieces in there. Can you just be more specific about how you would characterize your residential shingle inventory? How much was the prebuy? So quantify that on the inventory side. And also, you alluded to the 26% margin, including benefit, but then the full year price cost neutral. So what's the quantify the gross margin benefit in Q2? And then do we think about that as effectively just offsetting the price cost headwind that you saw in Q1 and then the second half gross margin would effectively be price cost neutral?

All right, Mike, thanks for the question. Yes, so as we said in our prepared remarks, we, of course, built inventory in Q1 this year. And this is, of course, compared to last year when we were actually coming off a period of building inventory and actually bringing inventory down. We had a very different outlook at this time last year compared to what we had coming into this year. So we wanted to be prepared to serve the market well. And also, as you mentioned, of course, we wanted to be prepared to take advantage of the price increase. The thing that also I wanted to mention is, of course, we performed acquisitions and greenfield. So these were also elements that we wanted to make sure that we were able to support the growth coming from these investments with our inventory. All in all, I think the impact on inventory profit that we will see in Q2, I would characterize in the low single digit, probably on our price and on our margin performance in Q2. And that's, I think, the time in which I think the inventory profit will then wind down in Q3. I think that's pretty much what I would say.

Yes, Mike. Coming into the year, we were pretty confident about some of the carryover demand in residential markets particularly in the Western half of the country, where a lot of the storms occurred last year. So we wanted to make sure unlike last year that we were bringing in the right product lines, particularly in shingles. So the bulk of inventory investment has been in the residential product lines. We've been very carefully managing the overall commercial side of things. But we've certainly wanted to add to shingle inventory. We think that was broad-based in the industry. I mean you look at the manufacturer shipments, they were up by, I think, low double digits over the prior year. So we think the manufacturers shipped more broadly. So we think the manufacturers shifted supply and we took everything we could to put it in the right place. There's a couple of markets that are off and we're watching those, but we really tilted our inventory strategy towards the residential markets, knowing that that would be a good opportunity. We came into the year with that plan. And then to have the manufacturers come out with an April 1 increase, we doubled down on it and wanted to make sure that we were well placed.

The next question is from the line of Reuben Garner with The Benchmark Company.

Two-part question on the M&A side. Just a clarification, Julian, the recent acquisitions you cited that maybe were more low to mid-single-digit EBITDA margin businesses. Are those the siding and waterproofing kind of complementary businesses and if so, I guess, what do you guys bring? Is it purchasing power in some of those product categories that can kind of get you closer to the company average over time? Or is it simply kind of rolling through your operating processes? And then the second part of the question is, what's the pipeline look any change recently with rate moves or anything else in the outlook there?

Sure. Happy to talk about that. So the acquisitions I'm referring to were primarily in our complementary business, you're right about that. So that's where the drag was. They were generally the businesses that we had larger scale businesses, the larger acquisitions that we've done. In terms of what we bring, we've got a complementary business that operates at sort of double-digit EBITDA margins overall, in line with the rest of the market. So we know where some of the operating improvements we can deliver are. Certainly, we think that scale matters and we can bring something to the purchasing side of it. But I think it's also operational capabilities. TRI-BUILT, digital, all of those things that we know how to now implement. The addition of this dedicated M&A and integration team that we have has really enhanced our capabilities. And we see the ability to drive improvements in operations, inventory management and all of these areas. So we think that we can certainly move those mid-single-digit businesses up to at least the company average over the next couple of years. We're really excited about being able to bring those businesses in because we think we've built a capability around doing that. In terms of the pipeline, I'd say that it remains robust. I don't think that interest rates have changed the level of activity. We are very active with potential sellers. Obviously, we've conducted a number of acquisitions this year. We've talked about the multiple acquisitions we've done over the last two years since we got back in the game. We do not see that slowing down. We're looking for ones of scale as well as tuck-ins. We're in discussions with as many as we have been at any point over the last two years. So no slowdown in that at all, and we're excited about the opportunities that are being presented to us.

The next question is from the line of Ketan Mamtora with BMO.

Julian, I'm just curious, as you think about your full year EBITDA guidance, what gets you to the top end versus the bottom end of the guidance? Is it storms? Is it how the commercial side holds up?

Yes. Look, it's all of those things, Ketan. We're probably a little bit more optimistic. Obviously, we've raised our guidance now. I think there's a little—some elements to the current pricing execution. We believe we've got good momentum there. We've only been at that for sort of 30 days now. It usually takes six to eight weeks for that to fully form and for the WACC to adjust for our costs, so we can see clearly what we've accomplished. We're certainly pleased with the early signs. I would tell you there are markets out there where it's harder to move the numbers in some weaker markets. Florida, for example, has been a challenge. If you looked at manufacturer shipments, they were down 30% in Florida in the first quarter. So Florida is a market where we're not expecting great realization. But the rest of the country, we're bullish about where that's taking us. It's going to be important for both the second quarter but also full year. So we remain positive there. Sentiment around commercial, like I said, seems to be improving despite the fact that the ABI remains below 50. We're seeing good momentum there. We believe we're earning market share with the initiatives that we have in place that would help. Certainly, storms above average relative to the 10-year average would drive us towards the top end of that guidance range, but M&A would contribute as well. So we've got multiple paths to growth and multiple paths to margin expansion, and we're working on all of them. It's not solely to do with storms. If we can get greenfields and acquired branches to ramp a little bit quicker with the initiatives that we're putting in place, and deploy digital and private label to acquired branches efficiently, that would also help to drive to the top end of the range. We feel we've built a very robust model around all of these elements.

The next question is from the line of Garik Shmois with Loop Capital.

I just wanted to follow up on the point around the market being weak in some areas. I'm just curious if there's been any impact from geographic mix, either positive or negative, either in Q1 or your outlook for the rest of the year. You spoke to product mix being a headwind in the quarter with higher commercial sales, but just wondering about any geographic mix issues?

Yes. This is something that we've been talking about a little bit recently. First of all, the impact on gross margins as the geographic mix has shifted towards the South and sort of the West, that impacts gross margin. It's a truism that we can improve gross margin in all product lines and in all geographies and have the corporate gross margin go down because of geographic shift. The Southern part of the U.S. tends to be slightly lower gross margins. So that shift there is a little bit of a drag. It's not a huge one right now, but we're watching that. Obviously, when you have storms in the Southern part that drives a lot of volume there, which tends to drag down our gross margin, but it has no impact on our EBITDA margins. EBITDA margins are relatively stable across the country. So it affects the gross margin level, but it does not have an impact at the EBITDA margin level, which is why we think that the focus on EBITDA margin is more important ultimately. I don't think we've seen any particular shift around that. The one thing I would say is, particularly if you think about the first quarter last year, it was heavy shingles because of Hurricane Ian, and that was in Florida. When you look at it now, obviously, you've got the dip after Ian, that's all been worked through. The shift has been more towards nonresidential just because there's much lower demand in the residential shingle category in that area. So that's also having a little bit of a mix shift towards the negative. But again, our EBITDA margins are where we're really focused.

The next question is from the line of Adam Baumgarten with Zelman & Associates.

One of your commercial roofing suppliers have talked about weather as being a benefit in the first quarter. I think a couple of extra days on the roof is the way they cited it. Did you feel that benefit? And then also just on the pricing front there, there's some increases out over the next two or three months, how do you think nonresidential roofing price increases will fare as you go forward, given your improved outlook?

Sure. Interesting that a manufacturer would say that they got extra days of roofing since they don't actually go out on the roof — they're shipping into our locations. So I'm not exactly sure how that impacts them in the same way as it impacts us. What I would tell you about the first quarter is that we actually had quite a few what I'd call light rain days, which means no one gets up on a roof, but it doesn't have much of an impact on people's propensity to need a new roof. Heavy rains have a different impact. But what we did see was that on days where we had uniform roofing weather across the country, demand was really good. We did see quite a bit of volatility. January was a little bit rough. February and March were pretty good. The early weeks of April were down, but then the second half of April was very strong. So it kind of bounced all over the place. But on good roofing days, demand was very healthy. That is reflected in our OpEx line and our decision to keep people in the branches rather than winterize like we normally would. We were pretty convinced coming into the year that on good weather days, we would see demand. So we were pleased with what we saw. As we get out of that mixed weather pattern and get into May and June, I think we're going to see really nice demand on the residential side. And like I said, we're seeing a nice pickup in commercial. Regarding commercial pricing, we said it was down mid-single digits year-over-year, but stable sequentially. I think that pattern will continue. We think it will remain fairly constructive and see positive inflection in terms of volumes. Overall, the market is very healthy.

The next question is from the line of Stanley Elliott with Stifel.

Everybody, thank you for the question, and thanks for fitting me in. Julian, quick question. With one of the big box players looking to get into the space, I mean I understand we're just past the announcement. Does this create any sort of customer disruption down the road? Or would you envision that? Does it change maybe how you think about the business strategically? Or is this something basically where the dynamic is such that the three biggest players continue to take share from the smaller players. I understand we're very early in the process, but we'd love to see how you guys are thinking about that.

Yes. Obviously, it was something that had us putting our thinking caps on and deciding what we're going to see. Based on how we've seen the characterization of Home Depot's potential purchase of SRS so far, this is still going to play out and it's not closed. I don't believe that it creates a fundamentally different market dynamic. I can't honestly say that any of our customers are going to believe they're buying from Home Depot in the same way as from a professional roofing distribution company. I wouldn't expect a tremendous amount of disruption there, but we'll see how that plays out. What it really emphasized to the team here was the discrepancy between public and private markets in terms of valuations of roofing companies. This is a very strong multiple. We've said we believe we're undervalued. We've explained that private market transactions seem to be happening at certainly higher multiples than we're trading at. We think we're executing as well as anyone in the market today and delivering results that are as strong as any company out there. We continue to be frustrated by the multiple that we garner in the public marketplace. This is something that will continue to play out. I don't think it's going to have a long-term effect on our strategy. We still believe that the three biggest public players will likely continue to take share from smaller players. We think size matters in this industry. We think the investments in digital and private label, our ability to deploy resources against greenfields to attract and develop talent, and to have the best people on the playing field are all important. That's where we're spending our money. So I don't think it changes our strategy; it just highlights the valuation gap between public and private markets.

That concludes our Q&A session. I would like to turn the call back over to Julian Francis for closing comments.

Thanks, Joel, and I appreciate everyone's interest today. Before I close, I want to look across the table and thank my colleague and friend, Carmelo Carrubba, for his contributions as interim CFO. And I also want to welcome Prithvi Gandhi, who's sitting here with us today and who will assume his role starting this weekend. Prith has a proven track record in financial leadership, particularly in the building products industry and that makes him a valuable addition to our team. He and I know each other well from our time at Owens Corning together. We know we have a great partnership, and we know we'll work well together. So Prith, please.

Thanks, Julian, and good evening, everyone. I'm honored to join Beacon's team. The team continues to demonstrate really strong execution. I'd also like to thank and acknowledge Carmelo and his leadership. It's made it very easy for me to step in here, and I look forward to meeting and engaging with all of you in the coming days. So thank you.

Thanks, Prith, and thank everyone on the call for joining us today, and thank you to our team members for their relentless focus on execution in the field, which is so important to us. We appreciate your interest in Beacon. Thank you.

That concludes today's call. Thank you all for your participation. You may now disconnect your lines.