QXO, Inc. Q3 FY2024 Earnings Call

Good morning, ladies and gentlemen, and welcome to the Beacon Third Quarter 2024 Earnings Call. My name is Ezra, and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be conducting a question-and-answer session towards the end of this call. At that time, I will give you instructions on how to ask a question. 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.

Thank you, Ezra. Good morning, everybody, and as always, we thank you for taking the time to join our call. Today, I am joined by Julian Francis, our Chief Executive Officer; and Prithvi Gandhi, Beacon’s Chief Financial Officer. Julian and Prith 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 relate strictly to historic 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, October 31, 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 morning, everyone. Let’s begin on Slide 4. Beacon’s third quarter results continue to demonstrate the resilience of our industry and this team’s execution on our Ambition 2025 plan. We have multiple paths to top-line growth and margin expansion and continue to deliver record numbers for the company. Our end markets are underpinned by the repair and replacement cycle of exterior weatherproofing products on residential housing and commercial buildings. The majority of this demand is non-discretionary. And while core demand remains good, the overall level of activity came in lower than we anticipated in the third quarter. Nevertheless, the Beacon team delivered by continuing to focus on our strategic plan and areas within our control. In the third quarter, we grew daily sales by nearly 6% year-over-year, driven primarily by our acquisitions. Our gross margin came in at 26.3%, above our prior guidance, through our team’s disciplined margin management. Notably, we were price-cost positive across all three lines of business. We stayed focused on cost management and continuous improvement. During the quarter, we took action to lower operating expenses and aligned costs with market conditions. As a result, we achieved record top-line and strong bottom-line performance, including a record for quarterly adjusted EBITDA. We continued to use our cash flow and balance sheet capacity to reinvest in organic growth, conduct M&A, and return capital to shareholders. We have acquired seven companies since the end of the second quarter. I’d like to highlight the addition of Passaic Metal and Building Supplies. Headquartered in Clifton, New Jersey, Passaic adds strength to our commercial solutions footprint with eight branches in New Jersey and one in New York. For more than 100 years, the Gurtman family has built a reputation for providing commercial contractors in the region the most professional service and technical support. This acquisition significantly strengthens our position in commercial roofing and related businesses in the state. Our Ambition 2025 plan is entirely about unlocking the potential of Beacon, and I can confidently say today we are well on our way to achieving that goal. Now, please turn to Page 5. As most of you know, we laid out our targets to invest today to drive above-market growth, deliver consistent double-digit adjusted EBITDA margins, build a great organization, and generate superior shareholder returns. A relentless focus on our customers is central to how we operate and for achieving those goals. Our team works every day to deliver a great customer experience. Let me provide you with an update on our strategic initiatives, starting in a few ways that we are building a winning culture. One of our community support pillars is empowering people to build skills and achieve their goals. In the past few quarters we have donated funds and expertise to the Roofing Industry Center at Clemson University. The center’s top goal is attracting and training professionals in the industry. I’m pleased to say that online courses are already available to anyone considering a career in roofing and a number of our own employees have advanced their skills by completing the eight-week course. Further, in September, our team announced that Beacon has officially partnered with the U.S. Army’s Partnership for Your Success, or PaYS, program. This exciting new collaboration highlights our unwavering commitment to supporting veterans by providing them with rewarding career opportunities across our nationwide footprint. The PaYS program connects soldiers with top employers, ensuring that they have a clear path to civilian careers after their military service. As a PaYS partner, Beacon guarantees soldiers an interview that allows them to showcase their skills, discipline, and leadership, in addition to learning about career opportunities. And for those of you who’ve listened to our calls in the past, you may recall that we established Beacon CaReS four years ago. Beacon CaReS is an employee crisis relief support fund that provides grants to employees coping with unexpected financial hardships resulting from natural disasters or other personal situations. Hundreds of our team members live and work in the path of the recent storms, and during the quarter, the Beacon team made donations totaling $100,000 to the fund. I’m thankful that all of our employees are safe and that we have a program in Beacon CaReS to ease some of their hardship. Our second pillar is driving above-market growth and enhancing margins through a set of targeted initiatives. Our greenfield team continues to execute on our pipeline of new locations, and we have opened 17 branches year-to-date. Each time we open a new location, 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 62 new branches since the beginning of 2022, well ahead of our original Ambition 2025 goal of 40 total. Turning to acquisitions. We discussed our recent purchase of Passaic earlier. We also highlighted the acquisition of Roofers Mart, Extreme Metal, and Integrity Metals on our call in August. We completed three other acquisitions since the end of the second quarter, including SSR in Canada, Chicago Metal Supply, and Ryan Building Products in Massachusetts. Collectively, these acquisitions add to our commercial footprint and enhance our customer solutions. I’m pleased to report that our acquisition portfolio is performing well and delivering better-than-expected results. Since announcing our Ambition 2025 plan, we have acquired 24 companies adding 83 branches, which together are generating around $1 billion in annual revenue. In the third quarter, we grew digital sales approximately 28% year-over-year. Digital sales to our residential customers were once again a highlight as we achieved our highest quarterly adoption ever at more than 28%. Our online capability continues to be a clear competitive advantage for Beacon and sales through our digital platform increase customer loyalty, generate larger basket sizes, and enhance margin by roughly 150 basis points when compared with offline channels. In September, we announced the launch of Beacon PRO+ in Canada. Now, our customers there can enjoy our robust no-cost digital tool that is used by thousands of U.S. roofing contractors to manage their business and sales process anywhere at any time. Many of you know that our private label line of products sold under the TRI-BUILT brand delivers professional results for customers at a competitive price and yields between 500 and 2,000 basis points of additional margin versus branded alternatives. I’m pleased to report that TRI-BUILT ISO, our newest addition to our expanding private label line, launched in the second quarter, is off to a great start and helped drive private label sales higher by 12% year-on-year. Our customers have come to rely on TRI-BUILT products available exclusively through Beacon, and we will continue to support them through our extensive and growing catalog of product offerings. First, and as we have discussed for several quarters, we are enhancing productivity, capacity, and safety through our continuous improvement and operational excellence initiatives. Our focus on the bottom-quintile branches has generated meaningful contributions to EBITDA, and this year is no different. Our disciplined process for diagnosing and addressing issues has been core to our operational improvement in the last four years. I’m pleased to report that the process contributed approximately $9 million of EBITDA year-over-year in the third quarter. And as you may recall from our first quarter call, we held our annual company-wide safety stand-down, in which all of our branches and employees paused and recommitted to making every day safer. This year, we put a spotlight on newer employees who are at greater risk of injuries through strains and sprains. I’m pleased to report that our focus has already resulted in tangible improvements. We are well on our way to achieving our goal of reducing strains and sprains by 50% this year. Fourth, let’s review how we’re creating shareholder value. As previously announced, during the second quarter, we entered into an additional accelerated share repurchase program in the amount of $225 million. The share buyback program demonstrates both our commitment to delivering value to shareholders and our confidence in the Ambition 2025 plan. Since the start of Ambition 2025, we have deployed more than $1.5 billion to share buybacks, reducing the as-converted share count by approximately 23%. In summary, we have a differentiated service model and have built the tools to enable multiple paths to growth, margin expansion, and value creation through the cycle. Our Ambition 2025 plan has seamlessly stitched it all together into an operating model to amplify the resiliency of our business model and unlock our potential. Now, I’ll pass the call over to Prith to provide a deeper focus on our third quarter results.

Thanks, Julian, and good morning, everyone. Turning to Slide 7, we achieved nearly $2.8 billion in total net sales in the third quarter, up more than 7%, primarily driven by the impact of acquisitions. Adjusting for the one additional day in the third quarter of this year, net sales increased by almost 6%. Higher average selling prices also contributed to the annual growth in sales. Organic volumes, including those from greenfields, decreased approximately 1% to 2% per day, while overall price contributed 1% to 2%. Acquisitions completed within the last 12 months are performing well and contributed a little more than 5.5% in total sales year-over-year. Residential roofing sales per day were higher by less than 1% as higher prices resulting from our diligent execution of the August price increase contributed low-single-digit percent year-over-year. Acquisitions also offset lower organic volumes versus a high shingle comparable in the prior year period. While our residential volumes were down in the quarter, we estimate that our volumes were in line with the overall market. Non-residential sales per day increased by nearly 8% based on strong repair and reroof activity and the solid market execution by our team. Prices remained stable on a sequential basis and declined in the low-single-digits year-over-year. Bidding and quoting remain at healthy levels. We also continue to see a shift from new construction to repair and reroofing activity in the third quarter. Complementary sales per day increased by more than 15% driven by acquisitions. We have acquired 20 new waterproofing branches in the last four quarters, significantly expanding our specialty waterproofing products division. Selling prices in complementary were flat year-over-year. Please keep in mind that our complementary product category now has approximately 70% residential and 30% non-residential exposure. Turning to Slide 8, we’ll review gross margin and operating expense. Gross margin was 26.3% in the third quarter, up 30 basis points year-over-year and higher than our forecast. It is worth noting that this is the fourth consecutive third quarter gross margin of 26% or higher. As Julian highlighted, this is driven by positive price-cost across all three lines of business. In total, price-cost was up approximately 50 basis points year-over-year, as higher average selling prices were partially offset by product inflation. In addition, higher sales through our digital channel and growth of our private label products continue to be accretive to Beacon’s gross margin. These favorable contributions were partially offset by higher non-residential sales and the dilutive impact of M&A we’ve conducted in the past year that has yet to be fully synergized. Adjusted operating expense was $443 million, an increase of approximately $48 million compared to the prior year quarter. Adjusted operating expense as a percentage of sales increased to 16%, up 70 basis points year-over-year. Expenses associated with acquired and greenfield branches contributed approximately $34 million or about 70% of the increase in adjusted OpEx. Inflationary wages and benefits as well as warehouse operating costs also contributed to the increase in adjusted OpEx. As you may recall from our second quarter call, we said that we would adjust to market conditions and balance operating efficiency and high service levels in the second half of the year, and in the third quarter, we did exactly that by taking action to align our OpEx with the level of activity that we are seeing in our markets. Restructuring charges associated with the cost actions consisting of one-time severance and employee benefit costs were approximately $11 million in the quarter and the full impact of the savings will be realized in Q4 and beyond. We estimate the annualized impact of these actions to be approximately $45 million in reduced operating expenses. Going forward, we will continue to build on our track record of agility and stand ready to respond to changing market conditions. At the same time, we are focused on investing to drive and support above-market growth and margin enhancement as part of Ambition 2025. These investments include initiatives related to our sales organization, private label, pricing tools, e-commerce technologies, and branch optimization. Turning now to Slide 9, operating cash flow in the quarter was solid at nearly $250 million, largely attributable to the $117 million sequential reduction in net inventory. That said, as a result of the recent hurricane activity, we will be balancing conversion of inventory with ensuring we have adequate product availability for our customers in the storm-affected regions of the country. On a year-over-year basis, inventory was higher by $186 million, driven mostly by inventory from acquired branches and greenfield load-ins. Inflation in our product costs also contributed to the increase. As of the end of the third quarter, our net debt leverage at approximately 3.1 times was slightly above our targeted 2 to 3 times range. We continue to expect solid cash generation in the fourth quarter, the majority of which will be used to pay down our seasonal borrowings and bring net debt leverage within our targeted range. More generally, our capital allocation will continue to be balanced between deploying cash in our existing business, executing on the active value-creating acquisition pipeline, and providing returns to our shareholders in the form of share repurchases. For 2024, we expect to invest approximately $125 million in capital expenditures to drive organic growth and to upgrade our fleet and facilities in support of our customers and employees. While Julian previously covered the share repurchase program, let me remind you of some additional details that may be helpful. In the second quarter, we entered into a $225 million accelerated share repurchase plan that resulted in the retirement of approximately 1.9 million shares, or $180 million. As a result, net of share issuances for stock-based compensation, we reduced our common shares outstanding to 61.9 million on September 30 versus 63.6 million at March 31. The remaining $45 million equity forward contract is expected to settle in the fourth quarter of 2024 and result in the estimated repurchase and retirement of approximately 600,000 additional shares based on our stock price as of the end of the quarter. With that, I’ll turn the call back to Julian for his closing remarks.

Thanks, Prith, and please reference Page 11 of the slide materials. So before we head to Q&A, I’d like to update you on our outlook for the remainder of the year. As we look forward, we expect the current conditions will continue in the fourth quarter. New housing starts and existing home sales are expected to remain subdued. Commercial sentiment remains favorable and we continue to expect repair and reroof to outpace new construction in this area. With respect to hurricane demand, let me first say that the communities impacted are in our thoughts and we will continue to support local communities as they recover. In terms of business impact, initial estimates show the volumes required to repair and reconstruct will be approximately 3 million squares or around 2% of annual industry shipments. Keep in mind that these volumes will be spread over the next six quarters. In October, we believe we will set a record for monthly sales of more than $1 billion or 6% year-over-year on a daily basis. For the fourth quarter, we expect total sales per day growth to be up mid-single-digits percentage year-over-year. Please remember that we will be lapping a record fourth quarter in which we saw significant volumes across all three lines of business. We expect gross margins to be in the mid-25% range. For the full year, assuming a normal seasonal slowdown, we now expect adjusted EBITDA in the lower half of our previously communicated guidance, and importantly, as Prith mentioned, we expect to finish the year with significant cash flow. Our focus remains on the areas within our control, including safety, customer experience, operational excellence, and pricing execution. We will continue to deploy capital on initiatives that we expect will result in accelerated growth, including executing on acquisitions and delivering on our greenfield locations, which we expect to be around 20 branches in 2024. Looking forward, we plan to continue making investments in our sales organization and our service model, our digital offering, our TRI-BUILT private brand categories. As we end the year, I’m pleased with the progress this team has made. Over the last three years, we have improved our operations, delivered results, and invested for the future. We have built capabilities resulting in accelerated performance. We have demonstrated that our business model is resilient, and we can deliver strong results in any market. We’re looking forward to a strong finish to the year and helping our customers build more. And with that, Ezra, we’ll open it up for questions.

Thank you, Mr. Francis. Our first question comes from Philip Ng with Jefferies. Philip, your line is now open. Please go ahead.

Hey, guys. Congrats on a solid quarter in a choppy environment. I guess first question, and it’s obviously uncomfortable to ask about hurricanes, but from a setup standpoint for you guys, Florida’s generally been a little weaker market for you in just the broader industry, lack of storm demand. I’m curious, how are you set up from an inventory standpoint to kind of meet that demand? And just, more broadly, the industry is pretty tight from an allocation standpoint. So help us think through what this could mean for you from an uplift standpoint and how this kind of ramps up. You’re guiding a mid-single-digit growth number in the fourth quarter. Are you going to see that kind of pick up as well in the fourth quarter?

Thanks for the question and your comments. Let me take a step back and set it up and then touch on what we saw. We’ve seen Florida weak all year and we commented on it throughout the year. Coming into Q3, we were expecting a pickup in demand across the country from weather impacts in Q2. We thought that pickup would be more delayed into Q3, so we expected a bigger pickup in Q3 than we actually saw, and we saw additional softening in some markets including Florida and that’s ultimately why we decided to make adjustments to our cost structure. As the storms rolled in, we had three hurricanes impact the U.S. during Q3—Debbie, Francine, and Helene—which shut things down in the short term. Helene was particularly devastating. Then Milton came through at the start of the fourth quarter and impacted Florida. Regarding the impact we’ll see, Helene created significant flooding, especially in North Carolina, and there’s a lot of infrastructure work that needs to get done. We don’t expect that to have a significant impact on demand this year because there’s so much rebuilding that must occur before it impacts our results. In the first few weeks of the quarter in October, it was difficult to operate because trucks and logistics were affected by infrastructure damage. So that will be a slow burn. For Milton, which impacted much of Florida, there was significant destruction. From our experience with Ian, it typically took two to three months for demand to really pick up. We see an immediate impact for remediation and emergency repairs, but reconstruction generally begins a couple of months later. So we would expect to see some pickup in December, but a meaningful recovery in the region is likely next year, which is why we indicated it could take four to six quarters before the full impact comes through. On the product side, the Southeast has been weak all year, and manufacturers have had some availability issues; we’ve been managing that carefully. In the fourth quarter, we want to ensure we get the product needed into affected markets. We are redirecting product from other parts of the country, both from manufacturers and through what we have in inventory, into the storm-impacted regions. We believe availability will be adequate in the short term, but going into 2025 things will likely remain relatively tight. I hope that provides useful color.

That’s super helpful. Julian, sorry to sneak one more in. Would your waterproofing business benefit from some of the recovery work or is it largely on the residential shingle side of things?

Our businesses will see demand across multiple categories. Infrastructure and commercial construction work will be involved in the recovery, not just shingles. Windows, flashings, and other items need to be repaired or replaced, so we would expect to see benefits in commercial and in our waterproofing division. With the acquisition of Coastal a couple of years ago, we have strong capabilities in Florida, so we would expect to see some benefit from that.

Our next question is from Kathryn Thompson with Thompson Research Group. Kathryn, your line is now open. Please go ahead.

Hey, good morning. This is Brian Biros on for Kathryn. Thanks for taking my question today. On the non-res market, can you maybe just touch on how specific verticals are performing and how that gets from new construction to repair and reroof? I think you mentioned in the prepared remarks you’re seeing commercial repair demand accelerating. Is that pent-up demand, storms, or only in certain verticals? How would you characterize the non-res market heading into 2025?

Absolutely. During COVID, supply chain disruptions led to prioritization of new construction over repair and replace because finishing new construction typically involved more immediate project completion. As supply availability eased, the delayed repair and replace on the commercial side has started to pick up, and that’s been particularly strong. There was an earlier period, around 2022, where warehouse construction surged; while that has eased, it’s still a large part of industry activity. Warehouses and data centers are often low-slope buildings that demand a lot of roofing. The shift to repair and replace is a product mix shift for us, with somewhat less insulation relative to new construction. Overall, commercial repair and reroof has held up better than we had anticipated. On our Q4 call earlier this year I had expressed concern about the commercial segment, but it has been constructive and we are executing well in that space. I remain cautiously optimistic about the commercial outlook.

A couple of small additions to what Julian said: we’ve seen strength in hospitals and school segments, driven by infrastructure rebuilds and retrofits. Also, with the high interest rate environment, we expect new construction to remain somewhat muted. That could change in the second half of next year if interest rates come down per expectations.

Ezra, any other questions?

Our next question is from Ryan Merkel with William Blair. Ryan, your line is now open. Please go ahead.

Hey, thanks. Good morning. I wanted to ask about fourth quarter gross margin guidance being in the mid-25% range. Is that normal seasonality because it looks like it’s a little more than normal seasonality? Talk about some of the drivers there, please.

Part of it is normal seasonality. Higher-margin regions tend to be in the North where operating costs like rents in larger cities are higher. As activity slows in the winter months in those regions, gross margin can deteriorate a bit, though that doesn’t necessarily mean EBITDA margin will deteriorate similarly. There is also a geographic shift in product flows. Another element is product mix, which can tilt a bit more toward commercial and complementary products in Q4 versus the shingle-heavy residential mix, and that can lower gross margin. Additionally, as price increases fully flow through the system, there can be timing effects, but the main driver is geography and mix.

A couple of additional points: in the South there is more new construction, which tends to have lower gross margins. If you look at the implied guidance for Q4 margin, it’s consistent with our post-COVID margins, aside from the very high inflationary period of 2021 and 2022.

All right. That’s clear. Thanks.

Our next question is from Ketan Mamtora with BMO. Ketan, your line is now open. Please go ahead.

Good morning, and thanks for taking my question. Perhaps Julian, can you talk a little bit about underlying growth trends in the waterproofing business, excluding the hurricane impact in Q3? How is that business performing relative to your growth expectations, and how are the margins in that business relative to Beacon's average?

Great question. We acquired Coastal at the end of 2022 to expand our specialty waterproofing distribution. We believe waterproofing is a higher-growth segment than the core roofing business. The Surfside condominium collapse highlighted the importance of waterproofing, and municipalities like Miami-Dade County have imposed new requirements that emphasize remediation and maintenance, which supports demand. This is not limited to coastal or southern markets; it’s relevant across the country. We’ve grown from roughly mid-$100 million of sales at the end of 2022 to a run rate above $700 million. We have acquired multiple businesses to build a nationwide specialty waterproofing distribution platform. In terms of margin profile, it’s more similar to residential than commercial, and we expect it to be accretive over time. The leadership team has a plan to operate above our average gross and EBITDA margins in the long run. Some recent acquisitions this year need work to reach those targets, but we’re excited about the platform and its alignment with our commercial roofing business.

Thanks, Julian.

Our next question is from Michael Rehaut with JPMorgan. Michael, your line is now open. Please go ahead.

Thanks. Good morning, everyone. Maybe a two-parter. First, can you help us understand the drivers of now expecting to achieve full-year EBITDA in the lower half of the prior range? Second, going into 2025, when you gave initial guidance for 2024 you cited a headwind from new branches and M&A. With continued acquisitions, should we expect a similar drag, or will profit improvement initiatives allow margin expansion to resume?

Thanks, Mike. On margin expansion, that remains a key focus. This year, the greenfields we launched earlier in the year were a shift from prior years and were a bit of a drag. We also had softer market conditions and some acquisitions this year were mid- to low-single-digit EBITDA margins, which created dilution until they are fully synergized. We haven’t fully realized synergies yet, but our acquisition portfolio is performing ahead of plan and we’re seeing top-line and bottom-line improvements. The first half of onboarding acquisitions can be a drag, but we expect less of a drag going forward. We entered the year expecting some margin pressure and we’ve largely delivered on our guide for the full year, though the full-year EBITDA will be in the lower half of the previously communicated range. We feel good about the fundamentals and our ability to drive margins over time.

Mike, on the full-year guidance question: on our Q2 call we said we expected high-single-digit growth in sales per day for Q3, but we finished the quarter around 6%. That’s why we now expect full-year sales per day growth in the mid- to high-single-digits, versus prior expectations of high-single-digits. On gross margin, we continue to expect a full-year rate in the mid-25% range. Regarding OpEx, the actions we took in Q3 position us to finish the full year with adjusted OpEx to sales in the low- to mid-17% range, slightly above our target. We manage to about 17% as a goal and expect to be better positioned to hit that in 2025. Put together, these items lead to ending the year in the lower half of the $930 million to $970 million adjusted EBITDA range.

Great.

Our next question is from Mike Dahl with RBC. Mike, your line is now open. Please go ahead.

Thanks, Julian and Prith. I want to pick up on the OpEx comments. The actions you’re taking are characterized as headcount reductions. Some of that could be temporary and you might rehire as volumes come back. How are you thinking about structural actions? As you look at next year and the goal to manage back toward 17%, what programmatic actions will bring that down?

You’ll recall prior calls where we discussed sales-per-hour productivity and progress in branch productivity. This year we had weaker-than-expected demand in some markets, particularly Florida, and we took actions through the year to manage headcount and OpEx. Some of the actions in Q3 were a reset to align capacity with demand. Outside Florida, volumes grew across the rest of the country; Florida was an outlier and a very tough market. When we grow, we’ll add people to service the business, but we want to be disciplined about timing. We are focused on driving productivity in branches and sales and managing toward a 17% OpEx target. There is likely more efficiency to capture, but in a distribution business there can be quarter-to-quarter variance.

A couple of points: we did many acquisitions and greenfields in 2024, so as those branches mature in 2025 we expect synergy realization and margin improvement. We’ve also learned from this year, and through the budgeting process we will be more circumspect about adding operating costs in anticipation of the busy season; we’ll bias toward adding resources in line with demand. Additionally, some headcount actions were in corporate functions as well, and we expect to drive leverage from those going forward.

Okay. Very helpful. Thank you both.

Our next question is from David Manthey with Baird. David, your line is now open. Please go ahead.

Thanks very much. Good morning. I have three factual items grouped together. First, based on the deals you’ve done to date, what incremental revenue carryover would you expect into 2025? Second, interest expense guidance moved from about $177 million last quarter to $184 million—can you touch on the drivers? Third, TRI-BUILT grew 12% year-on-year; by my math that’s about $280 million and a little over 10% of sales today—can you confirm those facts?

On the revenue carryover from the transactions this year, it should be in the ballpark of 3% to 4% of total revenue going into next year. TRI-BUILT’s growth and your math are in the right ballpark on total sales for the quarter. On interest expense, we have been carrying a higher debt balance through the year given the share buyback and other actions, and interest rates have risen. Those are the two primary reasons for higher interest expense.

Very helpful. Thank you.

Our next question is from Garik Shmois with Loop Capital. Garik, your line is now open. Please go ahead.

Hi. I was hoping you could expand on the 50 basis points of positive price-cost you talked about in the quarter. Is that mainly inventory profits from the August price increase and, more broadly, how should we think about price-cost moving forward?

It was multiple factors. We executed the August shingle price increase diligently and realized similar benefits to the April increase. While there may be some inventory profit in the quarter, the bigger driver was execution. We also managed commercial pricing and mix effectively in a softer demand environment. Execution across residential and commercial was a primary contributor to the positive price-cost result.

On the residential side, price realization was similar to what we saw with the August increase. On the commercial side, this is the first time in a while that we’ve seen favorable price-cost even in a declining price environment, which reflects good management of mix and operations.

Looking forward, hurricane-driven demand will affect product availability and could meaningfully influence pricing dynamics going into next year. New construction has been under pressure, but storms in the Southeast will firm that part of the market. We’ll continue to manage these dynamics across regions and product categories.

Great. Thank you.

Our next question is from David MacGregor with Longbow Research. David, your line is now open. Please go ahead.

Thank you. Good morning. I wanted to ask about the private label business where you reported 12% sales growth. Can you unpack that for us? How much of the growth is from adding SKUs versus evolving contractor preferences? Any breakdown by residential, non-residential, or complementary? Also, how are you managing relationships with vendors as private label expands?

We have been biased toward residential products, but we are expanding into commercial categories. The introduction of a commercial insulation product this year helped drive growth. Private label growth comes from both expanding existing categories and adding new SKUs. Customers value having differentiated, high-quality products they can offer to end customers, which helps our contractors compete. Regarding vendor relationships, this is a common strategy in distribution and retail. We maintain strong partnerships with manufacturers; they understand the strategy and coexist with our private label offerings. We manage those relationships closely to ensure mutual value.

Okay. Thank you very much.

Our next question is from Adam Baumgarten with Zelman & Associates. Adam, your line is now open. Please go ahead.

Hey, good morning. On greenfield openings, you’ve already eclipsed the Ambition 2025 target and are doing about 20 this year. Any initial thoughts on how greenfields may look next year?

We see a significant continuing opportunity for greenfields. Adding locations improves our service proposition by reducing delivery times and enabling contractors to be more efficient, which is critical given labor constraints. We expect to continue adding 20-plus branches next year and believe the market is not saturated for Beacon branches. We will balance greenfields with M&A—if an acquisition fills a market quickly and efficiently, we’ll consider that—but overall expect continued branch expansion.

Got it. Thanks. One follow-up on pricing: given the hurricanes and expected demand over the next year plus, would you anticipate additional manufacturer price increases either later this year or early next year in residential?

I won’t speculate on manufacturers’ strategies, but we have not seen announced shingle price increases from manufacturers recently. We have seen increases in siding. Typically there’s a 30- to 60-day lag between announcement and implementation. I don’t expect further manufacturer increases this year; going into next year, supply-demand dynamics will determine whether manufacturers institute another increase.

Thank you very much, everyone. That concludes the questions. Now, I would like to turn the call back over to Mr. Francis for his closing comments.

Thanks, Ezra, and thanks to everyone for joining us today. I know many of you expressed an interest in hearing more about our future plans. One of the things we’ve been working on is updating our mid-range plans now that we’ve largely locked down most of the Ambition 2025 goals. I’m happy to say we are planning to have an Investor Day in the first half of 2025 to update our longer-term range goals. Stay tuned for additional details. Ultimately, thanks again for joining us today. I want to express my gratitude to our 8,000 associates and team members, particularly those impacted most recently by the storms. I wish you all a very happy Halloween and the best for the remainder of the year, and happy holidays.

Thank you very much, everyone. That concludes today’s call. You may now disconnect your lines.