Beacon Roofing Supply Inc (BECN) 2015 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Beacon Roofing Supply fiscal year 2015 fourth-quarter and year-end conference call. My name is Wes and I will be your coordinator for the call today. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

This call will contain forward-looking statements that fall within the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 regarding future events and the future financial performance of the Company, including the Company's financial outlook.

Bear in mind that such statements are only predictions and actual results may differ materially as a result of risks and uncertainties that pertain to our business. These risks are highlighted in our quarterly and annual SEC filings.

The forward-looking statements contained in this call are based on the information as of today, November 24, 2015 and, except as required by law, the Company undertakes no obligation to update or revise any of these forward-looking statements.

Finally, this call will contain references to certain non-GAAP measures. The reconciliation of these non-GAAP measures is set forth in today's press release.

On this call Beacon Roofing Supply may make forward-looking statements including statements about its plans and objectives and future economic performance. Forward-looking statements are subject to a number of risks and uncertainties.

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 latest Form 10-K.

The Company has posted a summary financial slide presentation on the Investors section of its website under Event and Presentations that will be referenced during management's review of the financial results.

On the call today from Beacon Roofing Supply will be Mr. Paul Isabella, President and CEO, and Mr. Joe Nowicki, Executive Vice President and Chief Financial Officer. I would now like to turn the call over to Mr. Paul Isabella, President and CEO. Please proceed, Mr. Isabella.

Thank you. Good morning and welcome to our 2015 fourth-quarter and full-year earnings call. As mentioned in our press release this morning, we had a very strong fourth quarter, delivering the highest sales and EPS in a quarter in our Company's history.

Our sales for the quarter were approximately $788 million, which represents total growth of 8.4% over the prior year. We delivered $0.75 of adjusted EPS for the quarter, which is 56% growth versus last year.

Our team did an excellent job of delivering solid results by doing what they do best, servicing our customer base and completing the close and launching the integration of RSG into Beacon.

We closed on the RSG deal on October 1 per our planned schedule and we're making solid progress on the integration to date. All in all a great quarter and a very strong finish to the year. Now a little more color on the quarter.

As we mentioned on our last earnings call, the fourth quarter started with a strong July, up 8% in sales, a continuation of the strength we saw especially towards the end of June.

The acquisitions we completed at the beginning of the year, All Weather products of Western Canada, Applicators Sales & Service of Maine, Wholesale Roofing of Texas and ProCoat Systems of Colorado, combined with the greenfield branch growth and existing branch sales were drivers of the 8.4% total growth. A very good mix of both drivers.

(Technical difficulty) of our seven reported regions. In our West and Southeast regions we continue to see strong sales growth. In addition, we saw solid recovery in our Southwest region as it rebounded from a very rainy Q3.

All three of our reported product lines grew over the prior year with residential up over 11% and complementary up almost 18%, commercial was up slightly at 1%. Existing same-day sales were up for all three product lines as well, residential existing sales were up over 7% in the quarter, and this is very encouraging considering market conditions.

Our complementary sales growth in the quarter was driven in large part by our Applicators acquisition in Maine, but we also experienced growth in our existing business as well. Five of our seven reported regions had strong complementary growth with two registering double-digit gains. From a trending perspective this product line has seen positive existing sales growth in 8 of the last 10 quarters.

Our commercial product line registered 1% growth, as I said. We experienced growth in our Northeast region and registered double-digit gains in our Mid-Atlantic, Southeast and West regions. The gains were offset mainly from our Midwest region which had lower demand and some project delays. It is worth noting that commercial sales have grown in seven of the nine prior quarters in existing business.

Along with a solid sales growth, gross margins increased over the prior year and sequentially from Q3. This is the sixth consecutive quarter in which the gross margin percent increased in the highest in 11 quarters. We have made solid progress in gross margins and will continue our focused efforts.

From an operating expense standpoint, we experienced excellent leverage as we grew sales. And excluding one-time costs related to the RSG acquisition and the four other acquisitions made this year, our operating expense as a percent of revenue declined from 16.5% to 15.7% for the quarter.

And our balance sheet remains very strong; inventory per branch decreased sequentially from Q3 and was slightly above last year. We also generated significant cash flow from operations of $109 million which was nearly double the prior year. This enabled us to pay down our entire US revolver at the end of September.

Looking ahead at the current quarter we expect to generate strong cash flows and make progress on our commitment to delever. Our debt leverage ratio on September 30 was 1.41.

And now just some brief comments on the full-year results. We delivered a record $2.5 billion in sales for the year, that is an 8.1% increase over the prior year. Almost half this growth came from acquisitions and the remaining half from existing growth.

We also recorded for your adjusted EPS of $1.38 adjusting for one-time costs related to the RSG acquisition. This is approximately 28% growth over the prior year. And for the year we grew our gross margin percent to 23.7%, picking up 100 basis points versus 2014, a very good finish to the year.

Now I'd like to provide an update on the RSG integration. The integration process has been very robust since the October 1 close. We are leveraging focused teams of employees from both organizations to maximize customer service and sales growth while delivering on planned synergies.

We have set up a comprehensive and proven framework that we are following rigorously to ensure all deliverables are being met. I am personally very active in the process along with our senior executives.

Elements such as customer communication and sales force coverage, team alignment, employee benefits alignment and communications, IT systems migration, vendor communication and alignment, and overall synergy attainment are some of the key elements we are focused on.

We previously stated that we expect to achieve $50 million in cost savings in total -- $30 million in savings in year one and $20 million in year two. As we work all the integration elements I remain confident we are on track to achieve these synergies.

As mentioned on prior calls, we expect to gain savings from three major categories: branch consolidations, SG&A, savings and procurement savings. The breakdown is roughly one-third for each category.

And now on to the outlook for 2016. We are off to a good start in October with the core Beacon locations delivering 10% growth and 8.6% organic same-days growth. With RSG added in the combined Company had 57% same-days growth for the month. November with three days remaining for the combined Company is trending very well and is ahead of last year. This is encouraging.

Looking at the combined Company we see revenues in the range of $3.8 billion to $4 billion for 2016 and in terms of gross margin we expect to be in the range of 23% to 24% for the full year. In the past we have been using a range of 22.5% to 24%. This tightening of the range is the confidence we have in the improvement actions we have implemented over the last couple of years.

In terms of additional acquisitions, we have structured our financing in a way that allows us to effectively meet our working capital needs and continue with our acquisition strategy.

I want to highlight the fact the combination of our asset-based revolver, term loan and high-yield note give us a weighted average cost of capital of 4%. It provides us the flexibility to continue making acquisitions while maintaining ample liquidity as working capital needs increase.

We have the capital structure and operating strength to continue growth through acquisitions and we will continue to work on executing these as we have in the past. Our pipeline remains full and we expect to close on several acquisitions this fiscal year.

Related to EPS, the current range is $1.60 to $2.00. This is a wide range for sure, but we are comfortable saying we are in the range of $1.80. This does not include one-time costs and purchase accounting adjustments.

That being said, of course the unknown variables we face such as pricing, demand, and storm repair can impact the year positive or negative. We will update our view of EPS on the Q1 earnings call as we see how the year is progressing.

And as always, we are working diligently to maximize earnings for the year by executing the fundamentals of our business plan, focusing on superior customer service, sales growth, cost control and making sure the integration is successful.

And now I'm going to turn the call over to Joe and he can go over a little more detail on the financial highlights of the quarter. Joe?

Thanks, Paul, and good morning, everyone. Now I will highlight a little more detail on a few financial results and metrics that are contained in our earnings press release and the fourth-quarter slides that were posted to our website this morning.

Overall it was a great quarter. We had solid top-line growth of 8.4% for record fourth-quarter sales of $787.7 million. Gross margin increased both over the prior year and the prior quarter. While operating expenses were up it was primarily a result of the three acquisitions we made this year and the nonrecurring costs related to the RSG acquisition we just completed.

Excluding these costs our existing market operating expenses as a percentage of sales declined 80 basis points, demonstrating great leverage. As a result for the quarter we achieved a record adjusted EPS of $0.75, an improvement of $0.27 or 56% over the prior year.

For comparison purposes, there were the same number of days in Q4 of fiscal 2014 as in Q4 of fiscal 2015, 64 days.

Paul already went through our Q4 sales results in detail, so I will not repeat any of that information here. But I will go through our monthly sales trending.

As compared to the prior year, our average sales per day on an existing branch basis were higher in each of the three months of the quarter. July sales were up 3.8%, August sales were up 3.4% and we finished the quarter strong in September with sales up over the prior year by 5% driven primarily by a 6.8% increase in residential sales.

On a very positive note the gross margin rate was 24.3% for the quarter, which is up 180 basis points from a year ago and up 70 basis points from the third quarter.

In summary, pricing declined slightly in the quarter from the prior year. This was offset for the most part by product cost declines. The majority of the increase to gross margin can be attributed to a mix shift more residential and complementary product sales.

The 46 greenfields opened up since fiscal year 2012 as well as the strategic acquisitions made in the last 12 months have significantly increase the mix of residential and complementary products. These lines of businesses have consistently delivered higher margins.

Also benefiting our gross margin rate was a decrease in the mix of direct sales in the quarter from 15.9% in the prior year to 15.3% in the current year. As we had previously discussed, our direct sales have lower gross margins and operating expenses as compared the warehouse sales.

Commercial prices declined approximately 2% compared to the prior year and residential prices declined a little over 2% from the prior year. This was partially offset by complementary prices that were up approximately 1.5 points. While we are expecting pricing to slightly improve in the quarter, sequentially the overall price decline was flat compared to Q3.

As just mentioned, our product mix had an impact on gross margin as volumes shifted from commercial roofing to residential and complementary products. Residential roofing increase to 49.8% of our sales versus 48.5% in the prior year while commercial declined to 34.8% from 37.3% in the prior year and complementary increased to 15.4% from 14.2% in the prior year.

Diversification of our product line is something we focus on across our existing breaches and through our acquisitions.

Now on to operating expenses. Total operating expenses were $132.4 million or 16.8% of sales; this represents a year-over-year increase of $12.3 million. This amount includes operating expenses from acquisitions of $6.4 million and one-time costs related to the RSG acquisition of $7.3 million.

Excluding acquisitions and one-time costs related to RSG, our existing market operating expenses were down $1.4 million over the prior year Q4, and down 80 basis points as a percentage of sales. We are seeing good leverage as we grow.

As previously discussed, within our existing markets we do include the greenfields. $2.7 million of the existing market operating expense increase can be attributed to the 24 greenfields opened up in the last 18 months.

As you know, a greenfield branch will have a higher operating cost as a percentage of sales until the branch is running at our average branch volumes. So as you can see our existing operating expenses when factoring out greenfields are down over $4 million in the quarter. Great leverage and this has been a key focus area for us.

There was an increase in volume-related payroll and benefits costs of $1.9 million, but that was more than offset with decreases in SG&A across the board.

We continue to look for ways to leverage our cost structure, cost control the historic strength for Beacon. With the acquisition of RSG we expect to see a significant improvement in our operating cost leverage.

Interest expense, other financing costs were up $700,000 versus the prior year. Our income tax benefit reflected a much higher effective tax rate of 45.1% for the year compared to 40.7% last year. This was driven primarily by the treatment of one-time RSG acquisition costs which are mostly not tax deductible. Adjusting for these our effective tax rate would be approximately 39% which is consistent with the prior year.

Our net adjusted earnings were $37.8 million for the quarter compared to $24.2 million last year, an increase of 56%. Diluted adjusted net earnings per share were $0.75 compared to $0.48 for the same period last year. And our adjusted EBITDA for the quarter was $77.7 million compared to $53.3 million in the prior year, an increase of 46%.

Regarding the status of our balance sheet, cash flow from operations for 2015 was a positive $109.3 million compared to $55.5 million last year. That is a year-over-year increase of 97% from combined higher net income with significant improvements in working capital requirements.

Inventory was slightly up $19.4 million from Q4 of last year; we have exhibited solid inventory control this year. Sequentially inventory is down versus Q3 and the inventory balance is impressive when you consider the 27 greenfields we opened over the last 15 months and the four acquisitions since Q4 of last year.

If you're looking at a per branch basis, inventory was up only 2.5% from the same quarter last year, but down to 17% from Q3. Capital expenditures, including acquisitions in Q4, were $20.8 million compared to $37.2 million in Q4 of 2014.

As you may recall, last year we made significant investments in new greenfields or replacements to our existing fleet. For fiscal year 2016 we expect capital expenditures to be approximately 1% of sales.

Net cash used for investments was $104.7 million. Our current ratio was a strong 2.18 to 1 versus 2.37 to 1 at the end of last year. The results of our two bank financial covenants at the end of the quarter were as follows: leverage ratio decreased to 1.4 to 1 compared to 1.88 last year; and interest coverage ratio increased to 17.05 to 1 compared to 14.79 to 1 last year.

Strong cash flow from operations allowed us to pay down our total US revolver at the end of September.

Now to briefly discuss the full-year results. Sales were up 8.1% over the prior year and a full-year record at $2.51 billion. Of the increase acquisitions contributed approximately 3.7% of the growth, existing markets were up 4.5%.

Greenfields contributed approximately 3.7% within our existing market sales, although, as we mentioned previously, it is difficult to measure this precisely as we do [cede] volume from our existing stores to new stores.

Turning to slide 3 of the earnings slide, I'll highlight how we did across the regions. Five of our seven regions grew in the year with the West having a double-digit gain and the Northeast and Midwest with high-single-digit gains. This is fueled primarily by [strong] volume and new branch openings.

The Southwest and Canada were down as the Southwest continued to deal with post-storm demand and increased pricing pressure, although we saw a rebound in Q4. Canada was down slightly year-over-year due all to a foreign exchange impact of our Canadian dollars; our business there was actually up 5.3%.

Gross margin rate for the year was 23.7%, up 100 basis points from a year ago. As mentioned, our product mix had an impact on gross margin as volumes shifted from commercial roofing to residential and complementary products.

Residential roofing increased to 49.2% of our sales versus 47.7% in the prior year, while commercial declined to 35.1% versus 37.6% in the prior year, complementary increased 15.7% from 14.7% in the prior year.

Operating expenses for the year were 19% of sales versus 18.4% in the prior year. Similar to current quarter the major drivers are investments and acquisitions, greenfield and the nonrecurring costs related to the RSG acquisition.

Our net adjusted earnings were $69.3 million in 2015 compared to $53.8 million last year, an increase of 29%. Diluted adjusted net income per share was $1.38 compared to $1.08 for the same period last year. 2015 adjusted EBITDA, $168.6 million compared to $136.8 million in the prior year, an increase of 23%.

We finished the year very strong especially in light of the closing of the RSG acquisition at the same time. It was a tremendous effort from the entire team.

As we look to 2016 the RSG acquisition will help drive even further EPS improvement. I want to reiterate what we mentioned in our 8-K back in July: we believe the acquisition results in approximately $0.30 increase in adjusted non-GAAP diluted earnings per share.

This adjusted amount excludes costs that achieve the synergies, amortization and deferred financing fees, M&A fees, legal fees, stock-based comp expense and related one-time costs and purchase accounting adjustments.

As Paul mentioned, we have made great progress on the integration and in taking the actions necessary to achieve the synergies. We are still very confident in the accretion amounts we stated in July.

We have not yet completed the work with our valuation consultants and know the estimated impact of purchase price adjustments, including the incremental amortization expense. As that becomes finalized we will communicate it accordingly.

We will now respond to and take any questions that you may have.

(Operator Instructions). Trey Grooms, Stephens Incorporated.

Good morning, guys. You guys gave some detail looking into next year. And I believe the earnings raise that you gave -- that includes the $0.30 of accretion. Is that the right number for the RSG is $0.30 in that $1.60 to $2.00?

Yes, we announced when we put out a filing and we publicly said there would be $0.30 of accretion. So it is in that ranging I gave, yes.

That's correct.

What isn't in is obviously the one-times in the purchase accounting.

Right, right, got you. That is what I expected, just making sure that was the accurate number there. And then I guess the follow-up there -- Paul, what would you say are the biggest variables? I mean that is a pretty sizable range there.

The biggest variables that you see on that 2016 guide for the combined Company that could swing you one way or the other, do you think there is -- would it be more synergy-related, would it be more leverage-related, just give us some color there.

Yes, I would not -- for sure I would not say it would be synergy-related. I think, as it has been for the last couple of years, I think it is going to be dependent on where the square count goes in terms of consumption in the marketplace. And if it continues to be flat that will make it more challenging for us to work harder to go get share as we would do anyways.

I think that is the biggest variable because that demand on the residential side then impacts pricing and competitive behavior, etc., etc. So, with that -- the forecast -- the industry information we get forecasts 4% to 5% growth in 2016 on that square count, if that happens that will take a lot of the sting out of some of the pricing pressure we see and demand pressure we see by region.

I think that's the -- for me, it is the biggest piece. For sure not the synergies we have, those are very well defined and we are working extremely hard to attain those.

Great, thanks a lot, Paul. I will jump back in queue.

David Manthey, Robert W. Baird.

First off, Paul, you kind of mentioned asphalt prices here. With asphalt prices down about 30% year over year, what kind of indications are you getting from the shingle producers regarding next year? They did a good job of limiting pre-buy programs in the current year. What kind of discussions are you having with them and what is their posture going into 2016?

Yes, Dave, it is much as it had been even a year ago. You remember all of us had discussions about the potential impact as oil dropped and then asphalt dropped. And they have done a -- quite frankly they have done a very good job of doing what they said they would do and that was to limit the winter buy.

And I think as you can see, at least from the public releases, take as much of that input cost reduction into their P&L. And I would think, my own view -- and then the information that I gathered from them is that they would like to continue that.

So although asphalt is -- for sure is lower than it was six months ago or a year ago, as I said at the beginning of the year, without being able to see the future, I am just not as concerned about it. I wasn't then, I'm not as concerned about it now. And of course demand would certainly help this -- any situation related to that.

Yes, that is encouraging. And as it relates to that demand, by our estimates if you look at residential reroofing square growth for the last two quarters it seems like it has been growing about the mid-single-digit range.

And based on your guidance, Paul, it seems like you are guiding to the core beacon business about $1.50 of earnings which is up maybe mid-teens year-over-year over the current year number, maybe a little bit lower than that.

But do you get the sense that we are returning to an environment of moderate non-storm related growth in reroofing demand? It just feels like you have been seeing much more consistent rates lately. Can you comment on that?

Yes, David, that is a more difficult one to predict. You can look at, as you have seen when we have sat, or you can look publicly at the data of the last 20 years on total consumption on shingles and then the storm -- reroof and storm new construction piece of that.

So, I am -- when you look at our business and look at the market we are in, I am still extremely positive on what the future holds because I know -- or my view is and my opinion is there is a tremendous amount of pent up.

I think folks have deferred a bit and I think it is a function of income, ability to take equity -- all the things we talk about whether it is existing home sales.

So being prudent -- that is what we try to be, being prudent, that is where we came up with the $1.80 and hence you can do the subtraction on the $0.30. But the variables within that are the things we listed, storm demand, of course pricing and then just the overall market growth.

So, I am -- we are planning so that we look at the past two years with some realism. But my view is at some point there is going to be some form of a breakout and there is going to be much more demand than we are seeing now. The ultimate question is when, which I just can't predict.

Yes, great. All right, thanks very much.

Matt McCall, BB&T Capital Markets.

So, maybe I missed it or maybe you didn't give it, but can you talk about some of the assumptions behind the revenue guidance volume, price, some of the different assumptions across the different segments?

Yes, we can -- in terms of 2016 I assume you mean?

Yes, sir.

Yes, we can share some of that. I mean obviously we closed six, seven weeks ago. So we are still in the throngs of building the ultimate defined plan. But for sure we did not put any price, positive or negative, in that assumption.

We looked at our modest single-digit gains for Beacon and then the same for RSG basically to get to that ranging of $3.8 billion to $4 billion. And within that, as I just talked to and mentioned to Dave, there is going to be variability just based on how the market for all three of our product lines progresses.

Although we are very positive and mindful that we are going to make good progress on the growth side, whether it be through acquisition growth or filling out our greenfields or share gain. So I don't know if you want to --?

Mix of business -- I would kind of add from a mix perspective, Matt, when you look at the Beacon side of it, just a pretty consistent mix to what we saw this year as well too. As we talked about, we saw a little bit more residential, a little bit more complementary project. So we think that same mix will carry forward into 2016.

RSG, you know we have described and talked about their mix kind of before as well too and it should stay about that same 65/35 split as they currently have between residential and commercial. So add those two together and that gets you roughly -- from the mix is the other part I would kind of tell you about our revenue forecast.

Okay, all right. And then I guess the existing SG&A, the existing markets SG&A, the dollars -- you talked about leverage. I mean the dollars actually went lower. Can you describe how that happened with six more branches?

Well, a good portion of our kind of quarterly decrease was a lot of cost control. When you talk about on the slide, you see that item called warehouse SG&A costs down to $1.9 million. A lot of that is cost control.

It is things we have -- we talked about it through the year -- a lot of initiatives around everything from little stuff like utilities, supplies, telephones, travels. We put a lot of effort into cost control and that was a big driver, number one.

Second element you see on that slide that we issued selling expense decline year-over-year, $2.3 million. A good portion of that was the fuel cost. You know that diesel costs are down, a little over $1 million of that total was from the diesel costs that incurred in there.

So, those were probably the two biggest items that I would kind of highlight for you, Matt, that drove the year-over-year kind of decline in the operating expenses.

Okay, and then I'll just follow that up with the expectation for 2016.

Well, I guess probably your prediction on fuel prices and diesel is as best as ours. What we have included in our kind of financial forecast is that it stays pretty constant with where it is at today. We are going to keep the work kind of going as we have on the cost control part of it. So I think you'll see us continue to make improvement there.

It is not any one thing, Matt, it is just a focus across the Company that we are really diving into, drilling into, focused teams going after cost implications and cost reduction.

And then on top of it what will help as well too is you will see our overall kind of operating expense percent come down as we get kind of leverage from the RSG transaction as well too. We have always talked about our long-term OpEx goals of 17% to 19%, this year it was at 18.7%.

Well, we will drift further lower as you go to 2016. So, you will see us continue to come down trying to continue to drive to the lower end of that range of operating expenses. We won't get there next year, but we will make progress down from the 18.7% for sure.

All right, thank you, Joe.

Brent Rakers, Thompson Research Group.

Two questions. I think first, I was hoping you could maybe give us some sense of RSG's performance on a standalone basis in the September quarter, both in terms of revenue growth and possibly EBITDA, if you'd give us the final take away going in?

And then second, I was hoping you could talk about -- a little bit about the acquired piece of revenue and margin contribution for the September quarter. By my calculations it looks like something north of 15% EBITDA margins for the acquired segment. So, maybe if you can walk me through that as well.

Yes, sure, I will take the first part of it in regards to the RSG piece and then I will kind of hand over and Paul and I will talk about the acquisition one as well too.

RSG, unfortunately I can't give you the September numbers for them. We released and talked about through June 30, their September numbers, as you know, we just acquired those on October 1.

We are in the process of kind of redoing the 8-K as required as we find some of the final filings on the S-4 that will occur early next year. And then we will have the September numbers and we will have all of that kind of discussed for RSG. So, unfortunately I can't give you too much feedback on that right now.

The second question in regards to acquisitions. Yes, we did have a good full year and quarter on our acquisitions as well too. In fact, as we went through those numbers we talked about our goal, as you know, was to try to get the acquisitions all accretive in the first year.

Well, we have had a lot of success this year with that in the acquisitions that we made. I don't know, Paul, if you want to go into more detail on the revenue from the acquisitions?

Yes, I couldn't give you that reconciliation to EBITDA, Brent. But we from a sales standpoint did about -- for the full year about $86 million and in the quarter about $32 million or so. There is no doubt as you look at the four of them, three actually made money, which is considering the newness.

And I won't get into the detail who did, but one had operating income which matches close to EBITDA of 7%. The other was a couple of percent and then the two others were basically flat.

So we have had very good performance and very strong gross margin from those trending close to 30%, which is really good news. And that is also where we are getting a lot of complementary strength, as I talked about ProCoat and Applicators.

The one thing I will add, when you look at the K which of course details out the acquired kind of revenue and profitability, keep in mind that $7.3 million of nonrecurring one-time RSG costs are in that.

So if you look at that first you will say, man, that acquired group doesn't look very healthy. Well, take out that one-time nonrecurring charge of $7.3 million and you will see that -- what Paul was saying; we actually had profitability from them which is great the first year.

Hey, guys, maybe just one I guess quasi follow-up question. You talked about a $30 million synergy number for this year. Have you articulated how we should model that on a quarter-to-quarter basis throughout the year? Does it ramp slowly over the year or do we get a lot of that fairly right out of the gate here?

Yes, that is a good question; I will give you a little bit more detail on it. So, as you think about it in quarter -- it will ramp very slowly in the first quarter. You will see a little impact in the first quarter, but not too much.

First quarter, as Paul kind of talked, there was more about getting all the planning in place and actually taking the actions to begin the implementation for most of the pieces of it.

You will start to see some of it in second-quarter, it will ramp up in third and the fourth quarter we'll really be pacing pretty much at that $50 million a year number. So by the fourth quarter we will be pacing at that rate and that is how you will see it progress through the year.

Not much in first -- very little. It'll start to ramp up, you'll see some good benefit in second, ramping up in third, and then by the fourth quarter we will be pacing at the $50 million rate.

Great, thanks a lot.

Jason Marcus, JPMorgan.

Good morning and congrats on the quarter. First question is on some of the revenue synergies that you might expect to get over the next few years. I think historically you have been running, at least over the last few years, at about 15% of overall sales for your complementary products business.

And I know you haven't quantified what your expectation is there going forward across RSG's network. But is there any reason to think that you wouldn't be able to achieve a similar level of sales across their network I guess as you kind of go out over the next few years? And then also in terms of the guidance that you gave, does that include any revenue synergies?

Yes, the -- there is no -- very little revenue synergies in the guidance. On the complementary side, I think when you think about 15% on that sale space that is a very big number. So, the reality of that would take more than a year or two.

We are in the process now of identifying all the plans related to complementary growth within that RSG, as well as Beacon's footprint, because we certainly are not flush in terms of having complementary at all of our branches. So we are working through that and that is a big opportunity.

But there is also other elements within whether it is by channel or type. I won't get into too much detail given the nature and the form of this call, but we are going to be looking at every element and avenue of channel and sales type to go after and drive as a synergy.

That is really -- the actual dollar synergy on the cost side is critical for us, the $30 million and the $20 million. And as I said, I am confident we are going to hit that.

I think the more important element for us of course is to continue to work our customer base, satisfy their demand, make sure we have a seamless transition. And really continue to go after all these other elements across the country, whether it is local contractors or national contractors, to increase sales.

So, it is a big opportunity for us. I know I gave you a long answer, but the 15%, it will get mixed down just because RSG has very little if any complementary. But as we go through time, they are sales team is going to be armed with a line card to sell complementary products out our warehouses let alone as we put product into their warehouses.

Okay, great. And then next question, just kind of going back to the regional trends. I know last quarter you talked about pricing in the Southwest being pressured as well as volume and it looks like organic sales improved this quarter. I just wanted to get a sense of if pricing reversed as well in the quarter and what you are seeing there.

Yes, it is an interesting dynamic. Our team down in the south in general has been doing a very, very good job of delivering. But the pricing still remains a challenge; it's a function of demand so we have taken the position that we have to protect our base and then we also have to attract new customers.

And they have been balancing that, the growth that we have seen in their delivery of OI, which I won't get into, verses sometimes pricing which mostly comes on the residential side.

I think as that area improves, whether it be existing home sales or some of the things I mentioned earlier, new construction, etc., that will abate because it has been going on for a couple of years now. But not much has changed when you look at the geography and the price pressure we see across the country, it is very similar.

Okay, thanks.

Garik Shmois, Longbow Research.

Congratulations on the quarter. I had a question on -- I might have missed it -- on greenfield plans for 2016. You have a lot of flexibility to pursue additional M&A, but just wondering if you have outlined how you are thinking about the cadence in new branch openings.

Yes. No, you didn't miss it, I didn't mention it. We have a lot of things going on and we still feel extremely positive about the greenfield approach we have done. Between ourselves and RSG we have 70-plus greenfields that we have opened up in the last three years. So, we have -- those are going to fill out over these next two, three, four years.

As you look at the integration activity we have with RSG, when you look at the integration of the other acquisitions that we did and will do, as I said in my comments that -- well, I am confident we are going to be able to do deals before the end of the fiscal year. Those things would say to me we need to be a bit more cautious on opening those right now.

Now that being said, as we progress through the year as we did two years ago, we opened up the bulk of those 26 greenfields late in the year. We had actually a Q3 and a Q4 March 2014 of nine and nine openings each.

So, for now -- for me to peg a number that doesn't exist, it wouldn't be appropriate or -- and I thought about it before the call. To give a range, it just wouldn't be appropriate. We have 80-plus new branches that we are integrating, we could call those greenfield, then the other 70 plus the four acquisitions plus new acquisitions.

But there are still locations in the country that we are extremely interested in, we have done the research on and we are looking very hard at. And we did the six last year. We could very well end up at 5 to 10 at the end of the year.

But right now I've said, hey, let's focus on what we have in hand, make sure we do that really well, and then we will talk through the winter about what the spring is going to look like. Because we can mobilize fairly quickly with opening a new branch.

Okay, that is helpful. It's not like you don't have your hands full with all these other initiatives.

But we still love the strategy of the greenfields, the placement. When you think about the small investment we have done with the 70 and what RSG did, it is wonderful because we are going to get that sales growth. And also allows for career development and growth within the Company for our folks. So it has been a good strategy and we are not going to forget it.

Adding EPS.

Okay, thanks for the color. Just wanted to switch over to commercial trends. It appeared to sort of remain sluggish. You are also hearing some choppiness just from a very high level on commercial construction activity throughout the US.

I was just wondering if you could speak to what you are seeing specifically in commercial. And I think several quarters ago we thought that the sluggishness on the commercial side was timing related and maybe even mix related. Has any of that changed or are you seeing any maybe change in the sales cadence on the commercial side?

It is a good question, it is a broad question. I think we love the commercial business, RSG has loved the commercial business. So combined we are going to have quite a large commercial business, which is extremely exciting because we are in many, many markets together and it is going to be fantastic as we grow.

I think inside the quarter, as I mentioned in the prepared remarks, we saw growth in some of our regions which was encouraging. But the upper Midwest did struggle and I'm not going to talk about rain days or anything else. There no doubt were some delays.

I think pricing pressure probably allowed us to pause. And if you look at some of Carlyle's comments, they went through a similar dynamic. So I am not concerned.

The outlook for commercial is still relatively healthy. And even if it weren't, I would still say we have such a big strong base and such a great team leading that and great partners in terms of the manufacturing base, that we are still -- the expectation is we are going to grow, but we are going to have some quarters at 1% and then some quarters that are maybe zero and some that are 5% or some that are 8%.

And you can go back in history and look at our commercial growth and it has been fairly healthy. And that is the beauty of having strong residential business, a strong commercial business and a growing complementary strong business. That mix helps us as we go through time. And it helps the individual branches that are mixed that way.

Ken Zener, KeyBank.

I should have known there was a good omen when I had an RSG truck on my street last night.

I hope you bought some shingles, Ken.

No, I didn't. The -- barring RSG obviously, given where you were 18 months ago and doing smaller [roles], obviously you transformed it along with the [ABC]. Just as let's say two years ago you wouldn't have envisioned a market structure where the manufacturers and distributors were avoiding pre-buy given the -- at that time assumed upside associated with gross margin which seems people are now tempered on that view.

What do you think could really kind of -- as you guys are just integrating this right now, I mean what do you think might be something that looks as different two years from now as opposed to the dramatic change in the buying pattern of the distributors relative the residential shingles?

Could there be just -- what, a lot more commercial? Could -- what might change that you haven't obviously communicated in any type of formal manner? Or is distribution just going to be distribution?

Yes well, one, it's always -- well, it is impossible to predict the future, but you can think about trends. I think there will be continued consolidation; we will lead that as well as I'm sure others. But we're definitely -- we definitely believe that there is strength and a benefit to the contractor base through consolidation.

I think the -- hard to predict what the vendor base will do. I think they've behaving very -- in a very smart fashion and there is no doubt they are well-run companies. I think -- logically think it, Ken, as volume increases, which it will, it is bound to, and I talked earlier about the pent up on the residential side especially. I think that growth will be healthy, it will help the manufacturers.

And whether or not they return to the pre-buy I think it is just a function of the volume. The volume gets back up to 130 million and 140 million squares you could see some of that at of necessity just to make sure we get enough shingles out in the market. Or if there is a tremendous amount of storm damage or hurricane even, which I'm not hoping for, that could also change it.

But I think the cadence is more consolidation, continued improvement in the operations of distributors. And then I think as demand returns, as it will, there will be some cooling of the pricing challenges we have seen for the last couple of years. That is the best way I can answer that.

No, that's fair. Yes, no, it just seems that things can change more than sometimes people assume. This is going to be kind of a silly question, but on the existing sales for res, which were quite strong on the headline, stronger when you include the price deflation.

Because Owen Corning at their Analyst Day last week talk about 107 million squares worth of shipments. They actually took down their long-term forecast, I am pretty sure you are aware of that I guess.

But that growth you getting, I mean I know you are including some of these breaches, but can you just kind of go over -- I mean it looks to me like you're growing 7% to 8% organically under your existing base, there is 2 points of deflation in there.

How are you outpacing the market? Can you just kind of pretend I'm asking the question for the first time and explain how you are so far ahead of a flat market.

Well, there is no doubt that the greenfields are adding and leading the growth there. Again, Joe mentioned earlier the ceded volume makes it harder at times to get an absolute solid handle on that. But as you look at that existing piece, I would have to as best I can just split it in half between existing branch growth and then the greenfield growth.

I just think we are making good progress that's being very effective at selling the value of Beacon and attaching ourselves to very, very good customers who want to do business with us.

And so, if you look at a greenfield, inherently you put a building out somewhere and it has got no sales, maybe you bring some ceded sales, $500,000 or $1 million or more, and then you grow from there. So, inherently you are satisfying market demand or pulling it from somewhere else.

I think we -- the greenfields have fueled a lot of it. And then I just think our selling effort in general has done the rest and our overall offering and consistency of that offering.

You know, it is interesting, Ken, it isn't any one thing. The greenfields have certainly helped, but it has been all the items that we continue to talk about the drive our service model that we just keep doing and repeat it and keep doing.

And that combined with the greenfields combined with our focus on selling efforts I think is probably what you are seeing is some gains or improvements in market share. And we feel it as well.

Thank you.

Keith Hughes, SunTrust.

Hey, this is Rohit Seth in for Keith. Just back on the M&A, are you guys seeing anything of size out there or can you just comment on kind of the pipeline, what you are seeing?

Yes. I guess even if we were seeing anything of size or non-size I really couldn't comment on it. There are -- as there has been, this is I believe a fertile -- it is a fertile environment for acquisitions at least as it pertains to Beacon. I can't talk about any of the other distributors in the space.

We have maintained very close contacts with a number of companies small, one branch, five branch, 20 branch, 40 branch, 50 branch companies. And as I have said, it isn't a byline, it is really up to them when they are going to sell based on a whole bunch of conditions, as you can imagine.

And so, there is plenty of opportunity. The question is just the timing of that opportunity. I talked about my confidence in being able to do a few deals within this fiscal year and that is a relatively high degree of confidence there. So that is good news.

And then we just -- we're going to continue what we have been doing for 10-plus years and that is cultivating very good companies and working with them to consummate the deal.

I think as you've seen from our history, primarily when we talk about acquisitions most of our acquisitions are more tuck-in in nature where they can be $25 million, $50 million, $75 million in revenues type size. So they are [seated] with a great kind of transaction for us and great opportunity. But most of what we have seen historically I'd classify as more tuck-in type acquisitions.

Yes, and that is what you will see as we move through these next couple of years. RSG has a lot of heft for, which is great, and it gives us great density, great sales increase, great people. And then we will focus on where we need fill ins in different geographies, wherever we have open territory, it might be in an existing, if that makes for us to add density, we are going to do that.

Okay, sounds good. And then is any -- are any I guess pro forma numbers in your guidance relative to -- related to the M&A?

Can you repeat that one more time? Are there any pro forma numbers in our guidance?

Yes, like are you estimating anything in your guidance for the M&A? Does that include anything?

Sure, when Paul referred to the Street guide that is out there, the $1.80, what that includes is just the RSG transaction. So that includes the $0.30 accretive from RSG and of course the transactions that we did last year, so the ProCoat, [WRS], Applicators, those are all in there. But there is no additional acquisitions besides those baked in there.

Got you. And if I can ask one last question. You guys have a great view on maybe product trends. Would you be able to comment -- I know you guys are probably agnostic on some product level trends you are seeing, any changes as you look back on 2015 relative to 2014? Maybe talk about big-ticket, small ticket or what you are seeing in siding versus windows and doors, things like that?

I think that would be very difficult for us to comment on. We have a very consistent product line and, as I said earlier, a number of great manufacturers that we pull through product from them to the contractor base and others. So, no there are -- I wouldn't say there is any changes or trend changes at all.

Okay, thank you.

Thank you. We can do one more call -- one more question, rather.

Sam Darkatsh, Raymond James.

Hi, guys, this is Paul on for Sam. Thanks for taking my question. Looking back at the fourth quarter and your gross margins by product line, could you guys provide any commentary surrounding that? Maybe the spread between the different product lines and if you expect any changes with RSG coming into the fold between those gross margins?

Sure, I can give you -- really what we have talked about generally around most about gross margins by product line in total is pretty much consistent.

We see anywhere from a 1,000 to 1,100 basis point difference between our residential margins and our commercial gross margins and our complementary margins tend to be right in the middle, about where our average gross margins are. That relationship has stayed pretty constant in there; we haven't seen that shift around too much. So it has been pretty much the same.

Okay, that is helpful. Thanks. And then just apologies if I missed it, but any updates on where you are expecting to see some branch consolidation or closures in terms of how many you would expect to consolidate or close? And also where that would potentially be?

Yes, we haven't shared any geographies, we have talked about it being in the 20 to 25 branch range that will be consolidating. And I think as I said earlier when we announced the acquisition that they are going to be logical consolidations when you have two branches a half a mile away and one is smaller than the other or whatever the differences might be by product line, it makes sense to do that consolidation. But we haven't given out detail of where, nor will we, but it is in the 20 to 25 range.

The other part which we talked about too is it's not -- it is a combination, probably almost equally split, between RSG, consolidations and consolidations from the Beacon side as well too. So again, we are looking across the whole portfolio of Company assets, right, and how do we best utilize those for shareholder value.

Okay, thank you.

Okay, hey we are going to do -- there is two more in queue, so let's do two more questions, okay?

Jim Barrett, C.L. King & Associates.

Joe, I think this is a question for you. Is there a reasonable likelihood -- and Paul, I heard what you said about the deals that are sort of pending. But is there a reasonable likelihood if you get your fair share of the deals in the pipeline you may not start deleveraging in 2016?

That is a good question, Jim. I think from what we have seen so far 45 days into it, we are doing a great job on deleveraging our (inaudible) this point. So we've been able to pay down a significant amount of that $350 million. So we have done a really good job taking a lot of it out already.

So, certainly it will probably have a -- it could have a little impact to slow it down some. Most of these are tuck-in acquisitions that we have described and they will be bringing EBITDA or cash generation with them. So I don't think it will have a big impact on it.

Okay. And then my second question -- given sales guidance of $3.9 billion to $4 billion, what would be your expectation for growth in working capital in this upcoming year?

Yes, from a working capital perspective, see that one, if you think about the elements underneath it, really it will be very similar from the key pieces. So the receivable turns of ours versus RSGs are very kind of constant and comparable. So as they come on our system I think you will see them fall in line with our receivable kind of turns as well too. So I don't think that will change much.

I think if you look at the inventory part of it, again, I think the inventory requirement is a little higher than ours, some bigger branches. But again, as I think as they come onto our network and our systems I think we will see a lot of similarities in terms of the inventory kind of turns that we have there as well too.

The payables are on the same kind of process and time line as us. So really, if you think about it, I don't think as a working capital percentage of sales you won't see much of a change from how we are currently doing today, Jim.

Okay. Thank you both, good luck in 2016.

Ryan Merkel, William Blair.

So, just one question here on the RSG, the $0.30, could you just help us with the dilution estimate from the new shares? And then what gross margin and what EBITDA margin are you roughly assuming in that $0.30?

So, I will take the first part when you mentioned about the share count. So add 9 million shares to it. So, we were at roughly 50 million-ish, 51 million, we will be at somewhere around 60 million shares. So, that -- I would use that as a share count to get you to your dilution number that you will see from the earnings as a result of it.

We haven't disclosed specific numbers in regards to the EBITDA element to it that you asked about, or even gross margin for that way as well too. You have seen some of the performance, we have given you some historical information, but we haven't gone any kind of further than that at this point.

Okay, fair enough. Thanks.

Thanks, Ryan.

And that concludes the questions. Now I would like to turn the call back to Mr. Isabella for his closing remarks.

Great, thank you. Here is just a few highlights from our earnings release. Our fourth-quarter sales were a record $788 million, approximate $788 million, up 8.4% from the prior period which was great growth attributed to existing branch, greenfield and acquisition growth as we have talked about on the call.

Residential sales grew 11.4% in total and complementary was up nearly 18% while commercial was up slightly at 1%. This is a great example of our product diversification, as I mentioned on the questions.

Gross margin, as we went through, improved 180 basis points versus the prior year for the quarter ending at 24.3% for the quarter. And as we said, we continued our greenfield push opening up six strategically placed greenfields in 2015, really which is a further execution of that key element and one of our key growth drivers.

We talked about our balance sheet as being healthy, which it is, which will allow us to deliver on our near- and long-term growth goals. And we feel very, very good about the capital structure we have.

As I have said in the past, we are in a very good market that will continue to grow. We are well positioned to capitalize on this growth with our branch count and product placement. We are executing the elements of our strategic plan and will continue to do so. The addition of RSG to our Company will add geographic strength, strong mix of product and a very, very talented team of people.

Our integration efforts in the actions are on track related to RSG. We are very focused on this and are following a detailed planning process to ensure customer satisfaction is always number one and that we will hit the synergies we committed to. RSG, as I said, is an excellent company, and makes the combined Company even better.

Beacon's future is very, very bright as we continue to grow and deliver on our commitments. I want to thank all of our investors for their interest in our Company, as well as our customers, and our 4,000-plus employees for their loyalty. This concludes our earnings call, have a great holiday.

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