Good morning, ladies and gentlemen, and welcome to the Beacon Roofing Supply's Fiscal 2012 Fourth Quarter and Year-end Conference Call. My name is Beth, and I'll be your coordinator for 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 the results 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 information as of today, November 29, 2012, 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 and in our Form 8-K filing. 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 Events & Presentations that will be referenced during management's review of the financial results. On today's call for Beacon Roofing Supply will be Mr. Paul Isabella, President and CEO; and Mr. David Grace, 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.

Thanks, Beth. Good morning, and welcome to our fiscal year 2012 fourth quarter earnings call. I'm very proud to report for 2013 -- 2012 Beacon topped $2 billion in sales with a market cap of almost $1.5 billion. We accomplished this with a hard-working, dedicated team who provides great customer service, but also a disciplined focus on operations and continuous improvement. Over the years, we have made many acquisitions that have effectively integrated and contributed to the culture and success of our great company. For 2012, Beacon closed out the year with a very strong fourth quarter and full year, ending with $0.60 and $1.67 respectively, within our expectations. We had some onetime adjustments which are detailed in our press release, and David will explain them further during his portion. In total, we're very -- extremely pleased, rather, with the way we ended the quarter and full year. For the quarter, our operating reaches [ph] had solid results with our existed -- existing markets margin at 8.8% versus 8.3% in 2011. Sales in total were up nearly 4%, while existing market sales were down 5.6%. This was no surprise, as we were aware sales from last year would impact comparisons to this year's fourth quarter. Our acquired markets did very well in the quarter, with operating income in the 6% range without the impact of purchase accounting and onetime costs. We've made some excellent acquisitions over the last 2 years with great management, who have improved margins and built up their market position. Our gross margins continue to expand, reaching 25% in Q4 in total. We benefited from favorable inventory cost, as well as a shift in product mix sold. Our teams have done an excellent job working in a very competitive marketplace. For the year, we ended up with…

Thanks, Paul. Good morning. If you are using our slides to follow along, let's begin with Slide 1. Our fiscal 2012 fourth quarter organic sales, which reflect our existing markets by excluding sales at branches acquired since the beginning of last year's fourth quarter, decreased 5.6% to $543.1 million. Total sales for this quarter, not shown in the slides, increased 3.9% to $598.1 million from $575.6 million in 2011. We had 63 selling days in 2012, while 2011 had 64 days. Organic sales decreased 4.1% on an average sales day per method basis. In the product groups for existing markets, Residential Roofing sales decreased 3.3% and Non-Residential Roofing decreased 10.5%, while Complementary products were up 1.2%. Overall, we could not match last year's strong existing market sales, which were boosted by higher levels of re-roofing activity from stocks. Non-Residential Roofing continued to struggle in the fourth quarter, as volume was off about 16% while average selling prices were up about 5%. But just as a reminder, we saw 8 quarters of year-over-year sales increases before our third quarter of this year. Complementary product sales increased slightly this quarter after being down in the third quarter. In our geographic regions, only our Southwest region showed existing market sales growth for the quarter, mainly due to servicing some hail damage in Texas this year. Other regions were either flat or down due in part to prior year's storm activity or in some instances some leftover pull forward due to the mild winter we experienced in Q1 and Q2. We estimated the impact -- we estimate the impact of inflation on our sales and gross profits by looking at changes in our average selling prices and gross margins. Average overall selling prices were up only slightly in this quarter, with Non-Residential Roofing products…

Great, David, thank you. Great summary, great results. Now I'd like to go through, as I had this past few quarters, some trending information to give you a view -- a little more detailed view and talk a little more about '13. In terms of sales, pricing and EPS, I'll start out with sales. For the quarter, organically, July ended down 2.5%. August was down 4.5%, while September was down 10%. Adjusting for the 2 extra business days in the quarter, October was down about 9%. But November is tracking to be less -- down less than 5%, which is good news. Some of these lower organic sales were driven by the Midwest, as they were up against and continue to be up against strong comparisons from last year as we have said. The West and the Northeast mostly, we believe, from the pull forward from the milder winter last year. Looking forward, we see 2013 sales growing 5% organically, knowing there could be some variation by quarter because of weather and/or market conditions. Recall last year the winter in most parts of the U.S. was extremely mild, which could have an impact on this year if weather returns to a more normal, harsher trend. But if that is the case, we typically see more repair work in the spring after winter. So although we run the company day by day, transaction by transaction, doing everything we can to satisfy customer demand and contain costs, we do know we have a full year plan we have to hit regardless of any quarterly fluctuation due to other short-term market changes. And I do know our team is up to the challenge. On another note, sales from acquisitions for 2013 will be approximately $275 million. This means overall growth is anticipated to…

[Operator Instructions] And our first question today comes from Neil Frohnapple with Northcoast Research.

Could you discuss gross margins directionally for FY 2013? What are the puts and takes we should consider versus this past year, which was very strong at 24.5% and, I believe, above your stated range? Are we going to see the absence of the lower-cost inventory that could drag -- could be a potential drag, or just some thoughts there would be helpful.

Yes. I'll start it off, and Dave can add color. And our view of 2013 is that GM is going to be around that 24% mark. And I believe we're going to continue to see -- now there could be fluctuations as, let's say, happens every Q2 for us with some drops because of the drop in sales, but there could be some fluctuations. We should still see strong residential gross margins. And I have no reason to believe that our commercial margins are going to drop. Carl [ph] and I have talked about a strong re-roofing year for 2013, and I don't see anything different. We've seen this latest drop off sales-wise commercially, mostly due to comps and some deferrals. So I'm pretty -- we're all pretty bullish. We all know there's a lot of hard work, that we can stay close to the 24%.

The only thing I would add, Neil, is that if those buys don't go as deep as they did this year, that probably means that the economy will probably be a little bit better and we'll get some price increases this year where last year, it was 1% to 2% throughout the whole year. The expectation is, if things go a little bit better, then you'll get some price and that could offset the difference in buying the inventory cheaper.

Okay, great. And then can you give us some more color regarding the FY 2013 organic sales growth of 5%? And maybe just directionally how that breaks down between non-res, res and complementary? I mean, do you anticipate greater growth in non-res versus res?

No, I think as we've -- we can't go through the details of our internal plan, but in general, they're all about the same, in that 5% range. Now we know going through the year there will be changes, there will be variation. Some of it depends on if -- which we donate in our plan, if storms occur, normally hail activity and/or if Sandy has a greater impact than we're thinking right now.

And, Neil, remember, as Paul said in his comments, that's outside of price increases. So you could see some more upside to that. In general, I think if trends continue, you probably would expect a little higher Residential Roofing mix than this year, only because the commercial has been down. And unless we see that turn around, and as Paul said, Carlisle is expecting to see a turnaround in re-roofing next year. We're just not as comfortable as maybe they are.

Moving on, we'll now hear from Ryan Merkel with William Blair.

So Paul, did I hear you correctly that acquisitions are going to add about $275 million of sales next year?

They won't add. That will be the total, Ryan, the -- minus the $138 million would be the growth on that.

Okay. I'm just curious, what roughly is the SG&A rate that we should apply to the acquisition sales?

They're at the higher end. It's a little difficult to tell because we haven't done the purchase accounting yet for McClure and seeing what we'll have for amortization and the like. If we saw the drop off like we've seen in the past, I think that they'd be the 18% or 19% range for residential, so they have more cost. And the newer one will be higher than that because you'll have the expenses from the purchase accounting.

Yes, and Ryan, you could see from the K the gross margin for them is also obviously higher.

Right. I did see that, okay. And then just moving to organic SG&A growth, guiding to kind of 5% organic growth, are you going to be able to keep a core SG&A below that 5% number just like you did this year?

I think that's the expectation. For our full year, as Paul said, if we're at 24% to 24.5% gross margins to hit that 7 or above percentage, that would put them at 17% to 17.5%, which is a little bit below the 5% growth, as you mentioned.

Right, okay. And then could you just talk about what the OEMs are saying about price increases? I think there was chatter for a price increase maybe this fall, winter. Just wondering what happened there, and then maybe how you're positioning inventory in the next year?

Yes, well, inventory, we're very well-positioned, as we are always at this time of year. We've seen OE. We're definitely not in an overstock position. We're pretty prudent about how we control inventory throughout the year. The fall price increase -- I mean, we talked about our sequential changes, which are positive, so there was a little bit of realization quarter-to-quarter. But in general, that fall increase of around 5%, our view is that it didn't take in the market. It's still extremely competitive. I can't, obviously, look inside any of the OEMs, but I would suspect, as normal as we go through the winter, they will announce price increases. Commercial has continued to be strong from a pricing standpoint. And I would think from everything I've read that they're still continuing to see input cost pressure, margin pressure, et cetera, that they're going to want to raise prices in the winter. So we're-- we believe we're positioned well for whatever winter buy we need to make, more so obviously on the Residential side than Commercial.

And with BB&T Capital Markets, we'll hear from Jack Kasprzak.

Let me also offer, Dave, best wishes and good luck in the future. The acquisition program, you guys have obviously picked that up this year, spending about $140 million during the fiscal year. I mean, can you just talk about what you were -- what you're seeing out there, and obviously opportunities are there, but why the pickup in frequency? Or did buyers -- I'm sorry, did sellers just get more fatigued during the downturn and finally look for a partner? Or why are we able to just pick it up to such a great level this year?

Yes, I think some of it is timing. Some of it's the timing of their results improving versus maybe the tougher years they would have had in '07, '08, '09 even. And -- which made the market and the pricing right for them to get out, and they were at that point in their life cycle where they wanted to sell. There was very little talk about any potential tax changes, et cetera. In terms of the go forward, our pipeline is still very active. We continue to talk, as we have been, to a number of different companies. And I think what's important for us is our reputation speaks for itself with all the acquisitions that we've done and the way we've treated them, the way we've integrated them. And it's just -- I think, Jack, it just helped us over the last 18 months to do this -- these numbers that we've done, and there's no reason for me to believe that's going to stop, especially with the way the market looks going forward in terms of overall improvement. I would think their businesses will continue to improve, and as the owners age, et cetera, they'll continue to sell.

Okay. Obviously,, your business in general is far more tied to renovation spending. But a lot of housing, new housing statistics lately have been very positive as you're generally -- general optimism about next year reflects some view that you're seeing the new home market even though it's small for you guys, pickup off such low levels?

Yes. I mean, there's no doubt. We have -- I would say we have very little built in, just because the historic new construction piece is in that 20% range, plus it's even -- has been less now. But you're right, the latest numbers are shown starts closer -- total starts multi and single closer to 800,000. And when you look at the projections for the improvements, although there are some out in Arizona, et cetera, most of them are in an area where we have branches, which will bode well for us. So it should help us as we go through '13, '14, '15. That's Residentially and as Commercial construction picks up.

Moving on to Sam Darkatsh with Raymond James.

This is Josh filling in for Sam. Most of my questions have been asked and answered, but I wanted to clarify a few points on the guidance. So the 5%, that's all volume and any price would be incremental to that? Am I hearing that right?

Correct. Yes.

And are you including any Sandy -- like an estimate for Sandy in that 5%, and would you be willing to share that with us?

No, we had said that in addition to price, if there was anything on the Sandy side, it would be incremental. But again, as of now we just don't seeing it being large. But again, some storms have surprised us. We're going to be there ready to service the areas. As I said, we don't have the density in Middle to Northern Jersey or Long Island. But we have branches in Eastern Pennsylvania, Southern Jersey, et cetera, Connecticut that can service the area. So we're just going to have to see, but that -- we did not build in any of the -- in that 5% number any of that.

Okay. And then back to the acquisition line of questioning. Could you talk about the sort of multiples that you're seeing in the marketplace and what the general trend is there?

Yes, I mean, it really has been what we have seen in the past. And that's in the 6% to 8% range. There has been some variation, but in general, it's been very consistent.

And I think, going forward, you'll see those drop back into that range. If we paid a little bit more for some of the more recent ones, it's because the expectations are, going forward, are higher than they would have been 1.5 years, 2 years ago.

We'll move on now to Michael Rehaut with JPMorgan.

On the gross margins, just to get back to that, you said you hope to keep it around in the 24% range, but at the same time you said you expect perhaps a little bit improved or continued a little bit of higher -- potentially higher mix from residential, which would be a positive driver. Are there any kind of negatives that perhaps would offset that, either from acquisition accounting or mix or other items that kind of offset it? Because also with potentially higher prices, all else equal, perhaps that would also be a potentially positive benefit. So any more granularity there?

Yes. The purchase accounting wouldn't have an impact at all on that. I think mix could. In the 24%, without being to forecast the future in exact detail, that's, I think, a fairly accurate number for us. Mix could impact that. If Commercial takes off, let's say, as Carlisle has alluded to, and we think in some circles could increase, that could have an impact, as it did this quarter the other way with Residential increasing. So no, I don't think there's anything necessarily negative lurking out there. It's just the mix of how we view the business with all the inputs and outputs.

And the other thing, Michael, is we're somewhat conservative folks here. And we know we had a big advantage with the buying that went on last spring. That buying will continue this year. What level it is at, we just don't know yet, and that's why we may be a little bit cautious. But there's no reason to believe, if we can offset some of that with some price increases, that we could end up at the 24.5% again. It's just that we're a little more conservative.

Okay, fair enough. Also on the SG&A this quarter, I think excluding charges, we have it at $16.4 million. That compares to $14.8 million. I think there was a $2 million onetime -- I don't know if that -- if the $16.4 million excludes that as well. But it's still a nice year-over-year improvement. So how are we to think about 2013? I mean, is this year-over-year higher ratio something to think about into the future, or would you expect SG&A to be in the mid-17s on a full year basis for '13 like it was in '12?

No. If you look at it, what we had kind of given for an outline and guidance was -- and we mentioned earlier the 24% gross margins and 7%-plus operating income. That would infer 17% on the cost side, which we believe we can -- we're still -- there's constant pressure that we place on the organization for cost reduction, and we obviously can't anticipate if there's going to be any other onetime adjustments that would occur in '13 like occurred in '12.

Yes, and Q4 is our biggest volume quarter, Michael. And that's why you tend to see lower percentages there. For the year, just for everybody's information, we're about 17.3% without the onetime charges compared to 17.4%. So we did have some improvement and probably can do a little bit better next year. But as we grow in size, we need to get better and better and more efficient.

Okay, and then just one last one. I think you said that of the $275 million sales from acquisitions, roughly 1/2 is incremental. In other words, you have the 5% organic, you have maybe a couple percent from price and about another $130 million, $540 million from incremental sales from acquisitions that you didn't book in 2012. If I understand that right though, I mean, you have McClure-Johnston at $85 million, maybe you get 10 out of those 12 months. You get 7 months of Structural Materials at $81 million -- or I'm sorry, more like 9 months of that and 7 months of Cassidy Pierce. It seems like the numbers are adding up closer to like $175 million. I don't know if that's true.

That is correct. Remember, the way we do our acquired markets is that we will have Enercon dropping off out of those acquired markets, which is about a $50 million annualized rate that will drop off from acquired. So the $175 million is a correct amount.

Of incremental?

Yes.

We'll now hear from Dave Manthey with Robert W. Baird.

Second, in terms of the shingle manufacturers, I'm wondering about the prebuy disruption we heard from some of the OEMs that they were concerned about how much front end loading there was and how they were loading their plans through the year. And I'm just wondering if you expect there's any change in the timing of pricing this year, or should we expect business as usual? And as a follow-on there, in terms of the new construction, does that at all help to smooth out industry demand and maybe lead to less of that sort of front-end loading of inventory and working it off throughout the year? Anything you have to offer there?

Yes, I don't necessarily see any drastic change, Dave, to the methodology. OC made a number of comments on their call, Mike did, referring to the -- what they went through last winter. But typically, just because it is winter, there are going to be seasonal buys and then the price usually -- prices are adjusted up by the manufacturer, so I don't see a change in that. I think on the new construction -- from a new construction standpoint, if it holds and we continue to see the gains, as modest as they are, although they made great progress over the last 3 years, I mean, it's -- you would think it would have an impact on demand. Sandy for Long Island and Northern Jersey, et cetera, is going to have some impact. I don't know what right now, and I don't know what the price impact would be as we go through the end of the year. Again, a lot of those places are going to freeze up pretty soon. But I don't see anything unusual.

And David, I would just add that the manufacturers expected more volume for the entire year for 2012. So if that volume had come, they wouldn't have been that far off. I think the biggest difference between 2010, which was a similar year where the buying was pretty deep, is that distribution saw enough activity in the marketplace, so they didn't dive down on price. And we were able to maintain margins and improve them a little bit.

Right, okay. And second, are there any issues locally, regionally with new capacity coming on stream that concerns you at all over the next 12 months?

Well, I mean, Eiko is going to be -- if you're talking about manufacture capacity, Eiko is going to be opening up sometime in '13 down in the Southeast. That's going to have an impact. I don't know if it's 3 or 5 million squares once they start getting running -- get running. But we're not overly concerned about it. We're fairly -- we have great relationships with all the manufacturers and there's no great concern.

And we'll now go to Ken Zener with KeyBanc.

Paul or David, I wonder if you could comment, the drop in roofing prices of 4% year-over-year, I believe that, David, you also said that it was up sequentially? Is that correct?

Yes, it's up low single digits, 1% to 2% sequentially.

So does that mean you're basically selling squares at around the, call it, $84, $85?

Yes, we wouldn't talk in that level of detail. But as I've mentioned actually for the last couple of quarters, we've seen modest single digit or below increases on residential pricing sequentially.

And I think the thing that, that really points out is that last year, prices increased in Q4.

Okay. And then the volume, obviously, you said Sandy or not, you guys are conservative, I think, generally. I guess, if I'm thinking about the M&A pipeline, which you've already have some nice growth built in, is there something -- our view has been basically you're willing to pay a higher multiple, but more people are earning money, so they're growing into your multiple. Is there something that would put a ceiling on the deals that you would potentially do? So Paul, you've been speaking to these people for a long time. All of a sudden, 5 of them show up on your doorstep. Are you going to turn away 3 of them if it results in a certain ceiling in terms of the dollar expenditure?

Well, I mean, obviously, we have a current debt facility that would allow us to do so much. And then if it was that much larger, which would have to be pretty big, we'd have to look at additional financing. But I mean, there's nothing that I see right now on the immediate horizon that would prevent us other than the fact, obviously, of bad pricing or the wrong company, of course, if 5 showed up and they were all the wrong company, from us doing those type of multiple transactions.

[Operator Instructions] We'll now go to Brent Rakers with Wunderlich Securities.

I was hoping that you could re-clarify the comments about October, November. I believe the October disclosure was on a per day basis, is that correct?

Yes, both of them were. October had 2 extra days this year compared to last year. November has the same days. So it was down 9 for October on a same days basis. It was actually about flat compared to last year overall for the month. As you know, we look more towards month-to-month than we do day-to-day because the shipping days on is important for some of the stuff that goes direct, some things like that.

Okay, so Dave, as we go through the year to look towards this -- the 5% organic target, you've talked a little bit in the March quarter about the mild weather and comping against that. Could you maybe give us a sense then for how you're kind of playing out some of the quarters? Because you're comping modestly -- well, mid-single digits down now. It looks like the March quarter comps are going to be possibly even more challenging, and then it opens up from there. Is that kind of the way to think about the process of the quarters?

No, that's not how we did our budget. And remember, one month doesn't make a quarter and 2 months really does, and it depends on how it ends up. To us, October, because of the storms that went through and stuff like that, we didn't lose -- we lost days of selling because we were closed. So it's hard to just look at it year-over-year when you are on that basis. We're expecting pretty much to grow throughout the year. It's a little bit backloaded because, again, we're expecting the economy to get a little better in new construction. But in general, it's pretty consistent throughout the year.

So you would expect, Dave, roughly a 5% organic growth rate in the March quarter as well?

That's what we have budgeted, yes.

Okay, great. And then just last question on the -- I mean, you guys talk a lot in terms of price. I guess there's always some disconnect between your price versus the manufacturer price. Any early readings on what sort of winter discounting that might be in place this year? We're looking at a normal year from the manufacturers or possibly a bit more or a bit less going into the winter?

It's impossible to predict, so I'll just say I think it's going to be a -- and not being flip, but it will be more of a normal year. I mean, there's no indication that anything is going to change. Again, OC made comments about maybe they thought they went too deep, but until we get into the winter and we look at what the volume is, what the demand they're seeing, our position of inventory, it's very difficult to say. I don't think there's anything that's out of the ordinary right now.

Paul, just real quick on that. How soon do you get a read on something like that, typically?

Well, typically, yes, another couple of months. End of December through January.

And our final question today comes from Keith Hughes with SunTrust.

Actually, this is Judy for Keith, and all of our questions have been asked.

That concludes -- I'm sorry, that does conclude our questions and I'd like to turn the call over to Mr. Isabella for his closing comments.

Yes, let me just make a few comments here. Again, we're very proud of the full year EPS we delivered and look forward to another strong year in 2013. As I said, we're confident we can meet or beat the consensus EPS estimates. Overall gross margins were strong, it's worth repeating, ending at the 25% for the quarter, up 190 basis points versus last year. And as I said, we'll most likely see gross margins in the 24% range for 2013. We ended the year with strong overall growth at 12% and organic growth of 7%, much as we expected. Overall growth for 2013 is expected to be well over 10%. And as we've said, sales from our recent acquisitions should total approximately $275 million in 2013. Our integration process of acquisitions is moving along very well, and our teams are working very hard to accomplish this. And as I said, our pipeline's very active, and we're confident we'll make additional investments this year. As always, I want to thank the employees and customers of Beacon and the support of our investor base. We'll remain extremely focused on continuous improvement in every aspect of our business. We're all working very hard to execute our business plan. Lastly, I would like to thank David Grace for his dedicated hard work that he's contributed over a long career. He has been one of the key executives who has contributed to our company's growth and success. I wish him all the best in the future. Beacon has had and will always have a very strong finance team, and I'm confident that our team and the next CFO will continue our path of success. Thank you for your interest in our company. David and I are available in Herndon for any other questions you might have. Thank you, and this concludes the call.

That does conclude today's call. We thank you all for your participation today.