Welcome to the Beacon Roofing Supply Fiscal 2014 fourth quarter and year-end conference call. My name is Doug and I will be your coordinator for today. [Operator Instructions]. 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 information as of today, November 25, 2014 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. A 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 Events and Presentations that will be referenced during management's review of the financial results. On the call today for Beacon Roofing Supply will be Mr. Paul Isabella, President and Chief Executive Officer and Mr. Joe Nowicki, Executive Vice President and Chief Financial Officer. I would like to turn the call over to Mr. Paul Isabella, President and CEO. Please proceed, Mr. Isabella.

Thanks, Doug. Good morning and welcome to our fourth quarter and fiscal 2014 earnings call. Once again this quarter, we made solid progress on elements of our strategic plan driven by new acquisitions, greenfield branch openings and organic growth in all of our lines of business. We completed one acquisition within the quarter and two immediately following the end of the quarter for a total of three acquisitions within 60 days. In addition, we opened nine more greenfields during the quarter for a total of 26 new locations in fiscal '14. Our total sales growth was 6.3% for the quarter and 3.8% for the full year. Both our fourth quarter and full year delivered record sales. We’re pleased with this considering the soft residential market. As a reminder, it's important to note our full year was negatively impacted by harsh winter weather that caused a 7.5% year-over-year decline in our Q2 sales. The soft demand in the residential market continued through our fourth quarter and put additional pressure on market pricing. We were able to offset most of this pressure with lower material costs due to the persistent efforts of our supply-chain team. Nonetheless, our total gross margin declined 60 basis points from the prior year, a 22.5% of sales. For the full year, we ended at 22.7%, down 100 basis points from the prior year. Our diluted EPS was $0.48 for the quarter versus $0.55 in the prior year, primarily as a result of lower gross margin combined with higher operating expenses in support of our new retail locations. This was below our expectation and representative, though, of the competitive market pricing. For the full year 2014, our diluted EPS was $1.08 versus $1.47 in 2013. Now, I'll give you a little more detail on revenue. First, our greenfield…

Thanks, Paul and good morning, everyone. Now, I'll highlight a little more detail on a few key 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. As Paul mentioned, we had a strong quarter and top line growth as total sales increased 6.3% for a fourth quarter record of $726.5 million. The all-weather acquisition occurred on August 29. As a result, there was a small amount of acquisition revenue included in the quarter. Excluding the acquisition, our existing sales increased 6.2%, driven primarily by the 26 additional greenfields that were added in 2014. For comparison purposes, there were the same number of days in Q4 of 2013 as in Q4 of 2014, 64 days. Sequentially, sales were up 9.5% from third quarter, following our traditional seasonal pattern. Our monthly average day sales were reasonably consistent for each of the three months of Q4, although we experienced a slight decline in daily commercial sales through the quarter that was offset by an increase in residential sales. As in prior quarters this year, our biggest challenge was in the gross margins line which decreased 60 basis points from the prior year to 22.5%. This was driven primarily by a 230 basis point decline in total pricing, partially offset by 170-basis point improvement in product cost. Declines in pricing were seen across the residential roofing products that were down 430 basis points and commercial roofing products that were down 60 basis points. Complementary prices were up slightly with a 40-basis point improvement. The good news is we were able to reduce our product costs to help offset a good portion of the selling price declines. Residential product costs declined 260 basis points. Commercial roofing product costs declined…

[Operator Instructions]. And our first question is from Ryan Merkel with William Blair.

The first question I had was with regard to the guidance you gave for the fiscal fourth quarter which I think was around $0.68, I'm wondering, what surprised you to the downside? It looks like it might be a little bit on gross margins, but maybe more so on OpEx? So maybe walk through that first?

Ryan, I think the bigger issue had to do with the gross margins piece. If there was one thing that declined it really would have been the gross margins and even the top line in the sales. We would have expected a little bit higher sales growth as we were going into the quarter and also a better or improvement on the gross margins piece of it which really, the pricing element was what drove most of the lower margins, as I mentioned I went through.

The residential took, Ryan, quite a bit of brunt of the negative pricing as we -- sequentially went from three to four, so that surprised us a tad. And I know as we started the quarter and I know I've alluded to it that's our sales, we thought they'd be in the 8%, closer to 10% range. So, the combination of that definitely hurt and us doing nine greenfields in the quarter added costs. That wasn't a surprise, but it was really minimal. And we're not concerned at all about OpEx as we go through the dialogue and strip out whether it's greenfield sales and greenfield costs. Whether you do it for 2014 or even the ones we started late in 2013, our OpEx rates year-over-year are very close. I think they're in the 17.7, 17.8 range. I think the bigger surprise, Joe hit it was missed sales. We really anticipated sales being more robust and it started out the quarter fairly decent and I thought we'd see a build in August and September. August dropped a bit and then September dropped even more and then pricing just continued to deteriorate as we went through.

And the second question, in the markets where you have opened new greenfield branches, I'm wondering, are you giving up a little bit of margin to gain the sales there initially? Or does that answer depend on the region where you opened a new branch as you talked about in the prepared remarks?

That's a really good question, Ryan, because obviously we're always concerned about that as we open up new branches and try to get placement. I mentioned the word share gain which obviously we're doing because you can only see so much of those sales. If you look at our full-year greenfield results, they were somewhat negative on operating income, but not really a big impact on EPS, maybe $0.01 or $0.02. The gross margin is above company rate, but typically it's been slightly below the run-rate for normalized regimental sales. I think even though it's accretive to our baseline rate, there is just a little bit of price you give up in those markets, but it's not enough to really move the dial. And if you look at our fourth quarter greenfield performance. We were actually positive on operating income at fairly decent gross margin rates.

And our next question is from Ken Zener with KeyBanc.

If you could restate the connection between asphalt which is -- there is two elements impacting, obviously the pricing on res. One is the demand and from industry structure perspective, if you could comment on how -- or if you've thought about 2014 versus, let's say how the business was operated, yourself and peers, versus 2012 or 2011 when the distributors were less consolidated? Do you think there's less appetite to perhaps buy inventory into the normally discounted winter period given what pricing's done this year and/or confidence in where pricing is going to be? It seems to me that the inventory piece, as you have a cheap access to capital and others do, it might have shaken things up a little bit versus how the industry was three or four years ago. If you could just comment?

Yes. It's hard, Ken obviously to see into all of our competitors' inventory balances. We can look at where the [indiscernible] data is saying the year is going to end, down from last year's squares. I think we're at $89 million through three quarters, maybe it ends up at 108 or 109 and I'm kind of estimating. So, that pressure is down. There was, I think a fairly healthy winter buy. I think it's less -- inventory has an impact. I do think, though, demand is the gate. In the absence of demand, it causes the pricing pressure. And then it gets magnified when folks are holding inventory that they bought at lower prices, maybe in the February, March timeframe. In terms of the appetite moving forward, it's very difficult to predict. We’re still formulating our winter buy strategy. We typically have not gone crazy and by any means bought for three-quarters of the year or the full year. I do think the manufacturers also had a very difficult year. As you are close to the industry, you know, they weren't able to get any price for the most part. If anything, prices have been going down from them, as evidenced by our COGS to some degree. I'm sure they're very interested in trying to stabilize the market and gain some price. It's very difficult to say what the winter buy is going to be. You would think that it wouldn't be as deep as last year, but that's just an opinion I have. Now you had mentioned asphalt at the beginning of the discussion. Asphalt pricing has been somewhat in a slight upward pattern even in the June timeframe when oil dropped. The latest asphalt data that I have a November shows it close to $600 a ton even with oil dropping significantly. Now, we'll see what will happen in the next few months if that will tail down. There is been a lot of discussion about more decoupling now, asphalt versus a barrel of oil than in the past, especially with some of the low light crude that they're pulling out of the shale fields. But I'm certainly not an asphalt expert. There is no doubt that the graph I'm looking at shows asphalt pricing as moving up in the last year. I would imagine that's putting pressure on the manufacturers from an input cost standpoint. I think they're going to be positioning themselves towards the end of this year, beginning of next year, to do what they normally do. And then you I would expect them to be -- you would think, to be firmer in their approach to pricing as we go through the spring and we would like to take the same posture with the marketplace because we know we need to get price.

One other thing I would add to Paul's comment in regards to winter buy and inventory is we made a lot of progress this quarter really reducing the inventory. If you look at our inventory per branch or per location with the number of locations that we currently have it's up maybe 6% to 7% in total. We've done a great job of really reducing that inventory level getting to where we're about at the same spot we were a year ago just up a little bit.

Operationally, since the branches -- the Texas acquisition, obviously there is a lot of revenue associated with a nine acre facility. Perhaps you could talk about if that approach is replicable or if DFW is such a unique market? Thank you so much.

The wholesale group is built has built an outstanding business over the last couple of decades. The folks that are running it are staying on with us. We're very pleased. They have had very high levels of performance and we certainly had branches of that magnitude in size and then we also have small branches that supports different smaller markets. We're always obviously analyzing our cost structure and what makes sense. I think the good news for us with wholesale is that it's a great add-on for the branches that we have in Irving, Garland, McKinney and Fort Worth to make us even stronger in the Dallas market.

And our next question is from Michael Rehaut with JPMorgan.

It's actually Jason Marcus in for Mike. First question is on the SG&A. I think historically you've talked about being comfortable in that 17% to 18% range on a longer-term basis. And I think, obviously, over the last couple of years you've been at the high end of that range and part of that is because of the large number of branches you've opened up over the last year or so. But as we think about 2015 and beyond, would you expect SG&A to still remain at the high end of that range as you continue to ramp up? And if not, when would you expect the SG&A to go below that?

First, there is no doubt, as I alluded to earlier that the greenfields have had an impact on our percent against sales and we recognize that. The exciting thing for us is that these greenfields are still just -- they're very immature, they are in their infancy. So as they flesh out and drive more sales, that cost percent it is going to change dramatically. I'm not at all concerned about our SG&A level. Historically we’ve been very tight fisted with cost control, while at the same time knowing we have to invest in certain priorities, whether it's IT to make sure we're doing all the right things there, supply-chain, etcetera and of course, our sales force in the field. I think you'll see us go back down towards the 18%, but it's going to take the time of those greenfields to mature. And then of course, that's always impacted on other factors such as how the market does in general, etcetera. I think you'll see us trend back towards the 18% and then as we continue to grow those greenfields that will get even potentially better.

The one piece I would add to that, Jason, just as a way of example, as you look at our existing operating expenses, right? Because you saw on the slide they're up roughly $23 million, $22.7 million year-over-year. Of that amount, $19 million of it really has to do with greenfields, $12 million of it is from the greenfields we opened this year but there is also an incremental $7 million from the greenfields we opened at the end of last year that were up and that's because you start them in fourth quarter then you have a full year of expenses that went on to the whole year and heightened as volume went up. So when you take that into consideration, that's 19 of the 23. And then if you take that to the operating expense percent of it, right? Last year our operating expense number on existing was the 17.6. If you take out those, the number comes very close to that for the current year. Maybe it's 20 basis points higher than that, but it's very close to that same number. So, excluding the greenfield investments, we've done a really good job of managing the cost structure.

We look at this as an investment, as I mentioned and if you look at our fourth quarter results, considering four greenfields, they were accretive, very slightly, but they were accretive. Much faster than any acquisitions we typically do and they're still in their infancy, generating very little sales compared to the average branch sales.

And then just in terms of the recent acquisitions you've made. I think you've said it will add about $88 million new in revenue for 2015. How should we think about the breakdown across the segments just on a rough basis?

The segments as in-line of business you mean?

Yes. Residential versus commercial versus complementary.

Virtually, I can give you a rough idea. The majority of it's going to be residential roofing and then there will be a portion of it, call it a third quarter to a third of complementary sales. Window door -- window and siding. Okay?

And then just on the tax rate, is 39% to 40% that still that range you're looking for, for next year?

Correct. Yes, it is.

And our next question is from Trey Grooms with Stephens.

Quick question on the pricing, Paul, you mentioned that pricing continued to deteriorate on the residential side through the quarter. Have you seen any signs of stabilization since the quarter end? And what is it going to take in your mind to start to see a more rational environment on pricing as we look into next year?

Trey, it's difficult to use one data point, October, to say, hey, things are changing. We certainly look at margins every day. We look at pricing from a square pricing standpoint. As I said earlier, October's gross margin was up slightly, but there could be some noise in the September versus October number related to mix, etcetera. The gut feeling I’ve is that we're close to the bottom, but we're also entering a period now of even rougher demand as evidenced by last week when our sales weren't at 100%% of normal rate because of the cold weather. And now we get that back fairly quickly before the winter really sets in. So, it's difficult to say. There is still a lot of pressure specifically in the Southeast, more intense in the Southeast and Southwest and I think across the country we're still, both on a residential and to a lesser extent, we're seeing commercial pricing pressure in most of our markets. It's just very severe in the Southeast and the Southwest right now. So, to answer, it's very difficult to predict. We will need to get through November and that will give us a better idea.

But to answer your question on what changes it, really it's the demand item that you mentioned. What really changes the pricing, it's demand. When we look at the demand it's more normalized weather, more normalized storm volume, really, the demand is what will change the pricing most dramatically.

And then to try to get a little bit more clarity on your commentary around 2015 sales, you mentioned market growth, 2% to 3% range is the expectation and if my math's right, I think the new acquisitions are going to -- or the acquisitions you did just recently will add 3% or 4% from the -- over last year. And then the 26 branches that you added in 2015 and then also thinking about your plans for waterfalling on additional branches next year, what kind of impact will those 26 branches from 2014 and then your expectations for 2015, roughly what kind of impact could that have to next year's sales numbers?

I'll speak to '15. Joe can go back to '14. It's in that same range. The estimate for the greenfield impact is in the 3% to 4% range for 2015 in addition to the $88 million. That's why I'm positive, I'm optimistic on the sales growth piece because we have the acquisitions in hand and we're going to attempt to even grow them more. And then of course, we’ve the greenfields that we already put in place. Not just the 26, but there's still those 10 that we did in 2013 that most of them, 7 of them as I recall, are late in the fourth quarter of 2013 they're going to continue to grow, not just in 2015 but 2016, 2017 and into 2018 as they mature.

Trey, you're right. You've nailed the three factors. When we think about the demand for next year, it's going to be those three things. It's going to be the acquisitions, not only the ones we've done, but hopefully the additional ones that we'll do as we go through next year. It's going to be the greenfield as they continue to ramp up and grow, plus our initial -- some new greenfields that we'll do next year that will drive it. And then the third part is the one that Paul said, the market demand, 2% to 3%. That will see how that shakes out as we go through the year. But you're absolutely right, those of the three big factors and that's why Paul said we're comfortable we're going to be above the market rate of 2% to 3%. You're right.

[Operator Instructions]. And our next question is from Keith Hughes with SunTrust.

Your inventory ended up pretty far ahead of where you were last year. I guess the question is, how much did any of the acquisitions impact that and where is your general feeling on your inventory levels right now versus expectations next year of demand.

Keith, it's difficult. I caught most of your question, but you're fading away there.

So the first question is, your inventory's up pretty high, 20% of where you were at the fiscal year-end last year. So did acquisitions impact that number at all? And what's your general feeling on inventory versus what you're expecting for next year, the 2% to 3% growth?

Yes, well, if you look at the 251 versus the 301, you add 25 for the greenfields onto that. That gets in that range of 275ish, so we were 25 higher than last year and I really just attribute that to buying patterns during the fourth quarter, some of it due to year-end incentives, things like that and service. For the balance of this calendar year, i.e. quarter, we should be in that same 310 plus the greenfield range to close out the calendar. So, we'll be closer on a net-net basis to the end of last year. So we're well-positioned considering that we added 26 branches this year and there will be a couple that we're going to load up in Q1 more than likely that will also have inventory that will be additive to that number. So we feel one, we're in good position as we get into the winter and then as I said, we haven't formulated our winter buy and what we're going to do yet.

I think if you look at it by branch, the acquisitions drove some too, Keith, you're right. If you look at it by number of branch, it's actually up roughly around 7%. So, our per branch inventory varies, but they're up roughly between 5% and 7%.

Okay and let me just add one thing. We missed part of Trey's question on -- I think he asked on the 2014 greenfield volume. If you look at our 26 branches that we opened up, they contributed approximately $45 million in sales in the year.

And our next question is from Garik Shmois with Longbow Research.

Just wanted to reconcile first off some of the commentary around commercial pricing, it seemed like it was down somewhat in the quarter and I think some of your remarks indicated that the commercial pricing landscape remains challenging as well. If I recall back into the prior quarter, it seems like some of the commentary around commercial pricing was mostly attributed to mix. And then broader strokes, your remarks today indicated that mix really didn't have much of an impact. So just wondering if you could reconcile maybe the discrepancy there and how much of the pricing landscape on the commercial side truly is competitive versus mix and how we should be thinking about that moving forward?

The mix comment was in relation to the impact on our gross margins. As you move from higher gross margins residential to the lower gross margins commercial which is the way it's been for us for forever. That's typically our reference to mix and its impact on gross margins. If you look at commercial pricing in the quarter, it was down a half a point or so. Last quarter down 1.6, the quarter before, 1.5, 0.9. There has been pressure in general over the last six quarters or so on commercial pricing, but not -- anything troublesome other than I think as we see pressure on the residential market. Distributors like ourselves continue to drive sales. So, we continue to drive for work in our other lines of business like complementary which you saw was up 11% this quarter. And then of course, we continue to drive where we're strong commercially across the country. I think other distributors are doing the same thing and I think I put that puts a little pressure on commercial pricing even with the relatively strong growth rates. I mean you can read the Carlyle earnings release. They've done very well and they're projecting '15 to be very strong and actually their calendar quarter from a growth standpoint to be strong. So we're still very optimistic about commercial. We believe it's going to continue to grow. We think that right now the pricing is, I don’t want to say it's noise, but it's not worrisome. We would love to be seeing positive pricing. We're going to work towards that, but right now, I think with in general the way the total market is impacted by residential, it just puts a little bit of pressure on it. That's all.

The other piece I would add is though, with that pricing decline in commercial, we were able to offset almost all of this quarter with lower product costs as well too. So we did a very good job of that element of it for the quarter. Thanks.

And then I guess just a follow-up question on your greenfield openings and just the timing of it in the fourth quarter, you went slightly ahead of your stated plan. You also are indicating that maybe the pace of greenfield openings in fiscal '15 may slow as M&A opportunities appear to be robust and that would offset. Just wondering if you could maybe provide a little more color around the timing around the nine branch openings in the last quarter and why the decision was to open them when you did?

We had stated at the beginning of the year we would do 20 to 25 branches. So as we loaded our plan, as I think everyone would expect us to do, right. We would have a very detailed plan of what cities we wanted to open to and then we begin the preparation work. Some things and many things work smoother than others and we were able to open up the 26. We had in our sights back -- internally back in Q2 that we would get to 25 and then we were able to get that extra branch. I think part of the timing is for us to get them open as much in advance as we can prior to winter. So, that's one of the reasons. I guess if we had our druthers, I would have pulled them all up into Q3. That just wasn't possible physically. Moving forward, so that's kind of Q4, there is really no magic there other than that we were hitting our plan. The timing of it by month was six in July, two in August and one in September. So we kind of feathered down and a lot of them, from my earlier comments we’re geared towards Q3 that fell into July numbers. Going forward in past calls I've said we do approximately 20 and that was really without taking into account any other factors. Since then, we've done three very strong acquisitions. There is an element of integration that has to occur there. They are equivalent to -- well they are equal to eight branches, but their sales value is much higher obviously compared to greenfield which might have $1.5 million of sales in the first year. So my comments are just intended to let everyone know that there could be a change from the 20 down to 15 down to 12 down to 10. I think it really just depends on how the year progresses with other acquisitions and then how the integration continues on the 40 that we've done in the last three years. So there is really no change in our direction other than to say, hey, if we do another acquisition of 10 branches, we might only do 5 to 7 greenfields in a year and part of it is our digestion process and the staffing process, things like that.

And our next question is from David Manthey with Robert W. Baird.

Objectively, looking at the [indiscernible] industry data, reroofing squares are down about 25% since '05 and I think about seven of the last nine years despite the fact recently that we've seen an uptick in consumer confidence, home values, turnover in housing stock. I'm struggling when we talk about weather or cyclical factors; it just seems like too long a timeframe. I'm hoping you can give us some comments or thoughts on why you think shingle volumes have been down for almost a decade now and what changes next year?

Well I think, Dave, that you can't -- not that you are [indiscernible] the impact of storm volume, but if you look back in the early '04 - '05 timeframe besides average hail volume, you had awful lot of tropical storm activity. Back, I think in '05 - '06, some of that volume on average produced 12 million - 13 million squares of product in that couple year timeframe. Then even as you saw the recession take place in 2007, there was still an uptick in 2008, 2009 with mostly Hurricane Ike and hail activity. I do think storm volume is a, especially in the last two years is a major factor. And then without having evidence in front of my face, I believe that the recession that we went through has still caused some deferrals to occur and that's why we're so optimistic because as things normalize, whether it's existing housing starts increasing, new construction increasing more than it has this past year both of those, as well as repair remodel continue to gain steam. You saw our progress on complementary and then as storms normalize -- not that I'm wishing for a tropical storm or hurricane or hail, but as that just normalizes as I think that will drive that square volume back up. So I think there is a number of factors that have been in play and then maybe the biggest from the terms of a change is the fact that back in the early 2000s, we were building way more new homes than we're now over 2 million starts and as you know, we went way back to 400,000, 500,000 and we're up to roughly 1 million or so units this year.

And second, I'm trying to understand the ramps of these greenfields and could you talk about the growth rate that you saw, let's say this year, in the ones that were opened in fiscal '13, just to give us an idea of how fast they grow? And then second related to that, maybe if only directionally, could you talk about what happens to gross margins in year two?

Dave, it's tough to talk about this year or any kind of average because I have to tell you, some of them do really great right out of the chute with great locations. Some of them a little slower out of the chute. It really kind of depends. On average, though, what we're seeing really ties to what we’ve talked about before that in the first year of a new greenfield, first full 12 months, you're seeing somewhere between $1 million to $3 million in revenue for them. Again, it depends on storms. It depends on a whole bunch of things where that geographic area might be. But the first years has been this year and roughly in that same range. So, expect to see the same. In the second year, most of the times we'll see that number start to double, so you're talking $2 million to $4 million. So they've really started to ramp up. It's a longer process, as we've said. It takes probably five years to get these new greenfields where we want them to in total, but so far what we've seen has been in-line with most of our estimates. There hasn't been too much of a surprise from that amount.

Okay. And gross margins in year two?

Yes, the gross margins in year two tends to improve a bit. I think Paul talked earlier about in the first year when you open up, first thing you know is we start primarily with residential, so it starts with residential. So they have higher gross margins than our average branch because their mix is more towards residential. And as Paul said, when we start them out, pricing somewhat can be a little bit more compressed early on. Still a good gross margins on them, but can be a little bit more compressed. As they start to grow and develop, they drive margins even higher. So, you do see them go up in the second year, yes.

Yes typically, Dave, what we've seen is because there is still, I use the word immature and that might not be the right word, but they're still in their infancy from a sales standpoint. If an average branch is nine or so and they're doing three, there is still a little bit of pressure on the gross margin as they attempt to get a foothold on the market. So they certainly don't go from their first year and the second year to our normalized rate, but they make progress. Probably, I think the data we've seen is in the 1 - 1.5 range on average and I’ve variance all over the place based on location, if they are in a storm markets, the health of the region they're in that kind of thing. But in general we see progress so that by year three, four, we're up to the normalized rate before -- that we see in the other branches.

That concludes the questions. Now, I would like to turn the call back over to Mr. Isabella for his closing comments.