Good afternoon ladies and gentlemen, and welcome to Beacon Roofing Supply's Second Quarter 2017 Earnings Conference Call. My name is Alex and I will be your coordinator for today. As a reminder, this conference call is being recorded for replay purposes. This call will contain forward-looking statements including statements about its plans and objectives and future economic performance. Forward-looking statements are only predictions and are subject to a number of risks and uncertainties. Therefore 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. These forward-looking statements 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. The forward-looking statements contained in this call are based on information as of today, May 4, 2017, 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. 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 the call today for 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, and good afternoon and welcome to our second quarter 2017 earnings call. Similar to recent quarters, we'll be filing our 10-Q tomorrow. During today's call, we will provide a detailed review of our quarterly results, discuss current industry trends and update our expectations for the 2017 full year. To start out, we believe our second quarter was very strong, given the extremely difficult comparisons and more challenging weather versus Q2 of last year. As a reminder, last year during Q2, we had virtually no harsh weather in most regions of the country. This allowed new construction, reroof and complementary repair work to continue at a robust rate. As a result, we grew 25.7% organically on a daily basis in the quarter. This year we delivered Q2 organic growth of 2.4%, which on top of last year's rate, is extremely strong performance. In addition, adjusted EPS ended up at minus $0.04 versus the adjusted $0.03 positive we delivered last year. We view this as strong performance considering the seasonal impact. We believe our strong revenue performance is from solid market demand and our execution on our growth initiatives. And as a reminder, our second quarter has always been our most challenging for sales and EPS, given the impact of harsh weather in many parts of our footprint. In the last decade, we have had positive EPS growth in only two of our second quarters. Other Q2 highlights include our 12th consecutive quarter of residential sales growth. Over this 12-quarter stretch, we have averaged 10% organic same days growth per quarter. We also saw a mid single digit sales increase within complementary products and solid gross margin performance, above our three-year second quarter average. And our net debt ratio ended the quarter at 3 times versus the 4.3 times at…

Thanks, Paul, and good afternoon 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 Q2 slides that have been posted to our website. In my prepared remarks, I'll go into greater detail on gross margins, operating expenses and our balance sheet metrics. We're pleased with our second quarter and first half 2017 results, as we continue to track towards another strong year. Our second quarter generated sales growth of 5.7% and represented a record Q2 revenue performance by Beacon. As Paul highlighted, acquisitions continue to play an important role in our growth strategy, adding $27 million to quarterly sales. Gross margins declined 29 basis points year-over-year in Q2, but still rose 49 basis points during the first half of 2017. Operating costs increased $15.7 million year-to-year, primarily attributable to acquisitions, volume-related variable costs and several non-recurring items that I'll walk you through in greater detail later in my prepared remarks. For the quarter, we achieved better than expected second quarter adjusted EPS at a loss of $0.04, which compares to a $0.03 profit in the prior year that was aided by favorable weather conditions. Our second quarter adjusted EBITDA declined from $36.9 million to $31.8 million in the current period. Q2 had the same number of selling days, 64, as in the year-ago period. As Paul has already discussed our Q2 revenues as shown in slide 4, I won't repeat this information, but I will go through our monthly organic sales trends. January daily sales were flat. February sales were up 4.8%, and March sales increased 3%. All three months had very challenging year-ago comparisons, as we reported organic daily sales increases of 19.5%, 43.9% and 18.1% January through March, 2016. We're particularly…

Your first question comes from the line of Keith Hughes from SunTrust. Your line is open.

Thank you. You had referred to some spring storms helping demand. I assume you're talking about some of the events in Texas in the last month or two, as we got two of them now. Could you kind of give your initial view of what kind of impacts? And relate them to what we saw this time last year.

Yes, they're still, Keith, they're still evaluating the total number of houses because it is relatively early. But it's very, very healthy. The best estimate that we have now is that it will be close, close I say, to the Dallas-Fort Worth activity of last year. So there were a couple of strikes actually this spring. In terms of last year's volume, as I said, it ran through Q2. We think, just because of the amount and the concentration, that is relatively smaller area, that that activity from last year will continue into Q3. We'll have to see what that means for Q4. And then as this, the new activity heats up, the reroof will start probably within a month, if not some of it's going on now, right. It's starting to getting mixed, obviously. But it's healthy. We also had some activity in Nebraska, Missouri and then to a lesser extent in our South region, a little bit Mid-Atlantic, but they're adding some things. And then Q2 did have some Hurricane Matthew activity. About 15 to 20 branches of ours saw volume from that. We think most of that is gone. There might be a little bit trailing into Q3. But so far given that it's early in the season, we feel pretty good about the activity to date. And also I think it's important to note that given our size in Dallas-Fort Worth, we have a very strong readiness to serve that customer base there.

Hey, Keith, this is Joe. The other part that I would add on that is also out on the West Coast in our West division with the rains there. Obviously not the same storms as you were referring to, but the heavy rain in the West, really put a damper, no pun intended, on our business out on the West Coast and the California market, right. We just couldn't get a lot of shipping done. That will have a favorable benefit as we go into the back half of the year, as that will cause some additional demand, not only pent up from the first half, this last quarter, but also it will create some new demand. So that should help us as well too.

Okay. And just finally, on the commercial business, was down in the quarter. You have some optimism in your comments. Have you started to see that turn back up in April? I know the comps get a little bit easier as we go into this fiscal third quarter.

Yes, we don't have the line of business splits exact to report on. But there is no doubt that the activity we can see and then the quoting volume is up related to commercial. And the amount of work we see coming, large jobs that have gone through our AR queue is up. So there is no doubt. I mean, just the delta in Q2 year-over-year, over a third was caused by California just because of the extreme weather they saw, both years, right, nothing last year and then the prep in anticipation and then nothing but rain this year. So we're really confident they'll have a breakout. They actually, I won't get into specific numbers, but it's one of the first months this year that they were equal to, slightly above last year's numbers. So we're starting to see that come back out, even though there was for them a little bit of wetness in April. And then the rest is really just the, when we really look at what we did last year, it was mammoth, when it came to commercial, because we had no weather, and then the weather that hit this area were in areas where we're heavy with commercial, upper Midwest, Northeast and then the West Coast, which is heavy commercial. So that's what gives us the confidence besides what we see within the market in terms of that growth rate. So for the second half, we see them at mid to high single digit growth rates, which will get the full year with the negatives at the lower single digit total rate for the year. That's what we're thinking now, Keith.

You're comps of that one as well too, because the commercial comps last year were up 24% for the quarter. So even when you consider the 9.6% down this quarter, still on a two-year basis you're still quite up. So as Paul said, we're still feeling really positive about going forward.

Yeah.

Thank you.

Okay. Thanks, Keith.

Your next question comes from the line of Garik Shmois from Longbow Research. Your line is open.

Hi, thanks. Garik Shmois. My question is just on the operating expense line. By my math, it seems like you're calling for about 100 basis points decline year-on-year in the second half to get to your full year guidance. And recognizing in the second quarter, you had some timing issues that impacted that line. Assuming those timing issues resolve, just wondering, and if you could provide some more color on your confidence behind the operating expense guidance and if it's anything more than just operating leverage.

Yes, this is Joe, I'll take that one Garik. And it is more than just operating leverage. Certainly with the volume, as you know, it's a much heavy back half of the year. Right, that's where large proportion of our volume will ship. So we'll certainly get the leverage from it in the back half of the year. But if you look at some of those items that I went through, many of them were items that were one-time for this particular quarter and you won't really see recurring, that we talked about some of the spending that we did on some of the strategic investments. I went through on the call also we talked about the overtime, which was related in regards to our physical inventory process that we had a good portion. So you had a large amount that really were non-recurring, that shouldn't recur as we get back into the next couple quarters. If you look at our existing market operating expenses, last year for the third and fourth quarter, we were running around 17% pretty much for both of those two quarters in the existing SG&A numbers. And you're right, if you look at this year, for the back half of the year and those second two quarters, we should be down probably 50 basis points in each of those two quarters versus where we were in the prior year, some from leverage, some from some of these non-recurring items that won't come back again. Pretty confident, yes.

Your next question comes from the line of Bob Wetenhall from RBC Capital Markets. Your line is open.

Hey, thanks for the detail today, very helpful. And I'm guessing your new guide is, for EPS this year is like $2.40 to $2.45. But I really wanted to ask, it looks like your residential growth on an organic same-store sales basis is robust relative to everything we're seeing in a broader marketplace. So I was really trying to get a direct answer. I'm guessing you guys are taking a lot of share in residential and this is really becoming more of a market share growth story for you guys as much as it is about M&A. And I was just looking for confirmation, if I'm thinking about this correctly. Any help would be appreciated.

Yes, it's very hard for us to measure market share. For sure, our goal is to take market share, there's no doubt without giving away price. We have a, and have seen, as I said over those 12 quarters, very, very strong residential growth for a number of factors. And we think it's going to continue. Just let me make sure I clarify our EPS comments with the current analyst midpoint range is in that $2.33, $2.34. That's what I had said in Q1 that we're comfortable with the $2.21 to $2.45 is the total range. So I mentioned that we're comfortable with that range, which infers the midpoint. So that's the answer to that. But for sure, Bob, we are very interested in taking share. We want to grow above the market and that's why we put so much emphasis on these, both the existing work we've done, but the other channels, whether it be national accounts and the pressure there, additional complementary sales by getting them in additional branches, sales to lumber dealers, our two-step activity. All those things are going to add to the growth for us, as we go in the out quarters.

And to reaffirm what Paul said earlier, so on the residential side, back half of the year, mid to high single digit growth.

And sorry, if I could just sneak one in, a housekeeping question.

Yes.

I thought your SG&A had some extra bad debt, like $2 million and $3.5 million of extra D&A. Is that correct? Did you just have like worse D&A because of these transitory costs kind of like ongoing SG&A ratios better than in the quarter? Thanks and good luck. Appreciate any guidance.

You bet, Bob. So on the D&A, so depreciation and amortization that you're referring to, yes, we were up on a year-over-year basis for the quarter. But it's really all on the A side, most of the amortization from a lot of the acquisitions we did from a year ago that tripped into existing market versus acquisitions. So it's all on the amortization side of it and all related to the acquisitions from over a year ago. Hope that helps.

Cool. Thanks very much.

You bet.

Thanks Bob.

Your next question comes from the line of Will Randow of Citigroup. Your line is open.

Hey, good afternoon and thanks for taking my questions. On inventories, picked up a little bit there. You talked about pricing stabilizing. For lack of a better term, how do you feel about the cost basis of your inventory relative to current market prices, or does another price increase need to go, or you might feel a little pinch short term?

We always feel good about the cost basis of our inventory because we have a great supply chain team versus pricing in the market. As I said on my portion, we do believe the market should increase prices, so we are supporting the activity of the manufacturers and pushing very hard to make that happen. There's no doubt oil is up, asphalt's up, other commodities. Diesel is up for both manufacturers and us, right. So there's no doubt, we're going to push extremely hard to make that happen. And in terms of, just if I can comment on our inventory in the quarter, we also feel extremely good about our inventory, even given some of the odd weather we saw at the end of March, which did tamp down sales, and really tamped down that 2.4% organic growth. We would have been in even better shape. So we are prepared just because of what we see in this back half, really on all of our product lines primarily the growth in our inventory, with shingles. We get that, and accessories. But given the growth we've seen, the growth we anticipate, some of this storm volume, the turnaround in the West, et cetera, we feel extremely, extremely good about where our inventory is right now.

Thanks for that. And just a follow-up on some prior commentary and questions. In terms of, so you're not necessarily moving the EBITDA range. Amortizations have picked up, but implicit EPS guidance is pretty much where it was at. Can you go through that walk again? Is it lower taxes or what offsets the increased amortization?

So higher sales, higher gross margin, slightly worse or higher operating expenses should get you there.

I meant between EBITDA and EPS, because if you have higher amortization, EPS should actually be a bit lower. But I haven't done the math yet.

Yeah, the amortization was the same number that we were anticipating from the last time. So from the EBITDA from last time to this time, our expectation on D&A hasn't changed. The other question was why was it up year-over-year. From an expectation perspective, it's the same number.

Thank you very much and congrats on the progress.

You bet.

Thanks, Will.

Your next question comes from the line of Ryan Merkel from William Blair. Your line is open. Ryan J. Merkel - William Blair & Co. LLC: Thank you. So in April, was price flat year-over-year or was it up slightly?

It was still slightly negative, Ryan. We had said on my comments and I think Joe said the same thing, that it was slightly improved from Q2. But it's not to the zero mark. But we're encouraged, especially, but again as I said, we know it's only Q2 and April are two data points. We're encouraged given the fact that April wasn't the greatest month for clear weather. There was a tremendous amount of rain in different parts of the country that tamped down volume. So it's encouraging. Now of course, region-by-region as Joe commented, we see some very competitive pricing, et cetera, where we are seeing robust demand. We feel good about our opportunity to push price through, which we're going to continue to do and as I said, support the manufacturing base. Ryan J. Merkel - William Blair & Co. LLC: Okay. And then you said price was down 1% in the quarter, but what was COGS down? Are you still managing that price/cost spread well? And then just comment on how that looks in the second half as well.

Sure. Cost was not down as much as price, so we didn't quite manage the spread on that part. But as you know, it's usually more challenging during this quarter of the year, especially as you go through the year. As you know, a lot of our vendor incentives are based on hitting gates. So as we hit certain target volume gates as you go through the year, usually our vendor incentives will increase as we go through the period. So to your second half of your question, is our confidence on the second half of the year that's going to improve, absolutely. That's why our gross margin range is higher in that second half of the year. Ryan J. Merkel - William Blair & Co. LLC: Got it. Okay. Thank you.

Thanks, Ryan.

Your next question comes from the line of Matt McCall from Seaport Global Securities. Your line is open.

Thanks. Good afternoon guys.

Hey, Matt.

So maybe ask it this way. You if said that you'd seen some good pricing in some of the stronger markets. If you strip out the West, you strip out the Northeast, and were you positive from a pricing perspective in total in those up markets? And I guess the second part is, given your bullishness for those two other markets, are you kind of baking in that the full pricing transitions to positive just as the strength in those other markets comes in the back half?

Yes, in terms of the balance of the year, I mean we've got price in these numbers at basically flattish. And I won't start picking apart every one of our regions based on price, but I can tell you where we saw strong volume, we did see positive price, albeit slight, but we saw positive pricing.

Okay. So in total in those other markets, pricing was up?

Slightly, yes.

Okay. So, and I'm not trying to pick this apart, but you didn't change your organic growth outlook. But if I look at the, I guess it's slide 10, residential up, complementary up. Non-res takes it a little bit lower. Is maybe the way to think about it that you move toward the high end of that organic range and your outlook, given that 70% of your business, you just took the outlook up for 2017?

Yes, I think that's a good way to think about it. I think you're right. That is correct.

Okay, all right.

Matt, you're right on it.

Okay, okay. So the last question, the commercial outlook, a little bit softer. I think I asked last quarter if there was any policy uncertainty that was kind of driving some delays. I think the answer was no. But is there anything that you can talk about that's really maybe impacting trends near term? And then maybe what are the assumed drivers as we move to the back half and see some improvement?

Yes, as I mentioned of course, you folks know because you look at the numbers, the comparisons get a tad easier. But also for the facts we mentioned, last year, the Northeast had no weather and pulled forward a lot of volume. That was that 60% or so, 50% plus growth they saw. And then through the end of the year, because they didn't have any of that damage, they ran out of gas a bit. So, then happened winter and in the Upper Midwest, is going to bode well for just reroof for us in general. We already gave you the California story in terms of that being a bigger commercial market for us and then what happened last year and this year with the tremendous rain, we're definitely going to see a turn. So if you look at the commercial markets, it's still a very healthy market. It's still a huge part of our sales. We're extremely focused on it. But I think like in any other product line, there is also competitive pressures, so we have to make sure we're playing at the right margin level, and I think we, and that's nothing new. That's been going on forever. And, but our folks are extremely positive that they're going to be able to grow commercial in this mid to high organic percentage rate in the back half, which gets us the lower single digits for the full year.

Okay, perfect. Thank you guys.

Thank you.

You bet, Matt.

Your next question comes from the line of Jim Barrett from C.L. King & Associates. Your line is open. Jim Barrett - C.L. King & Associates, Inc.: Hi, Paul. Hi, Joe.

Hi, Jim.

Hi, Jim. Jim Barrett - C.L. King & Associates, Inc.: Could you talk about the Lowry's acquisition, waterproofing, sealants. I assume is that largely nonresidential, and do those types of distributors represent an incremental pool of acquisition candidates for Beacon?

Yean, Jim, great question. Lowry's, I'll first say again, Lowry's is an outstanding company. They've done a phenomenal job running that business out there. They have great placement. They've expanded in last few years with a couple of smaller acquisitions, and they're very well known on the West Coast. Yeah, they mostly play on the commercial side. There's a lot of new construction involved, but also R&R with some of the restoration products, so it's a mix of waterproofing, vapor barriers, sealants, restoration-type work. And yes, we're looking at it as a platform. There is some pull-along sales with our commercial roofing work, either through contractors that do that work or GCs that let both of those projects (55:46). So we can see some attachment to our existing commercial business in the West. We also see us opening up, potentially opening up greenfields to expand that business and also to, look, yes, it gives us a grouping of potential targets to acquire and we'll be evaluating that. And of course as always, we base those decisions, as I commented about what we've done since RSG, on with the strength of those companies and what they can bring to us. But yes, it is another opportunity for us to acquire, Jim. Jim Barrett - C.L. King & Associates, Inc.: Thank you very much.

Thanks.

Your next question comes from the line of David Manthey from Baird. Your line is open. David J. Manthey - Robert W. Baird & Co., Inc.: Hi, thanks.

Hey, David. David J. Manthey - Robert W. Baird & Co., Inc.: Hey, good evening. As it relates to the inventory situation, you say that you're comfortable with your inventory level, but if you look at the ARMA data and OC and CertainTeed, is there a chance that others have more than you do and that could create a situation as we get deeper into the season?

Dave, I don't believe so at all. If you look back to 2014, where there was that huge buy and things were so different then. Economic indicators were flat or down. There was just no opportunity to do anything. And then you look at where we're at today with the robust sales, especially as I said over the last few quarters, and there were no storms actually late 2013, 2014 at all. So that well was dry. So things are completely different in that reference. So in terms of like how we view our inventory, we did not view this as at all as a winter buy. We viewed it as we have demand. We have a lot of activity. Remember, we have over 600 sales folks that are extremely active selling. And we just see it as an opportunity. And if weather hadn't hit bad at the end of March like it did, it would be lower than it is right now just because we would have sold a heck of a lot more. So I don't have a crystal ball on everything, but I have a high confidence factor on the inventory we have. We are going to sell. I can't, it's difficult for me to speak about our competition, right, because I don't have their numbers. But I think they all, including Joe referenced the two-step and lumber dealers in our sales and that impact it had on gross margin, that was because they're enthusiastic. Their volumes are up, so they're stocking product in their lumber yards, right, which we sell to but outside the range of our one-step contractors, and we've been doing that for years. So I think all the indicators are really different than in the past, even last year. Time will tell, of course. But if you just look at what we're seeing from a demand perspective in most of our regions, we feel very comfortable about where we're at with inventory right now. David J. Manthey - Robert W. Baird & Co., Inc.: Okay. Sounds good. Just final question on greenfields. If my numbers are right, and correct me if they're not, that you opened six in 2015. I only have one in 2016. And then I think you mentioned how many in 2017? If you could help me with that number. And then second, has there been any change in the growth trajectory when you opened those new locations?

Okay. Yeah hey, your numbers are right, six, one, two year-to-date. And we got a number of others that are actually we're ready to sign leases. I won't tell you where they're at. But we feel pretty confident that we're going to be in this seven to eight range for the end of this year. And really, it's balanced. Actually, I think it's quite well balanced against all these acquisitions that we've also executed this year. And I'll let Joe talk about the profitability and growth.

Yeah, the growth trajectory of them, we've talked about that and had it in our materials for a while, and it's a really good question. We actually have seen them grow a little bit faster in the last ones that have come up. As you know, RSG had a really good strategy around the greenfields, focused development of them, and we're taking some of that at heart with our new ones that we put out there as well too. So we've seen them grow a little bit faster than before. Some of it's some seeded volume to get them going, but more of it is our purposeful intent to drive more volume to them quicker and obviously with that comes the profitability. So yes, they are growing a little faster than they had in the past. David J. Manthey - Robert W. Baird & Co., Inc.: That's great. Thank you very much.

Thanks, Dave.

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