Good afternoon, ladies and gentlemen, and welcome to the Beacon Roofing Supply's Third Quarter 2017 Earnings Conference Call. My name is Sonia and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be conducting a question-and-answer session toward the end of the conference. At that time, I will give you instructions on how to ask a question. As a reminder, this conference call is being recorded for replay purposes. 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 Factor 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 the call are based on information as of today, August 2, 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 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 CEO; and Mr. Joe Nowicki, Executive Vice President and Chief Financial Officer. I would now like to turn the call over to Mr. Paul Isabella, President and CEO. Please proceed, Mr. Isabella.

Thank you. Good afternoon, and welcome to our third quarter 2017 earnings call. During today's call, we will provide a detailed review of our quarterly results and current industry trends, review Beacon's operational and strategic plans and update our expectations for the full year. We believe our third-quarter results were very solid. We achieved record sales, record adjusted EPS and record adjusted EBITDA in the quarter. In addition, we had strong sequential gross margin improvement and also stable gross margins versus Q3 of 2016. Our market pricing improved sequentially and was also flat year-over-year. This is very good news and in the direction we have been forecasting. As a result, we are seeing positive price in some of our markets. Operating cost performance was also positive, providing beneficial leverage. This is an indication of our ability to effectively control costs. In addition, as mentioned on our last earnings call, during the quarter, we closed on the purchase of Lowry's, a premier California-based waterproofing company with 11 branches across four states. Sales growth for the quarter ended at 5.3%, with organic growth coming in at 2.2%, which was slightly below our expectations. We saw challenging year-over-year comparisons. Last year, Q3, we had an organic growth of 9%, increased rainfall in the Eastern United States and the demand impact of having a second consecutive mild winter across Northern markets. While these short-term external factors impacted sales, we remain very pleased with the overall results and execution of our team and remain very bullish on the continued growth of organic sales. It is also worth noting as we have talked about for many quarters, roofing has a very high R&R content, 80%, and as our business is impacted by weather in any month or any quarter, that work does not go away. It…

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 third quarter slides that have been posted to our website. In my prepared remarks, I will go into greater detail on gross margins, operating expenses and key balance sheet metrics. We're very pleased with the operational execution by our teams, with our third quarter gross margin and operating expenses shining a positive spotlight on this performance. Existing market sales growth increased a solid 2.2%, and that's on top of a prior year 8.7% existing markets growth rate, although this is lower than expectations due to unfavorable weather conditions. For the quarter, we reported adjusted EPS of $0.84, which compares favorably with the adjusted EPS of $0.77 in the prior year. Our third quarter adjusted EBITDA increased to a record $120 million from $109.6 million, with adjusted EBITDA margins improving 38 basis points year-to-year. Regarding our monthly sales trends, Q3 had the same number of selling days, 64, as in the year-ago period. Paul's already discussed our third quarter revenues by geography and business line, but I'll provide an overview of our monthly organic sales trends. April daily sales increased 2.8%, May increased 4.8%, and the June month declined 0.9%. Multiyear comparisons were particularly difficult during the June month for residential roofing, as the previous two years had seen 30% cumulative growth. In addition, the June month experienced the greatest weather disruptions during the quarter. Our complementary products category posted consistent performance each month during the period. Paul commented earlier on the July month, but I did want to draw further attention to the fact that the heavy rains that negatively impacted June have also limited available workdays for our…

Thanks, Joe. Just a little bit of a summary before we go to Q&A. All in all, a great quarter; record sales, record EPS, record EBITDA, positive growth, great resi growth, great complementary growth, and solid organic growth given the weather situation, which I talked about, and this deferral that we will see in the future. We remain confident that the roofing industry is in the midst of a multi-year upturn in demand and that we are well positioned with our national footprint and talented team to benefit from this improvement, as well as from our internal growth initiatives. We have a great market, a great footprint, a great team, and a great future. With that, I'd like to turn the call over to the operator and open things up for the Q&A portion of the call. Thanks.

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

Good evening, gentlemen. This is actually Michael Eisen on for Bob tonight. Just a quick question on the non-residential segment. You guys are looking for an inflection point, talking about returning to growth moving forward, but also highlight some competitive market conditions. Where are you guys seeing strength and what gives us confidence in kind of reverting back to that prior levels of growth?

Yes. Well, we have a history of pretty consistent commercial growth. If you look at last year, there's no doubt with a milder winter we had some pretty heavy growth that pulled forward a lot of demand, and then even this year beginning of the year we had mild winter. I think the bulk of our pain has been seen in these Northern markets. We've seen a lot of strength down South, Texas market, et cetera. I think just given the talented team we have of sales folks, product managers, and then the balance we have with achieving sales growth along with our margin goals leads me to believe – and bumped up against the comps coming up that we'll start to see growth again. And I said it on the last call, this – of course, we watch everything with a very keen eye. But to me this is not concerning. This is the beauty of having three big product lines. So we have many arrows in the quiver, so to speak, as we deal with our resi growth, the complementary growth, and then even within complementary, many sub-buckets, and then commercial. So I think we've been pretty prudent about how we attack the commercial market in conjunction with some of the weather-impacted issues we've seen, meaning we're just not going to go bomb price to get work. And we've been able to balance that with these other product lines. And I think in time, I'm very confident, I have no concern at all because I know all the internal initiatives we have going on that this is going to return to our normalized growth rates.

Awesome. That's very encouraging. And then if I could just get a quick follow up. Just thinking of kind of the pace of M&A that we've seen from you guys historically and where we are today, I was hoping you guys could touch on what kind of product segments you're seeing the best opportunities for? What the pipeline looks like for M&A? And how we should think about growth across the product lines?

Yes, very good question. I alluded to a bit in my prepared remarks. I mean we've said it every quarter I think since I've been here, which is going on 10 years, and it's true. Our pipeline is very full. It's very active. We have a number of folks working on potentials, and they really run the gamut of all the product lines. I think maybe one of the questions some of you folks might have is, geez, these last few acquisitions have been complementary in nature, but it goes back to, again, what I've said. It's hard to predict when sellers are going to sell. And when we see a good company and it fits our profile from a product line standpoint, I mean, we're going to go ahead and do what we need to do to bring it into the fold. And if you look in the Q and our acquired segments for the results, you can see those acquired businesses, right, many of them complementary in the gross margin result for the quarter and the operating income result even with the impact of purchase accounting when you read the Q. Very, very encouraging. Close to 30% GM and then over 5% operating income in the quarter. And that's with that purchase accounting impact. So I think the short answer is it runs the gamut of who we're talking to, and it really just depends on the timing of when they come up, as it has since Bob started with acquisitions years ago.

Appreciate all the color. Thanks and good luck.

You bet.

Thank you.

Your next question comes from line of Phil Ng from Jefferies. Your line is open.

Hey, guys. Heading into the year, you obviously had some concerns around the level of storm demand last year being elevated. Just given the strength you're seeing in residential and your guidance thus far, has the upside been driven by more storm activity again this year or some reroofing or new construction? Any color would be helpful.

Yes, there is no doubt, I'll go back, right. Last year was an interesting year. The industry data we've seen is in this $130 million range, right, from 2016. The view now is that it could end very comparable to that last year. Last year there was extremely heavy Texas storm base, not just Dallas-Fort Worth but down in San Antonio with some major storms. There is activity in other parts of the country but that was the majority. This year has been a little different. As I said in my prepared remarks, we've continued to see a bit of that 2016 storm hangover from, goodness, in Dallas. They got hit again, not as heavy, earlier this year. But then we've also seen activity in the Upper Midwest or the Midwest call it, we referenced KC and then Denver got hit a few months ago. So I think there's been more balance. There's been actually some in this Mid-Atlantic region here in the Virginia area that we're capitalizing on, right. So I think it's just more balanced and it's probably in total is going to be close to last year's storm volume, and that gets us to that similar year-over-year square count that the industry is referencing right now or at least the dialog is. We still have to get through the balance of calendar year, right. But those are the projections right now.

This is Joe. The other part that I would add too, as we've said before, last year wasn't necessarily an anomaly. The years before were really soft and lower in regards to the storm volume. So what you really saw last quarter and last year was more normalized and this year seems like it's coming again. Different view, as Paul said, more widespread, but little bit more of a traditional level.

Yeah, and I think to Joe's point, it's even more normalized because it's in other locations other than one big state, which is phenomenal because we have a great presence in Dallas-Fort Worth, San Antonio, Boston, et cetera, and Houston, right. But we're seeing actually a more normal from a hail impact. Now what we haven't seen and we've referenced is the fact that we've had two milder winters in our Northern climates, including Canada, obviously, Northeast, Upper Midwest, which impacts work going out further. I think we had maybe underestimated that a bit at the beginning of the year but now you definitely can see it, our teams are seeing it, and it forces us to dig deeper to find work in those areas, right. But that again will be part of the cycle of what I'll call a deferral of this high R&R because at some point you know we're going to have either really bad weather or these roofs are just going to fail anyways, no different than as we talked four or five years ago about pent-up resi demand, which we now think is pretty much normalized. And we're sorry to see this outflow, including storm repair work as well as new construction, come out.

Got you. That's all really positive. I'm surprised from a pricing standpoint you still have reservations. I guess what's the pushback on pricing just given the strength you're seeing?

First, I'll just say, there's always a balance of achieving sales goals with pricing in any market. We still continue to be very locally based in terms of allowing our branch managers and sales reps to lead the charge because they're extremely skilled, right. And we have a lot of competitors, I mean we know we're still consolidating the industry. We believe we are one of the leaders in that consolidation, and that's going to take a bit. And, in the meantime, there's still competition out there that we have to keep a mindful eye to, and that's really what we see and believe on the pricing side. Now the good news is we've seen some sequential goodness. We've seen the flattening and then in some of these higher demand areas, specifically Denver, et cetera, we've seen some positive growth. So I think it's just not us being cautious but just trying to forecast what potentially can happen as we move out. And all these things, as you know, are very difficult to put a very tight forecast to for the obvious reasons.

And, Phil, the piece that I would add as well, too, and I know you track all this stuff in detail. If you look at that quarterly trend over the last eight kind of quarters or more, you're seeing a great pricing movement on it, right. So on sequential basis we're up almost 100 basis points, on the residential side 120 basis points from last quarter, and if you look year-over-year, that spread has been kind of getting smaller and smaller. So the good news is, is it does appear the prices are all moving in the right direction as we had talked about. So we're starting to get some price.

Yes. And part of that I think is what you see and many of you know and you've referenced it, in deflationary times it's harder. And now we're seeing – and the manufacturers, no doubt you've listened to the other calls recently, they're seeing raws going up and that just substantiates the fact that we're going to see more pressure. They're seeing the pressure. We definitely want to push price through, no doubt, we do. And I think it gets easier as inflation pops up a bit from the manufacturing side. It's just being prudent with the organic growth piece vis-à-vis the input costs.

And so far we've managed it...

That sounds fair.

...quite well.

Yes. Great.

Your next question comes from the line of Ryan Merkel from William Blair. Your line is open. Ryan J. Merkel - William Blair & Co. LLC: Hey. Good afternoon, everyone.

Hi, Ryan.

Hi, Ryan. Ryan J. Merkel - William Blair & Co. LLC: So coming into the quarter people were worried about negative price/cost. And from what I can tell, you had flat roofing COGS and you had flat pricing. So gross margins really didn't get squeezed this quarter. Did I hear that right?

Exactly. That is a really key point through it all as well, too. That was a big kind of concern going into it. We've said how we had begun to see that pricing loss shrink. It continued to shrink, sequentially 120 basis points in residential better, and that whole cost/price thing kind of went away, and that's why our margins pretty much were not impacted. So you're right. Good observation. Correct. Ryan J. Merkel - William Blair & Co. LLC: And how did you hold roofing COGS flat, because the OEMs have put through two increases? So either you're not paying them, or it's a timing issue and that's going to roll through the P&L in a quarter or two, right.

Yes. I won't get into too much detail other than to say our input costs are pretty varied when you think about it, right, are regionally based in some instances, multi-manufacturer based in some instances, and we have a very good one relationship with those manufacturers, and we have a great purchasing group. And I think we're able to diffuse that and that's what you see as a result. So there's no future negative that you're going to see, right. It's really a function of how we do our jobs and whether it's OC, I know who publicly reported and made comments. I mean they're a piece of our input costs. And then there's a lot of variations to that input cost all over this country, right, for various reasons: strength, size, whatever it might be, right, timing. That really is...

Yes. The other part I would add on the accounting element side of it, so as we use a weighted average cost approach for our inventory and for our cost of goods sold valuation, not a FIFO-type basis. So it's not the oldest cost. It's an average of them. So if there were price increases, you'd already be seeing them in there as it goes through it as well, too. Ryan J. Merkel - William Blair & Co. LLC: Okay. And just quickly if I could. In quarter residential was up 5%, non-res was down 5%, but margins were flat year-over-year. But the mix should have pushed the margins up because there's a big (45:23) difference. So why were the margins flat? What was the offset, I guess?

Yes. The margins did – you're right, we did get a benefit on the mix part of it, but the mix impact on the overall gross margin piece gave us probably about maybe 30 basis points. A lot of our overall gross margin gain from the acquisitions was a big win for us. We got almost a 20 basis-point improvement from the acquisition side of it. So in total, that flattened gross margins. We lost around 15 basis points on price, 30 basis points on cost, mix part of it, about 26 basis points favorable, and acquisitions about 21 basis points favorable. So it was the mix piece favorable and the acquisitions. Those were the two that helped to offset a bit the price and cost. But still, when you're talking 15, 30 basis points, they're all pretty much flat. Ryan J. Merkel - William Blair & Co. LLC: Okay. Helpful. Thank you.

Yes.

Yes. And again, I'll just comment. I think that's again, it's worth repeating. Of course, we'll take that because it speaks to the strength of the companies that we've have acquired, right, and their strong gross margin vis-à-vis their position in their markets and how they go to market even so quickly after coming into the fold. So that's very good news for us. Ryan J. Merkel - William Blair & Co. LLC: Okay.

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

Thank you. In your guidance you talked about, the revenue guidance, you talked about not assuming that you get any – I assume you meant residential roofing pricing in the fourth quarter. Are you assuming that your input costs in residential roofing go up in the EPS guidance?

Can you repeat that one more time? You were kind of breaking up a bit. Do we assume that what costs go up on the roofing?

I'll just say it again. So you had said in your revenue guidance for the remainder of the year, which is the fourth quarter, that you were not assuming that your pricing and residential roofing went up. I think that's correct. Are you assuming that your input costs on residential go up in your EPS guidance for the fourth quarter?

Yes. There actually is a slight improvement in our pricing in the fourth quarter. Just like we've seen every quarter, the pricing has gotten a little bit better. So there is a slight improvement in the pricing implied in our fourth quarter guidance piece. That's probably what's driving the gross margin impact that you're referring to, the quarter-to-quarter, third to fourth.

But are you assuming that your roofing, your residential roofing input costs go up in the EPS guidance for the fourth quarter?

No, we're not.

You're not assuming it goes up? Okay. Okay. And one other question. Turning to commercial, do we have the same kind of situation going on there at commercial with limited price pass-through but input costs being up? Did I hear that correctly?

The commercial part, again, was pretty much a wash on price and cost as well, too. So on the commercial piece, the price impact and the cost just about washed each other as well, too, in there. So it was very interesting. Across commercial, residential, and complementary the total (48:38) change in each of them from a year-over-year was pretty much flat. I mean less than 10 basis points. Price/cost was parity in all three.

And we've had four quarters of negative comps organic growth in non-residential that we'll be past that after this report. Just on a comp basis, should we assume volume is up in the fourth quarter in non-residential?

Yes. We had said mid-singles. Yes.

Yes.

Mid-singles. And where do you think the market has been growing? Is there any way to tell?

It's very difficult for us to get market data. Carlisle had talked about the range of mid-singles, maybe even slightly higher. But again – and I won't comment on their results or even their commentary. I know you are a student of that. My view is that the market is in the 3% to 5% growth range going forward. So for us, given the comps and given where we've come from, although part of that, too, is the fact that we had some pretty big growth in the winter quarter last year, right, that pulled a lot of work forward. That mid-singles for us I think is a good number for Q4.

Okay. Thank you.

Thank you.

Your next question comes from the line of Kathryn Thompson from Thompson Research Group. Your line is open.

Thanks for taking my questions today. I will shift from margins because I know we focused a bit on that in the Q&A to the top line. Could you give additional color in terms of regional trends? Also, an update on your complementary product rollout, where it stands today in terms of the dollar amount and are you still on target for seven to eight greenfield opportunities this year? Thank you so much.

Yes, I'll give a little bit on the greenfield one, and then Paul can talk about some of the by-region elements to it. But on the greenfield perspective, we've gotten four open so far and there is a couple more that are in the queue yet for the quarter. So we won't get to the 10% range, but we'll probably get to the 5%, 6% range for the full year when we go through them. As you know, we balance those for the most part with acquisitions. The Lowry's acquisitions will keep us busy here for a bit, and as Paul mentioned, our acquisition funnel is still quite full, working through some other items there as well too. That gives you the greenfield view on it.

Great. Thank you.

Yes, and from the growth perspective on the reported regions, as you look at the organic piece of the 2.2%, the 5.5% on res, negative 5.3% commercial and then make up 6.3% on complementary. It was a bit of an interesting mix. Now the Northeast was up 1.5 point or so. Mid-Atlantic, a couple of points. Southeast 3. I mentioned in my prepared remarks Southwest was down nearly 8% in the Midwest, those two I mentioned specifically up 15%. The West up 8% – I'm sorry, I also mentioned the West, Canada down 16%. So that's kind of the lay of the land in total. Res, it was similar. And then on the commercial side, we saw a lot of pain in the northern climates, like Canada being down almost 27%, the Northeast being flat, the Midwest being down and the mid-Atlantic being down almost 13%. So it's kind of varied as you go through the regions.

The other item, just to pick up in regards to complementary as well too, Kathryn, we've seen really strong consistent growth on the complementary side. And that's been all part of our focused effort initiatives to really drive more of the complementary business. So we haven't been surprised by it. In fact, we think it will continue. In fact, in addition to that organic growth that we talked about, the acquisitions at $36 million of acquisitions – looking at the numbers, of the $36 million, probably more than two-thirds of it was complementary related business as well, too. So good strong in complementary should continue to see that growth rate be high.

Great. Thank you so much.

Your next question comes from the line of Luke Junk from Baird. Your line is open. Luke L. Junk - Robert W. Baird & Co., Inc.: Good afternoon. First question, great to hear that we're seeing some positive prices finally on shingles in certain markets. What I'm wondering is, are there any dynamics in those markets that would help to explain better pricing traction in certain geographies to the exclusion of others? Or would you say this is just demand related in which case, this could be a precursor to more broad price improvement across the country?

Yeah, Luke, the one part that I would add is, like we've seen in prior quarters. When we drill down on that price change by all of our regions and markets, we see a combination of some up, some down, some flat. The common characteristics, which is what you're getting at, is primarily all demand driven where we see the largest kind of price increases. So we have several of our regions that have had significant year-over-year price increases across various categories. But it's really where the demand is there. It's been a lot of our storm related or high demand marketplaces. That's where we get the price, and that seems to be the biggest underlying characteristic, that's the similarity across all of that.

Very consistent actually. Luke L. Junk - Robert W. Baird & Co., Inc.: Okay. Helpful. And then if I can just sneak in a follow-up, I don't know if anyone's asked, so I guess I will ask the obligatory acquisition question, knowing that you can't predict anything, but just a general tone of the pipeline in discussions right now?

Yeah. Luke, it's really the same, As I referenced earlier, the pipeline is full, as it has been. We're very active in talking to various companies really that represent all of our major LOBs. And as it always has been since I walked in the door. And prior it's really a function of when they're ready to sell, right. So we're patient, and again, I will reference as evidenced by our acquired results, we're very selective, right, in the companies we talk to. So we're optimistic as we have been because we know and believe we have the recipe to pull in great companies.

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

Thanks. Thanks for squeezing me in. I'm just wondering on non-res, appreciate the color on the fourth quarter and the expected ramp, but I think this year's certainly been weaker than you had expected in the quarter, have been as well. I think you're baking on some projects coming in, particularly in the second half of the fiscal year, and that was going to drive your prior guidance that was positive. Just wondering where that stands as far as your visibility in non-res is concerned? And the comfort that we have that you're going to be able to grow in line or a little bit better than the market?

That's a really good question, because I asked that about every week, maybe every day. The field teams are very positive about the commercial backlog they're seeing, right. And a lot of it, as I said and referenced has been pushed. I hate to use the word deferred for the eighth time on this call, but a lot of that work has been pushed and deferred. And so now the question ultimately is with the 60-odd days left in the quarter, are we going to get it all in? I mean, we're definitely positive about what the backlog is. And we know the impact items, they're real. The two winters in a row that were very mild has an impact, because it just does not wear down roofs, no different than any other heavy rains, UV damage, or hail damage. So we're pretty positive. The teams in the field are pretty positive. And what's interesting, and I've referenced this a number of times, our heavy commercial regions, besides California, are in the upper Midwest, upper Northeast, even the mid-Atlantic, which have been impacted by this. And that's where we're feeling we're going to have some better results as we move forward.

Okay. Thanks. And then just a point of clarification, just on the slide deck, you indicate the headwinds for fiscal 2017 margin expectations being the isolated competitive pressure. Just wanted to be clear on this, we've had a lot of discussion about margin expectations and input cost expectations across the different categories. Is the isolated competitive pressures, would you characterize that as broad based, we're in a competitive environment? Or is this really just targeted to incremental competition on the non-residential side?

So as we think about it, it's more of focus within specific markets. It's not a broadband competitive pressure across all. As we talked about with pricing, the part that's interesting, pricing in the high demand areas, we get good pricing in it. It's really just in certain specific areas where there's a heightened amount of competition, or a post storm, or others where it has an impact, isolated.

Yes. You got it.

And that can encompass whether it's residential or non-residential or complementary?

It'd be both.

That's right. It's the same.

It's the same. It's always a function of how busy is that city, town, whatever it might be, or region? How much competition? Who's aggressive? Who isn't? Our position? It's very focused on local markets.

Yeah.

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

Yeah. Just a very short wrap. I just want to thank everybody for joining the call. And as always, we appreciate our investors' interest, our customers' business, and of course, our employees' dedication. As I said, we're in a great market. We have a great business, and we're very, very positive about the future and what the future holds. And as always, we look forward to speaking to you again on the next call. Have a great evening.

This concludes today's conference call. You may now disconnect.