Good afternoon, ladies and gentlemen, and welcome to the Beacon Roofing Supply Fourth Quarter 2019 Earnings Conference Call. My name is Justin, and I will be your coordinator for today. At this time all participants are on a listen-only mode. We will be conducting a question-and-answer session towards the end of this conference. [Operator instructions] As a reminder, this conference call is being recorded for replay purposes. This call will contain forward-looking statements, including statements about its plan 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, November 25, 2019, 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 reconciliations 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 Web site 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. Julian Francis, 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. Julian Francis, President and CEO. Please proceed, Mr. Francis.

Thank you, Justin. Well, good evening and welcome to our fourth quarter 2019 earnings call. I'm pleased to be here today for my first investor call as Beacon CEO. I have had a busy 90 days visiting our customers and branches, while getting to know the employees whose passion for their work is clearly a differentiator in the marketplace. During my visits, I've also confirmed the reasons that I joined Beacon. First and foremost, it's an incredible opportunity to lead one of the building material industry’s storied companies. The chance to build on Beacon's history is a great honor. The industry is attractive, and the company is well positioned after more than a decade of consolidation. Beacon's customer base is better served by a distributor that understands local market issues and build relationships at a local level while also leveraging geographic scope and scale. Beacon's customers are also best served by a distributor that can invest in a full suite of products and has the ability to tailor the offering to each customer adding services that simplify operations for contractors so that they can build more. Beacon understands what it means to be a value-added distributor. We enable contractors to do the work the way they want to, both today and in the future. Ordering of the counter, by phone, by fax, email, or via our industry-leading eCommerce platform. We have the ability to serve a small local business focused on roof repair, at the same time we are delivering for large multi-state contractors in both residential and commercial construction markets. One more reason I joined Beacon is that its business model has tremendous ability to withstand economic cycles. The roofing market has shown great resilience across time. The purchase of a replacement roof which represents more than 80% of…

Thanks Julian and good evening everyone. First, I'll provide additional color on our quarterly results and then I'll conclude with comments involving our fiscal 2020 outlook. As Julian mentioned, overall organic daily sales increased 3.2% during the fourth quarter, period had one extra selling day compared to the year ago quarter, residential roofing was the primary driver of quarterly growth with an organic daily sales increase of 11.5% levels in line with the overall market. Within this category, all six of our U.S. regions delivered positive year-to-year performance and four of these six grew double digits. We experienced broad based strength after the rain and other disruptions ended in June. We are also pleased to see strong performance out of our Southwest and Midwest regions, suggesting that these traditional hail areas are seeing improvement following the prior period post hail declines. Commercial roofing generated positive daily sales growth in the period, while only modest it represents a return to positive growth in this category. We expect this to continue through the efforts of our dedicated commercial sales centers. These centers are one-stop does it all experience for the contractors where all other commercial roofing needs are handled by a single location. This includes quoting, engineering, product support and order fulfilment. We've increased their number from 7 in 2018 to over 27 currently. Next, I wanted to touch on our complementary product sales, you'll see from my release that are complementary products sales daily organic were down 5.6% in the fourth quarter. This category includes our Interiors business as well as our exterior complimentary products such as siding, windows and doors. This business has much greater exposure to discretionary R&R and new construction. When adjusted for the traditional lag of 60 to 90 days, the decline here matches the pattern seen…

Thanks, Joe. And on behalf of the Board of Directors and the entire management team, I'd like to thank Joe for his contributions and dedication, the company nearly for seven years. Now, he's been integral to be Beacon's growth, having executed on the integration processes and capital structure for 20 acquisitions including RSG and Allied Building Products that more than tripled the company's revenues. I look forward to working with Joe, we identify a successor who will partner with me leading the company forward. Now, let me reiterate how I see the future for Beacon. With the integration of the Allied acquisition largely behind us, our ability to focus on our customers and drive execution at the branch level will be renewed. The potential to upgrade financial performance is before us. Deep dives to drive sales, operational improvements, and all the benefits afforded by our scale are underway. I look forward to writing guidance that takes these efforts into account when we speak early next year. I believe the future is promising for Beacon. I hope that my comments give you a sense of my first takes on the business to-date and the go forward opportunities in front of us. And with that, I'll open it up for questions. Justin?

[Operator Instructions] Your first question comes from the line of Ryan Merkel of William Blair. Your line is now open.

Hey, good afternoon everyone.

Good afternoon.

Good afternoon.

So, well, first Joe, congrats on retirement. It's been great working with you.

Ryan, thank you very much. I appreciate it.

So, I have just a couple of questions on gross margin. First, what was price cost impact in the quarter? I don't think you said it.

Yes, pretty much on the price cost piece of it, pretty much the entire declining gross margin was a result of the price cost piece. The mix, two step in kind of acquisition elements to it pretty much all netted. So really, if you look at it, the entire 110 basis point decline in gross margin was the price cost issue for the quarter. We had roughly around 30-ish basis points of price that we got, and the rest was cost that offset the other way. It was all, as I mentioned, the year-over-year decline was pretty much all price cost driven, and it was primarily in the residential side of our business as well too, the residential roofing piece.

Okay. And it sounds like into the next quarter, you're going to see a similar impact on price costs since it sounds like you raised prices a little bit sequentially. Are you starting to eat into that price cost a little bit this quarter?

So, Ryan, this is Julian. Yes. I think that – obviously, the sequential comments that I made are important to us. I mean, we did see sequential pricing positive in the residential segment quarter-over-quarter, and we were able to obtain virtually all of that to offset additional increases that we saw come through our inventory. And so, it's clearly important for us to do that. And I think that's what we would expect going forward. I think the -- as you look back, the inflationary environment we saw in the first three quarters of the year coupled with that weaker market, you'll remember all of the rain we had earlier in the year that I think dampened the market, whether the inflation that came through was certainly a drag for us for a full year basis. But I was encouraged to see my first 90 days that sequentially we've been able to improve pricing. And I think we see about a flat gross margin environment in the next quarter.

Okay. And then, just lastly, I think you made a comment about no new inflation as you get into the spring of next year. Why is that your outlook and have the OEMs told you anything about price increases?

No. I think that the statement was really around assuming, no I wouldn't make any comment about what we're seeing today.

Got it. Okay, thanks. I'll pass it on.

Thank you. [Operator Instructions] And our next question comes from Trey Grooms from Stephens. Your line is now open.

Hey, good morning everyone. Sorry, good afternoon.

Good afternoon, Trey.

Good afternoon Trey.

Okay. So, Julian one thing you mentioned was barriers, I guess you've been here 90 days or so now. You mentioned barriers that have been impeding the company from reaching its full potential. Can you discuss some of these barriers as you see it now that you've spent a little bit of time in the seat. And I know you touched on a few things that you're looking at that can help improve those, but any other color around any leverage you can pull that you see now that you've had some time in the seat?

Thanks for the question Trey. I'd be happy to address that. I mean, clearly, the results are not what we want. And I think we've got an opportunity now to really pivot from the necessary work of integrating two large acquisitions in a row, both RSG and Allied, and are really getting back to basics, so really that focus on the market. I do think there's an opportunity in multiple areas. So, first of all, now expecting to grow sales. I think that we've got to get our sales team active in the marketplace, facing customers, looking for how we can drive that sales, making sure that we've equipped them post acquisition with the tools they need to succeed. So, that would certainly be one area where I see some real opportunities to really drive improvement at the top-line, sales force is more active in the market. The second area I think – and mentioned it again, focusing resources on branches that are in the bottom half of our performance distribution. I tend to think about it in quintiles. We’ve got 500 branches. So, think about it in terms of a hundred branches in each of those quintiles. We've got great performance in the top hundred, the lower hundred really looking and focusing on those in terms of improvement has clear upside for margin. Absent any market pull, I think that really getting into there and understanding what's causing them, they tend to be -- they tend to be the smaller branches overall, but not in total, but if you think about how our revenue is split in those quintiles, we’re talking about as much as $10 million per branch, $1 billion across those hundred branches where our average margins are substantially below our top quintile. So, really driving into that I think is important. Let's break that down, and in part the review that I kicked off will help us quantify how we get after the short, the medium, and the long-term impact of improving on those branches. And then lastly, I think it's important for us not to lose sight of the fact that our business is a local one. We have to be active in the market. It's a local business, but we've got to find ways for our scale to be meaningful to our branches and to our operations. So, really leveraging that scale to provide value to the customers at the local branch level, and that's the investment in our operating model, in our digital tools that’s I think becoming a big differentiator for us. So, those are the sort of the key areas that I'm particularly excited of, and I think offer us the biggest opportunity certainly over the next 12 months, but I think even beyond that.

Okay. And so, with some of these initiatives, that's my follow-up, I think Joe, I think your comment on kind of the progression as we go through fiscal 20 was that you should start to see some margin improvement. I think I understood somewhere in kind of 2Q and beyond. It is the initiatives that you're talking about now, is that something that will begin to impact by then or in order to see that margin rebound? Are we kind of looking more towards a ketchup on price cost or what's -- I guess driving the expectation for kind of that rebound in margin as we looked into 2Q and beyond?

Yes. To follow up on that one kind of Trey. You're right. The rebound in the margin really is anticipated towards primarily the third and the fourth quarter. That's where you'll see, one, as we talked about the demand. So, we'll see the stronger demand kind of shape up during that third and fourth quarter that will help drive it. And the second big item really is, as Julian went through each of those initiatives. Everyone's from our branch performance operations that we're looking at others, you'll really start to see the impact of all those initiatives start to kick in more in third and the fourth quarter. That second quarter really is impacted a lot by the weather, some of the winter environments. So, you never have too much of an impact there. The increased volumes and really the initiatives taking hold in the third and fourth quarters where you'll see the improvement.

Got it. Okay. I'll pass along. Thanks.

Thank you, Trey.

Thank you. And our next question comes from Keith Hughes from SunTrust. Your line is now open.

Thank you. Can you give us any kind of idea in residential roofing or just company as a whole? What units were versus price impacting revenue?

Sure. Keith, this is Joe. I can give you that viewpoint. They were pretty close. Actually, the price in the quarter on the residential side was pretty minimal, so it wasn't a significant kind of impact to it. Most of what you saw was in the units piece to it. So it was a little bit of price but not too much.

So, like in a roofing, most of the 11.5 was units. Is that correct?

For the most part, correct.

And then final question, your comment on the first quarter being affected by hurricane or should be hail comps. I was a little confused by that. I mean, we had pretty strong hail numbers two years ago, I believe it was. And then, first quarter last year was -- fiscal was pretty week. So, I'm not understanding what the comp issue is.

So, Keith, it's Julian. The first quarter last year for us was impacted by the hurricanes that we saw coming through Irma. So, we had some a good fourth quarter, so first quarter volume at the end of 2018 that came through. So obviously, we don't see any particular hurricane activity or storm activity that's impacting our first quarter of this year. We're largely done with that so. We would see somewhat down storm demand for the first quarter not hail related, but more hurricane related.

Okay. Thank you.

Okay. Thanks Keith.

Thank you. And our next question comes from Trey Morrish from Evercore ISI. Your line is now open.

Thanks very much guys. I want to go back to -- cut to price costs. Last quarter you said it was down 50 bps and this quarter it's looking like is down over a hundred bps. And you talked about resi roofing continue to be an area of headwind. But, we don't believe that the manufacturer's price increases actually that successful earlier this year, couple of months ago. So, did you see something different flow through on your P&L? Was there a timing of when a certain increase was effective? That was the challenge here in the quarter. I'm just kind of wondering, if you could explain, what the difference was this quarter versus last quarter?

Yes, Trey. Let me address that one. I think you're exactly right. I think it's timing. So, we agree that the second price increase that was announced by the manufacturers didn't impact us in the same way as the early in the year. But the way it flows through our inventory, we saw it sort of creeping again into our fourth quarter. So, there was a little bit of sort of lag. So, it's not new increase. And this is where I think, we were able to get some additional price in our fourth quarter that we did implement in that. And so really, it's not new increases. It's the way that the increase in the timing of the increases flows through our P&L.

Okay. Thanks. And I just want to also take a step back on profitability. About a year ago Beacon had an Investor Day putting out EBITDA margin targets of 9 to 11. And I know that you haven't given guidance for this year, but I guess Joe or Julian is, do you guys still have a degree of comfort with that being a targeted profitability range? Or is that something that you think is also under review?

No. This is Julian. Certainly, I'd like to make sure that, I can back up that statement. That's why we've got a review underway and seeing it. But as a high-level target sort of that double-digit range, that 9 to 11. Certainly at a first blush, it's not out of the realm of possibility. I think it's entirely within possibility. In fact, what I do want to do is make sure that that we can get to that, what's the right structure, how will we build on our current performance to get there.

Okay. Thank you very much guys.

Thank you.

Thank you. And our next question comes from Kathryn Thompson from Thompson Research. Your line is now open.

Hi, thank you for taking my questions today. I'm just revisiting the operational improvement, wanted to focus on the top buckets and really get a better sense as we move into the fiscal '20 and really over the next 12 to 18 months. How much is within your control and how much is outside of your control. So, in other words, if we had a year, another year was flat volumes help us understand what you could do beyond help from volumes. Thanks.

Thanks Kathryn. Again, Julian. You know the way I'd think about that is partly I'm trying to get a good -- come to grips with what we have in our control partly the reason for the strategic review. Certainly, we're not expecting a lot of lift from the market. We're expecting a go forwards about flat markets next year. I do think that we have some elements in our control. Certainly, there's those marginal impact of pricing. As we get a better at a pricing discipline, I think there's things there that are in our control. I certainly think there's opportunity with our branch network as I've hinted at. I think that really being disciplined about that. And that's again, very much in our control. And then, third is the OpEx. We've taken action on that. I think we can continue to drive that. That is a focus area for us. How do we make sure we're more efficient? How do we ensure that we're driving efficiencies at the branch level and across the corporate operations? I think that's the digital platform is showing, good strength in that area, which is allowing us to be more efficient, allowing our customers to be more efficient with their ordering. I think there's an emphasis on some of the areas that we can place. Private label is an opportunity for us to continue to grow that as even in a flat market grow that as a share of our business. So, I think there's a number of levers that we can pull, even if we didn't see an improving market that would impact positively our gross margins and our net margins.

Okay. Helpful. And wanted to get your thoughts on the further consolidation of the wallboard industry with Saint-Gobain announced acquisition of Continental, what if any, impact do you see this happening on your interior products business? And perhaps drawing some parallels with the roofing side and this consolidation and what you could see for your on the wallboard side? Thanks.

Sure. Obviously, it's a market that's very important to us. I don't think that's been -- it's not closed yet. But I think that overall, it's a positive move for the industry to see that a little bit of consolidation. I mean a relatively small acquisition, but obviously it's an important one in this space. I think as we get back, our interiors business is really a platform for growth for us. I think it's really important for us to continue to drive that business. I think we've got a little bit of a different market masks. It faces the new construction. But I think it's really some of the same issues that we that we across all of our business, which is executing our sales plan. They'll get priced in what we think will be an improving market, new residential market, we think that we will have an improving market there and a focus on branches where we've got lower performance. I think it's sort of this same theme across all of those things. And I think that we're well positioned to see growth in that platform as the macros improve.

Okay. Great. Thank you very much.

Thank you, Kathryn.

Thanks Kathryn.

Thank you. [Operator Instructions] And our next question comes from Garik Shmois from Longbow Research. Your line is now open.

Hi, thank you. I want to ask on complimentary, you cited the lagged housing weaknesses, the driver for the weaker sales in the quarter. Really it was soft several quarters. Just curious given housing has started a perk up. Are you expecting to see growth in complimentary in the first part of fiscal 20 or will it be similar to the roofing business and will be a little bit more back halfway weighted?

Hi, Garik. Its Joe. Good question. Your answer is right on target, we do expect that the current trends in those macros which have started to turn the opposite directions, you've said they're going to provide a good kind of tailwind for us as we go into next year. So yes, we do think they're going to be a benefit to us timing wise. Certainly, we'll see it in the back half of the year. I'm not so much -- how much we'll see if some improvement in this quarter, the first and the second, but more of it will also be in the back half of the year based on what we see so far. But certainly, that improving macros based on the housing elements will help us in the complimentary products. Both of those two areas are heavily impacted by that.

Garik, I'll add to that. There's the side number, the seasonally adjusted rate, the absolute numbers at this time of year still tell the trend down even in that market. And so, we still have some seasonality in it, but like to reiterate what Joe said, certainly as we see the pickup through the year, we would expect to see good growth opportunities.

Okay, thanks. And then, was there any mixed impact on gross margin? I think in previous quarters, geography plays a role and it has a weight on our gross margin performance. It didn't seem like that was the case, but I just wanted to be clear that mix if that had a role in gross margins.

Yes. This is Joe again. No, it did not play much of an impact at all on the gross margin. There was a little bit more obviously at the residential then of the complimentary and the commercial or the commercial parts of our business. But overall the mixed part was pretty neutral.

Great. Thanks. And Joe best of luck in the future.

Thank you very much.

Thank you. And our next question comes from Mike Dahl from RBC Capital Markets. Your line is now open.

Hi, thanks for taking my questions. First question, just to follow up on a couple questions and remarks about the strategic review. Yes, Julian, how wide ranging should we think about this review being -- does it include any potential portfolio shifts? I know you just mentioned to a prior caller that you view in interior as core, but just any thoughts on just how you see the portfolio and is that going to be part of this review process at all?

Well, thanks for the question. So, I can make sure, I can be clear on this. No, I think our current portfolio is the one that's will be the one going forward. We like our position in the exteriors market. We think there's great opportunity for us to grow in that space. And there's clearly opportunity for us to grow in the interiors business. Obviously, the interiors business is the one that I know particularly well. It is exposed to more new construction. We've got a good commercial business there as well. So, it's a little bit of a different market mix. No, I think as I said earlier, the theme for our interiors business is similar. There's a little bit of a geographic difference. I mean, we've got some real market leading positions in some of our regions. Not so much in others, but and I think there's real opportunity for us to strengthen that business piece across the entire geography that we have and that we serve. And so, I certainly think of that is core to the business. I'd like to see it grow and I think there's plenty of opportunity for us to do that inside of that business.

Okay. Thanks for that. And my second question is on gross margins and price cost. I guess, if we think about the competitive environment, you got a little price in the fourth quarter in a growing market, but still not as strong as you expected. When we look at the first half of the year and your expectation for the market to be softer year-on-year. What's giving you that confidence that pricing is going to hold or improve versus backsliding a bit potentially. And is there anything you're doing internally when you're kind of directing the field or any behavioral changes like that would help to support that or any differences you're seeing in the underlying competitive environment that gives you a confidence about that?

Sure. This is Joe. Just to provide you a little more detail on that. You're correct. Our view is that right now we'll see sequentially similar margins in the first quarter and then when you get to the back half of the year is when we'll start to see the improvements driven a lot on the gross margin side really based on some of the increasing in demand as we had talked about it coupled with assumption around a lower inflation environment. Those will give us a lot of opportunity or optimism as we get to the back half of the year. Your question in regard to the actions that we're taking absolutely. I think Julian mentioned several that we do on the gross margin side from focusing on private label. We also have a very focused effort internally around our pricing tools that we utilize to systematically establish pricing across the company as well too. So, there's several things that we're doing internally and then some of the additional initiatives as Julian went through our -- really what gives us the optimism as we look forward to drive the gross margins. Does that help?

It does. But maybe I didn't ask the question clearly enough. I guess I was thinking more specifically to the competitive environment in a down year-on-year market, whether price will actually hold or improve or whether there's risk on the pricing side sequentially?

No. I think overall, we're seeing today a stable environment on pricing. I think that we've experienced a down market for three quarters of the year. I think we did see a decent market. But overall, I think that we're seeing much more stability in price than we've seen. We're not seeing additional competitive actions. And I think that's bodes positively, the sequential price improvement that we've seen. Obviously, it was an upmarket, but I do think that we're seeing a reasonably decent market, and this is fairly typical for this time of year. Obviously, the market slows a little bit. But I do think we're seeing more stable environment today than we were when there was additional weather earlier in the year.

Okay. Got it. Thanks for that additional detail. And Joe, best of luck in your semi-retirement.

Thanks. Appreciate it.

Thank you. Our next question comes from Truman Patterson from Wells Fargo. Your line is now open.

Hi. good afternoon guys. First just wanted to touch on the increased amortization costs and acquisition related costs just what really drove those, and will these persist going forward into 2020?

Yes. Good afternoon, Truman. This is Joe by the way. The increased amortization is really based on the accelerated tables that are used for deriving your amortization. So, it's all related to the Allied kind of acquisition and that's a table that's been established. We can get just some more specific numbers on the amortization numbers going forward for the 20 year. I don't have those on the tip of my analysis right now, but I can get you the amortization numbers for next year.

Okay. The reason that I'm really asking is that the adjusted amortization costs impacted your adjusted EPS and I'm just wondering if that's going to persist going forward into 2020, whether or not we need to adjust for that.

Actually, think it will start to go down in 2020 because it's all based on the cash flow analysis that's used to come up with the amortization table forward. But what I can do is, I can get you some specific data on that one, Truman.

Okay. Okay. And then Julian, one of your key goals is to grow your customer base. Could you maybe just walk through that a little bit more of what that entails at a high level and judging by the residential roofing growth this quarter you all have stabilized your market share after losing a bit of share in the past one to two years. I'm wondering near term if you all adjusted your pricing strategy at all and the reason I'm asking, fourth quarter gross margin guidance or the results actually came in probably 60 bps below guidance. So, I'm trying to understand, what all was market versus your overall maybe pricing strategy.

Sure. I appreciate the opportunity to talk about that. So, let me first of all, take the first part of your question about sort of strategy and then take the second part of the question. As I look at the businesses I've come in, I think the ability of a whole organization to turn its focus away from the large integrations that we've done back to the market, really be very active in the markets with our sales organization, calling on customers day in and day out, making sure that we're very active. I think there's two ways that you want to grow those new customers that are coming in and there's a larger share of wallet. I think how we go after those two components is important. I think that as we articulate more about our strategy in this space, those are the two elements that I'm really talking about in terms of our sales organization just being a little more active, more focused on the marketplace. And probably to be frank post acquisition now that those are behind us, a little more focused on the marketplace overall. And I, that's really important, earning back and earning more share of the customers that we do business with, I think is really important. In terms of overall pricing in the quarter. I don't think that we've changed our posture in terms of our pricing outlook in terms of our pricing strategy. I think we do have to be very active on that. Obviously, it's a very local business. We do need to be competitive in the marketplace, we do need to make sure that we're responding to competition appropriately. We also think that, one of the benefits to the scale and one of the returns to scale is the ability to capture more market information and deploy tools that help us manage price more actively than really local competition. And that's something that I think we're still in the early stages of -- but really, we want to drive home.

Okay. Thank you, guys.

Thank you. And our next question comes from Michael Rehaut from JPMorgan. Your line is now open.

Great. Thanks for fitting me in. And congrats, Joe, again on your retirement from the company, best of luck going forward.

Thanks, Mike.

First question, I wanted to try and get a sense, I know, Julian, you talked at length on this call around trying to refocus the company or increase the focus on organic growth. Obviously, going back to your Analyst Day, you talked a lot about the different initiatives, even at that point in terms of a lot around digital and leveraging the branch network. I guess, you are starting to turn the corner, growing the residential roofing roughly in line with the market this quarter, maybe as opposed to losing a little bit of share over the last year or two. I guess my question is really, when would we expect to see some of those gains in digital and some of the other initiatives, turn the corner to actually gain some share? I'm just kind of curious about if you parse out the initiatives that you're rolling out, how does that reconcile with some of the share losses in the past or roughly in line with the market growth this quarter. And I know we've talked a lot about geographic mix, but I was wondering if there's any other way to kind of work it through and detail some of the progress you've been making in in those initiatives that you've been pointing to?

Well, thanks for the question. I appreciate the opportunity to answer that. I mean, part of the reason that we've delayed providing some of the guidance is really around our ability to articulate how this is going to come through. We've said now that we would expect our first quarter and second quarter to be -- first quarter down based on the comps, based on gross margin progression being about flat. We would see second through fourth quarters start to see improvement. I think that it's where we would start to see the impact of initiatives is as we come out of the winter months when the volume starts to improve, the initiatives will have much bigger impact across a larger amount of sales. So really, it's starting to build over the next six months. And then, really start to hit the market the six months following that. So, now I do not want to get into quantifying that right now because we're really still in the process of reviewing this and seeing what's possible. I do want to emphasize that the opportunity is, again, to be more active with our sales organization in the field to improve our branch operations, particularly those that are today at the bottom end of our scale and then to drive differentiation home. I do emphasize on the digital side, I've been very impressed with our position there. I talked to both customers about how they interact with us through that platform. And that's been really encouraging for me to see growth rates in that space I mean, up well over several hundred million dollars now on that platform and growing rapidly. I think that we can find ways to drive margin there to ensure that we're picking up share of wallet. So, I think it will take a little bit of time to really quantify where that is. But, I do see some rays of hope in that space that are really important for us to do. In terms of timing, I'll wait until early next year to provide additional color on that.

Great. Thank you, Julian. I guess, secondly, just maybe a point of clarification on the gross margin. You said that in this fourth quarter, you did get some sequential pricing improvement, but gross margins sequentially did slip 30 basis points. So, is that 30 basis points additional kind of negative mix driven? And as you kind of kindly laid out some of your thoughts going forward in terms of the first quarter and into the second; two out of the last three years, you've had a nice sequential decline 1Q to 2Q, would you expect that to be a similar type of decline or would you expect to continue to see the 24.3 kind of remain pretty stable at least over the next couple of quarters?

I think we typically do see a small decline this time of year in gross margins as they come through. So, I think we're probably anticipating something in the range. Obviously, it's early on, but I do think that that would be fairly typical for us. So, without providing any real more insight than that, I do think we'll see that continue. I think this time of year, we get a little bit of deleveraging coming through. And then, overall, I think that the mix for the winter is probably unfavorable, but I think that we're going to continue to see progress through the end of this calendar year and then further progress as we come out of the New Year and seeing improving margins as we start to get into next year.

I'll take the first half of your question, which is related to the Q4 numbers. And really, it was not a mix-related issue causing the year-over-year decline in [GM] [ph]. It really was all in the price cost spread and really was about as I mentioned, cost was 30, but it was really about the cost rolling through from the third quarter. So those costs in the third quarter, as Julian mentioned, got into our inventory and then they rolled through our P&L. That's what drove the price-cost spread being a little bit higher this quarter.

Thank you. That concludes the questions. Now I would like to turn the call back over to Mr. Francis for his closing remarks.

Thank you, Justin. I appreciate that. Look, I appreciate everyone joining our call. Certainly, my first call as the CEO. And I'm very optimistic about Beacon's position going forward. Within the industry, we have excellent strategic positioning. I think we remain one of the leaders in providing value-added solutions to our customers. Now our new tack toward organic growth and honing sales and operations, leveraging our scale provides structure for a new chapter of Beacon. We continue to appreciate the support from the investment community as well as our valued customers, suppliers and employers. And I thank you very much this evening for joining our call. Thank you.

And ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.