Beacon Roofing Supply, Inc. Price & Performance (BECN)

First, this call will contain forward looking statements about the company's plans and objectives and future performance. Forward looking statements can be identified because they do not they do not relate strictly to historic or current facts and use words such as anticipate, estimate, expect, believe and other words of similar meaning 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 2020 Three Form 10 ks. Second, forward looking statements contained in this call are based on information as of today, February 27, 2025, and except as required by law, the company undertakes no obligation to update or revise any of these forward looking statements. And finally, call will contain references to certain non GAAP measures. These reconciliation of these non GAAP measures to the most comparable GAAP measures is set forth in today's press release and to the appendix to the presentation accompanying this call. The press release and the presentation are available on our website at decn.com. Now let's begin with opening remarks from Julian. Bennett. Good morning, everyone. Let's begin on Slide four.

Our team delivered a record fourth quarter as a result of execution on our ambition 2025 plan. Over the past three years, our strategy has been repeatedly tested whether it be rapid inflation, supply chain disruption or contracted destocking, yet we continue to grow top and bottom line.

We were challenged again in Q4 when after a record October, November and December were well below the usual sales trend. The slowdown mostly impacted residential roofing, especially in markets in our North and West regions, yet we still set fourth quarter records for net sales, adjusted EBITDA and cash flow Sales per day were up approximately 3% year over year to $2,400,000,000 driven by contributions from recently acquired branches. Our gross margin came in at the high end of our guidance. As a result of strong execution, average selling prices rose in the quarter. A concerted effort around operating efficiency including our Bottom Quintile branch initiative, and cost actions taken earlier in the year, meant we delivered fourth quarter adjusted EBITDA of $223,000,000 I'm also pleased with our management of working capital. We generated fourth quarter cash flow of nearly $360,000,000 which enabled us to deploy resources towards our growth initiatives. Including greenfield locations and acquisitions. When we launched our ambition 2025 plan in early twenty twenty, two, we set out to transform the company and our performance. I can confidently say that we have done what we said we were going to do over the last We have the right team and an operating model to unlock our full potential.

Now please turn to Page five. At our Investor Day in 2022, we laid out targets to drive above market growth deliver consistent double digit adjusted EBITDA margins build a great company and generate superior shareholder returns. In the last year of our plan, we have already achieved many of our goals and those that remain are in our sights. Building a winning culture has been important for us throughout Ambition twenty twenty five. A safe and respectful workplace is a foundation for attracting and retaining employees. When labor is a scarce resource, recruiting and retaining a talented workforce becomes a competitive advantage. We value making every day safer and have been working to ensure everyone gets home safely and I'm proud of our results last year. Our analysis showed that in 2023, strains and sprains for new employees was our most frequent injury. In 2024, we were determined to cut these injuries in half and I'm pleased to report that we exceeded that goal. In addition, our OSHA total case rate, a key safety metric, was the best in Beacon's Beacon. Next, investing in greenfields is a major lever in driving above market growth and enhances our overall value proposition and customer reach giving us the opportunity to earn market share.

I'm pleased to report that the 17 greenfields in the Class of 2022, the most mature of the portfolio, contributed nearly $22,000,000 to EBIT in full year 2024. Our online capability continues to be a clear competitive advantage for Beacon, Beacon sales through our digital platform, increasing customer loyalty, generating larger basket sizes and enhancing margin more than 150 basis points when compared to offline channels. In the fourth quarter, we grew digital sales Our digital sales as a percentage of total sales reached approximately 16% at the end of the fourth quarter, nearly a 200 basis point improvement year over year, led by sales to our residential customers. We will continue to invest in a differentiated digital offering and to build on our digital leadership.

Our private label line of high quality building products sold under the TriBuilt brand delivers professional results for customers of additional margin versus the alternatives. We have meaningfully invested in our brands to bolster its presence and expand its offerings to better serve our customers including the launch of TriBuilt ISO, a professional grade roof insulation. In the fourth quarter, we grew total private label sales approximately 7%, Our focus on driving operational excellence is anchored by our bottom quintile branch process, and it continues to generate meaningful results. We added more than $7,000,000 of EBITDA year over year in the fourth quarter. Productivity is key to ensuring that we offset inflationary pressures. And leverage our operating expenses. We've discussed previously the many ways in which we are focusing on driving improvement every day including leveraging our labor and fleet using technology such as our routing software, Beacon Track and executing on our strategic branch optimization. We've also demonstrated the ability to adjust our cost base to changing market conditions as we did in the third quarter, These actions are delivering results And in the fourth quarter, we increased sales per hour work by approximately hitting a fourth quarter record.

Now let me take a minute to talk about our M and A playbook. Acquired branches from the Class of 2022 the first group under our Ambition 2025 Beacon, are delivering tangible results to the bottom line. The five acquisitions in aggregate delivered double digit EBITDA margins in 2024. We believe this is indicative of our ability to improve businesses we acquire. And we continue to create shareholder value. During the fourth quarter, we completed the accelerated share repurchase program initiated in the second quarter. The share buyback program demonstrates both our commitment our confidence the Ambition 2025 prime. First, I'll give you the details, but let me highlight that since the start of Ampicion in 2025, Beacon we have deployed more than $1,500,000,000 to share buybacks three times our initial ambition '25 target. Reducing the as converted share count by more than 23%. In summary, we have built a business that has multiple paths to growth, margin expansion and value creation in all market conditions.

Our ambition 2025 plan has created an engine to drive our business model and systematically improve performance. I'll pass the call over to Prith to provide a deeper focus on our fourth quarter results. Thanks, Julian.

And good morning, everyone. Turning to Slide seven. We reached over $2,400,000,000 in total net sales in the fourth quarter, up 4.5% driven by the contribution of acquisition. Adjusting for one additional day in the fourth quarter of this year, net sales increased by nearly 3%. Decreased approximately 3% to 4% on a per day basis while overall price contributed 1% to 2%. Acquisitions contributed approximately 5% year over year. As Julia mentioned, we experienced a sharp slowdown in fourth quarter activity particularly in December due to the weather patterns that impacted a significant portion of the country. To give you some context on a per day basis, our typical November sales average around 95% of October sales. In 2024, November sales were less than 90% of October sales.

Similarly, December sales per day typically average around 75% of October. In 2024, December sales where they were less than 70%.

Residential roofing sales were lower by less than 1% on a per day basis Prices increased by low single digits percent year over year and acquisitions also contributed to partially offset lower organic volumes versus a strong shingle comparable in the prior year period. While our residential volumes were down in the quarter, we estimate using ARMO data that we grew in line with the market for the full year adjusting for movements in channel stocking. Non residential sales per day increased by nearly 4% as our team continued to drive growth through the commercial acceleration initiative. Remained relatively stable on a sequential basis. Organic volumes were nearly in line with a strong fourth quarter in 2023.

Complimentary sales per day increased by approximately 10% driven by acquisitions, including 15 new waterproofing branches in the last four quarters. Which significantly expanded our specialty waterproofing products division.

Selling prices were stable year over year. Turning to Slide eight, we'll review gross margin and operating expense. Gross margin was unchanged from the prior year quarter at 25.7%. And at the high end of our expectation. In total, price cost was up around 10 basis points year over year as higher selling prices offset increases in product costs. Higher sales through our digital channel and growth in our private label products continued to be accretive to Beacon's gross margin. These favorable contributions were offset by a higher non residential sales mix and the dilutive impact of M and A we've conducted in the past year that has yet to be fully synergized. Adjusted operating expense was $434,000,000 an increase of approximately $25,000,000 compared to the prior year quarter. Adjusted operating expense as a percentage of sales increased to 18% up 20 basis points year over year. Expenses associated with acquired and greenfield branches contributed approximately $31,000,000 of the total increase in adjusted OpEx. These increases are offset by approximately $6,000,000 of lower operating expenses in our existing business which included the benefit from our September cost actions. Estimate the impact of these actions to yield annualized cost savings of $45,000,000 approximately $30,000,000 of which will be realized in 2025.

Sales per hour worked in our existing branches a key productivity measure jumped 6% year over year in the fourth quarter. Early matching its highest level in the last December. [indiscernible] continue to make investments to drive and support above market growth and margin enhance These included initiatives related to our sales organization, private label, pricing tools e commerce technologies and branch optimization. Turning to Slide nine, we delivered record operating cash flow in the quarter of $360,000,000 more than 160% of the $223,000,000 in adjusted EBITDA.

Driven by disciplined working capital management to close collaboration among our credit supply chain organization and the field team we efficiently manage receivables and inventory.

We had $87,000,000 less in inventory compared to the third quarter contributing to the strong finish. On a year over year basis, inventory increased by $180,000,000 As mentioned on our last call, we balanced seasonal conversion with product availability for our customers and the recent storm impacted regions of the country. Inventory from acquired branches and greenfield load ins and inflation in our product costs all contributed to the increase year over year. In 2024, generated nearly $420,000,000 of operating cash flow following a record full year 2023 in which we generated $788,000,000 Over the last two years, we have generated over $1,200,000,000 in operating cash flow. Our ability to generate cash underpins our capital allocation approach balance investments towards organic growth, M and A E and shareholder returns in the form of share repurchases. These include our ability to invest in greenfield and value creating acquisitions, while maintaining balance sheet flexibility and liquidity.

Net debt leverage returned to our targeted range at 2.8 times with cash and available lines of credit totaling more than $1,100,000,000 as of December 31. Since the beginning of Ambition twenty twenty five, consistent with our commitment to deliver strong shareholder returns. Have chosen to deploy $1,500,000,000 of capital Have we chosen instead to reduce debt, Beacon's net debt leverage would be at approximately 1.2 times adjusted EBITDA, well below the low end of our target range of two to three times.

In 2024, we invested nearly $127,000,000 in capital expenditure to drive organic growth and to upgrade our fleet and facilities in support of our customers and employees.

I Julian covered the share repurchase program, let me provide you with some additional details. In the second quarter of twenty twenty four, we executed $225,000,000 accelerated share repurchase plan resulted in the retirement of approximately 1,900,000.0 shares $180,000,000 The remaining $45,000,000 equity forward contracts settled in the fourth quarter of twenty twenty four and resulted in the repurchase of nearly 500,000 additional shares.

Retired a total of more than 2,400,000.0 shares in the full year at an average price of less than $93 per share. Net loss share issuances for stock based compensation we reduced our common shares outstanding to $61,500,000 on December 31, was the $63,300,000 at the previous year end as we remain committed to delivering attractive shareholder returns while maintaining a strong balance sheet. With that, I'll turn the call back to Julian for his closing remarks. Thanks, Brett.

Please reference Page 11 of the slide materials. Before we move to the outlook, I'd like to take a minute to reflect on twenty twenty twenty four results and the progress we have made towards the ambition 2025 targets we laid out three years ago. In 2024, we produced sales growth of more than 7% to nearly $9,800,000,000 and generated more than $930,000,000 in adjusted EBITDA, eclipsing last year's record levels. This despite significant headwinds throughout the year, including difficult year over year comparisons in Florida, sluggish housing starts historically low existing home sales and lower commercial new construction. We delivered record sales in our national accounts, private label, and digital initiatives, which deliver both enhanced growth and margin. We opened 19 greenfields across 12 states and two Canadian provinces, further enhancing our reach to customers. These new branches are ramping up ahead of expectations and in total Greenfield locations contributed more than $180,000,000 to the top line in 2024. We welcomed 12 new acquisitions adding 42 branches. New markets and new capabilities. Our acquisition portfolio is performing well, Acquired branches contributed more than $400,000,000 to net sales and like our greenfield strategy, expanded our ability to serve our customers across The U. S. And Canada.

We trained and developed leadership positions within our sales force lines of business and leadership ranks including the launch of our commercial academy and the Roofing Industry Center, at Clemson University, demonstrated our commitment to hiring a qualified workforce from diverse backgrounds, which enables us to win in our markets, including the rapidly growing Latino community. We generated a $20,000,000 contribution to adjusted EBITDA from our Bottom Quintal branch initiative bringing the three year total to $78,000,000 surpassing our $75,000,000 ambition 2025 target a year early. In 2024, we returned $225,000,000 to our shareholders by repurchasing and retiring 2,400,000.0 shares about 44% of shares outstanding However, there were also missed opportunities. We were late responding to shifting market dynamics that impacted demand. For example, the cut in interest rates did not spur more activity as expected and we carried too much overhead into Q3 when we took action. And while we generated nearly $420,000,000 in operating cash flow in 2024, the majority of which was in the fourth quarter, this was below our expectations as we did not adjust inventory appropriately until later in the year. Despite these misses, our performance in 2024 has created significant value for our customers and shareholders alike.

And has positioned us to capitalize on market opportunities in what is expected to be an equally mixed environment in 2025. Please turn to Slide 12. Let me talk about our expectations for the market in 2025. Broadly, many of the headwinds I described earlier will persist through the first half Overall sentiment has weakened in recent weeks, particularly in new construction markets with higher interest rates likely to continue and input costs likely to rise in part due to expected tariffs, There are increasing concerns with contractor labor availability. While interest rates and tariffs may have a limited impact on our primary product categories and we feel confident about our ability to attract and retain our workforce in clearly all three of these elements create greater uncertainty in our end markets. We expect residential reroofing market demand will be down this year driven by our assumption that storm demand will tick lower after a modestly above trend year in 2024. We expect non storm repair and reroof to be higher on demand from the nondiscretionary replacement cycle of roofs. And residential new construction as well as existing home sales are expected to remain sluggish. In commercial roofing, the Architectural Billing Index remains below 50, indicating contraction in new construction activity in the first half of the year.

However, repair and reroofing activity is expected to improve. Despite these near term headwinds, the underlying demand drivers remain strong. Under investment in housing, U. S. Migration towards areas impacted by severe weather and regulation and insurance trends that drive increased replacement activity. For the first quarter, we expect total sales per day to be down in the 3% to 5% range compared with the prior year quarter. This is primarily due to the harsh weather we've seen in January and February which typically results in more demand With respect to first quarter gross margin, we expect it to be in line with the prior year quarter. Adjusted operating expenses are expected to increase year over year attributable to the higher expenses related to headcount from Greenfield and acquired branches, which are mostly offset by cost man For the full year, we expect net sales growth in the mid single digit percent range, including contributions from acquisitions previously announced. Regarding gross margin, structural improvements from our initiative including the implementation of our pricing model, higher private label and digital sales, our to be partially offset by the geographic and line of business mix impacts. It is important to note that we expect price cost to be neutral resulting in a full year gross margin percentage in line with prior year.

We also expect to realize benefits from cost actions taken in the third quarter of last year to contribute approximately $30,000,000 With all that in mind, we expect adjusted EBITDA to range between $950,000,000 and $1,030,000,000 Regarding cash flow, expect inventory to follow a normal pattern of seasonality as we we build inventory in the first half of the year and convert to cash in the second half.

For the full year, we expect to generate strong operating cash flow in the range of $500,000,000 to $600,000,000 We will also invest in growth and plan to open 15 to 20 new Greenfield locations We will continue to execute our pipeline of tuck in acquisitions with disciplined criteria and rigorous integration Our focus will remain on delivering results including enhancing our customer service, pricing and daily execution on safety, productivity and efficiency. We have a durable strategy resilient business model, a great team and an attractive industry. Our future is bright and we look forward to helping our customers [indiscernible] Now before we turn the call over to Q and A, I want to briefly address our ongoing matter with QXO. Back on January 27, 2025, QXO launched an unsolicited tender offer at $124.25 per share. Our Board after consultation with its independent financial and legal advisors, unanimously determined that QXO's offer is not in the best interests of the company and its shareholders because it significantly undervalues the company and our prospects for growth and value creation. Therefore, the Board strongly recommended that shareholders not tender their shares to QXO. We Importantly though, the Board remains open to considering all opportunities to max maximize shareholder value and Beacon looks forward to sharing more on its future growth plans and 2028 long term financial targets at our upcoming Investor Day on 03/13/2025.

Please focus your questions on our business and our record fourth quarter and full year results. Will not take any questions related to QXO's tender offer and proxy contest on this call. With that operator, I'll return it back to you in the question and answer session.

Thank you. The first question today comes from Mike Dahl from RBC Hi. Thanks for taking my question. Look, I think one of the obvious ones is sluggish start to the year, but you're still bridging to a pretty healthy growth for the full year. So can you help us understand more dynamics around quarter to date sales, whether you've seen improvement as over the past week or so, weather has gotten a little bit better And then within the full year guide, help us break down you gave us the acquisition contribution, but how are you thinking about organic price and volume across your segments? Thanks.

Thanks, Mike. I'll take the first part and just general trends. Chris can give you some of the financial details as well. January was tough. I think I love the statistic that there was snow in all 50 states February has been extremely cold up until the last the last week or so. We were down, I think, low teens in the [indiscernible] And February was tracking towards that up until the last few days. In the last few days, we've seen sort of demand levels where we would expect to be in early March mid March, which is a good sign. Like we said, the harsh weather generally create demand And weather in general only creates demand or moves it around, it doesn't It doesn't take it away. So that's important everyone to realize. So we do think that that fundamentally what's going to play out First quarter is going to be tough. Weather related. We're seeing improvements coming in. And as we said, typically, tough weather creates demand for us, particularly when it impacts states that don't usually see this type of weather around the South. So that's what we're seeing so far. And we've got a lot of confidence in our business where we're driving to.

Obviously, the cost actions we took last year in the third quarter to get our staff levels to where they should be are going to carry over into this year. So we feel very good about our prospects top and bottom line growth. Yes, just a couple of things to add.

Mike. On Q1 in particular, when you kind of break it down, in terms of March, we're expecting kind of first sales for the kind of flat to last year.

And remember, we did 12 acquisitions last year, most of which were done after March. So we've got some favorable structural benefits in terms of why we have confidence around Q1. In terms of the full year, let me start with sales In terms of our guide for kind of mid single digits, We're expecting a total market. This is across all lines of business to be flat to slightly higher. M and A carryover is about 2%. The price carryover from the shingle price increases last year, that's about 1%. And then we have above market growth including greenfields and sales in the low single digit. Percent range. In terms of the EBITDA bridge, you start with the $9.30. As Julian said, we took cost actions in September. We expect to generate about $30,000,000 of savings from those actions in 2025. The M and A carryover is in the order of $10,000,000 And then we do expect to get operational leverage especially in the existing business despite adding new greenfields and so forth. So that's kind of how we get to the The mid point of our guidance. And in terms of the upside, we've said that we expect residential volumes to decline this year because go back to the ten year storm average, If we actually revert to what we saw over the last couple of years, that would get us towards the high end of our guidance.

Very helpful. Thank you.

Thank you. The next question is from David Manthey from Bard. Your line is now open.

Thank you. Good morning, everyone.

First, just as we build up the top line, what number of new Greenfield additions are you budgeting for 2025? And then for on the price front, I think you said price cost is neutral, you get a 1% carryover from 2024 pricing, but does your 2025 guidance include any price increases across any of your categories, res, non res, complementary? Yes.

I think in our prepared remarks, we mentioned sort of 15 to 20 Greenfield locations. We'll toggle that based on what we see in market conditions and availability of rental units for lease. So that would be our Greenfield target for this year, somewhere in that range. I think that we've got a residential price increase that has been announced for April. So we do have that factored in Obviously, difficult to predict exactly what's going to happen with projected tariffs and how that will impact the overall macro and our pricing strategy. But we've got one one residential increase so far that's announced that is sort of baked in the price cost neutral. Got it. Thanks, Julian. [indiscernible] The next question is from Trevor Allens from Wolfe Research. Your line is now open. [indiscernible] SG and A, clearly been a focus for you guys here the last few quarters. You've talked about managing that back to 17% over time. You've got the restructuring in place here. But just looking at your guide, it looks like maybe you're expecting to be a bit above the 17% number in 2025. So what do you need to see happen to get back to 17%?

Do you need to digest some of this M and A and Greenfield you've done? Or are there other leverage you need to pull there?

Yes, I'll touch on this, Trevor, and I'll let Priti give some of the details as well. So fundamentally, thesis is right. We've got to digest some of the the acquisitions that we've done. Obviously, we're going to continue to invest in in new greenfields. We believe that we'll continue to add capacity with that will continue to invest in value creating project that we have. But as our greenfields [indiscernible] from the earlier classes, which none of them have really gotten there yet. We'll start to see that come down. And I think that if you sort of peel away all of those things, we've got an underlying very good story about where we sit today. But first of all, I'll have some more details. Yes. So yes, Trevor, in terms of just how we're thinking about the OpEx in the coming year. We We're expecting to have about $60,000,000 of additional expense from acquisitions and greenfields. And so so that means we'll actually have some leverage within the existing business. Over the coming twelve months. And then Beacon continuing to drive productivity and other operational excellence initiatives that we think will enable us to further progress in this area.

Understood. Thanks for all the color and good luck moving forward.

Thanks.

Thank you. Next question is from [indiscernible] From Thompson Research Group. Your line is now open.

Hey, good morning. Thank you for taking my question. You expand a little bit more on the non res demand between new and R and R?

Last quarter you maybe started to see R and R demand picking up a little bit. So that seems to be continuing based on your comments. Is that maybe a slow and steady improvement or maybe that's kind of accelerating throughout the year? Just any more color on kind of how those two are expected to perform through the year would be helpful. Yes, absolutely. Happy to do that, Brian. [indiscernible] you've almost got to rewind sort of back to the supply chain disruptions that we saw in sort of 2021, 2022 and a little bit into 2023 with all the contractors stocking you'll remember. Because of all those fighting disruptions, prioritized new construction because that was there's just so much more money tied up in that so the market prioritized new construction. Because there was a lot of supply chain disruption, product availability was very tight. It ended up pushing the repair and replace cycle out a little bit.

Obviously, it never goes away. So what we saw last [indiscernible] way through, the supply problems diminished for the most part. We saw sort of a remixing away from the new construction, a lot of which had gotten done [indiscernible] more towards the the repair and replace cycle. The other thing we started to see last year was a little bit of the So trends that we mentioned in the prepared remarks. The Architectural Billing Index being below 50 indicates a contraction in the new construction cycle as well. So there's a little bit of a muted demand there. I think there's a lot of steel that goes into commercial construction. So the impact there of potential tariffs coming in, having a muting effect on new construction is likely to continue, we believe. So that's sort of where we see it.

As regards to your question about are we seeing a more bullish sentiment around repair and replace? Think there's a little bit of catch up. I wouldn't say it's more bullish. I think it's more of a mix that new commercial is down a little bit. And the repair and replace cycle of commercial sort of steady. It just has to get done It's a capital project for most of these building owners. So they just kind of work through it on their own time frame. I wouldn't say it's more bullish on that. It's just steady and the mix towards that because new construction is down.

Yes. Just one thing to add to what Julian said. I think we've also been really focused on gaining share and accelerating our commercial efforts and those are We target certain growth markets. We targeted 2019 and 2024. And we delivered above market growth in those markets and we're focused on that in 2025 with 25 new markets. And so that's another thing that's maybe different in our business. We're very deliberately focused on gaining share and and growing above the market in this area.

Thank you.

Next question is from Garik Schmois Hi, thank you. Just wanted to get some clarification on residential price I appreciate the expectation of being price cost neutral. This year, but just wanted to bridge that with the prepared remarks I think you talked about a point of carryover pricing from last year's given your guidance. But I was hoping you could expand on whether or not you're expecting traction on the April price increase If so, how much of that is in the guidance? And would there be anything unusual on realizing the April price increases kind of given some of the choppy end markets. Right now [indiscernible] From when you realize ROI. Yes.

Thanks for the question. And in terms of kind of what we've been see in our forecast, for the April price increase. And we're kind of assuming the similar type of realization as of last year and the year before, which it's a small basis point profits But overall, as we said, price neutral over the full year.

Yes. I think the number is about a 1% incremental ASP for the full year And the April increase helps us get there.

But obviously, we've so said pricecost neutral [indiscernible] say, Eric, The impact of the costs this year are a little opaque right now because of sort of where we sit both in the year You mentioned choppy markets, that's certainly what we see. [indiscernible] the absolute level of demand is really good.

So there's is still a reasonably strong underlying demand for all the products. And as we mentioned The potential for upside remains which is new construction remains below trend, existing home construction is well below trend, We expect sports storms to revert and take down slightly.

So even with that in all our guide, we remain pretty confident about what the future holds for us. And we're cautiously optimistic about the year. But overall demand levels in both residential and commercial construction markets and our waterproofing business are pretty solid.

Got it. Thank you.

Thank you. The next question is from Trey Grooms from Stephens. Your line is now open.

Hey, good morning, everyone. This is Ethan on for Trey. Thanks for taking my question. [indiscernible] wanted to touch a little on the cost front. Maybe could you walk us through what you're seeing within the various cost buckets and your assumptions for $20.25? And then given that price increase announced for early April and the timing there, how should we think about price costs trending through the year?

Well, I'll touch on the price cost for the year. We said that it would be neutral for the full year. Mean typically, obviously, we liquidate inventory prior to the price increase. So we a little bit of margin expansion that narrows over the year. So that's all factored in. We don't break out individual cost buckets. So we're focused on driving efficiency, driving productivity, Brett, I don't know if you've got anything to sort of add to that, but We have We certainly believe that we will we will grow EBITDA margin this year Our adjusted EBITDA margin will grow and that's we're very focused on driving it through productivity. Given the price cost will be about neutral, that sort of all flows through [indiscernible] and realizing the benefits of improving previously acquired at branches, maturing of our greenfield branches and then driving productivity in the branches, that we already have including our bottom quintile branch process. So are the big areas that we focus on for driving improved bottom line. And like I said, we do believe that we will grow Adjusted EBITDA margins this year.

Thank you. [indiscernible] Thank you. The next question is from David MacGregor from Longbow Research. Your line is now open.

Yes. Good morning and thanks for taking my questions. Julian, with 15 to 20 new locations in 1995, how much of those would fall into OTC market versus non OTC configurations? And then also just with the growth in the number of branches, [indiscernible] Where are you right now in capacity utilization under RDCs and distribution infrastructure and maybe if you could about the need to invest there at some point? And [indiscernible] point arrives?

Yes. So in 2025, [indiscernible] The vast majority of those branches will probably go into our OTC markets in some way, shape or form. It's difficult to see right now. I mean, we've had cases where you negotiate a lease Mark has changed a little bit. We delay it. Things like that. But the vast majority of our business is now inside one of our OTC markets. And so as we continue to expand on the benefits we think we get from networking our branches together, the competitive advantage we think it gives us in big markets. We'll continue to deploy that strategy focused on that, but we also we also do think there are underserved markets. And as I've said before, frequently when we add a location, all of the markets all of the branches inside that OTC get a little bit better because our service proposition to our customers improves I'm trying to think what else to add in terms of Maybe one thing is I think your one of the things David is we're going to be doing a lot more in the waterproofing space. Remember, we've just built this great platform over the last two years and they're really in their infancy of applying the A25 playbook.

And so we're going to going to make some investments in greenfields and in big areas for them where we currently have gaps. And so that should be very good in terms of growth for that business.

Yes. And just going back to the fundamental strategy around greenfields and your question about capacity. [indiscernible] We look at very carefully at where we add and how we add to ensure that we've got a great service proposition. We think that there is industry is a very high service proposition industry. I mean, it's we never go back to the same address in the same twenty year period. We're driving up people's driveways and it's dogs and cats and People we're putting people are on roofs. It's a dangerous job. So the service levels required are really high. So having the capacity to serve at a very high level is really meaningful and value creating for our customer base, and their customer base as well. It's a really important role that we play in making these deliveries. So worry less about the overall capacity than it is about the service level. The total capacity is less of a limit on us than it is really just our ability to create great service for our customers.

Got it. Thanks very much.

The next question is from Keith Hughes from Tuist. Your line is now open.

Thank you. You talked a lot about the first quarter and the weather. I think a lot of that was directed at residential single If you could just talk about first quarter of complementary products, some of that indooroutdoor, how much trending so far in the quarter? [indiscernible] product side, I mean, you're going to see the same sort of trends, Keith. Ultimately, really cold weather Snow these things impact all of the exterior products In the same way, I mean, I'm no Chris will have some details on it. But generally speaking, there probably broadly in line with our overall market. What we do have is a lot of acquisitions in that space because of the waterproofing. So That's having an impact year over year as well. Yes. So generally, Keith, I think in terms of volume, it's similar across all three lines of business. It kind of high single digits type decline And but back to what Julian said, we've done a lot of acquisitions and those help us in terms of kind of mid single digit [indiscernible] Growth in the quarter. And so that's kind of how we get our guidance for the color that we provided for Q1.

But fundamentally, Keith, the weather impact of all the exterior products in the same way. [indiscernible] Thank you.

Thank you. As a reminder, The next question is from Philip Ng from Jefferies. Hey, good morning. This is Maggie on for I wanted to touch on the bottom quintile branch initiative. Julien, I think you said that was a 7,000,000 benefit in 4Q, maybe you remind us what that was for the full year And this is an ongoing, multiyear initiative Probably a lot of the low hanging fruit has has been accomplished by now. So if you could just talk about how you think about that opportunity in 2025 and going forward?

Yes, absolutely. It was $7,000,000 in the quarter. It was $20,000,000 for the full year. And since we kicked off ambition 2025, we've generated $78,000,000 in three years versus the $75,000,000 four year target. So we're really really pleased with what we've seen there. It's a disciplined process. And obviously, the way we structured it is that it's a bottom quintile process. We will always have 20% of the branches at the bottom of the pile and we work to ensure that they're improving. Now like you said, the low hanging fruit that we had early on in my tenure has certainly gone away. But you can see we keep generating and keep finding ways to generate improvements in those branches We provide focus, we provide resources, we provide guidance. On where to look for these opportunities. So while it's not will never be done But it's like you said, the low hanging fruit is there. I'll give you some indication The bottom quintile branch profitability Three years ago, was about 3% EBIT [indiscernible] Today, it's nearly double digit. It's closer to double digit to get into that branch. It's sort of 7%, 8% and it's been growing every year.

So we continue to see great opportunity We're also narrowing that band as well and it's it's been just been a great process for us and we're excited about it. And we'll continue to keep working it. There'll always be that bottom 20%.

All right. Thanks for the color.

Thank you.

Thank you. That concludes the questions. I'd now like to turn the call back over to Mr. Francis for his closing comments.

Thank you. I just want to say thank you to all of you for your support of Beacon Beacon in on our earnings call.

I'm incredibly proud of the team weathering this storm and the challenge that we've faced with market conditions over the last year. There's certainly been a lot of headwinds but we're excited about the business. We're excited about where we're positioned. We're excited about producing another record year for Beacon.

And we believe that 2025 is the start of another record year and we will continue to deliver results for our employees, our customers and our shareholders. With that, we look forward to seeing you all March 13, in New York City.

This concludes today's call.