Paul M. Isabella - Chief Executive Officer, President and Director Joseph M. Nowicki - Chief Financial Officer, Executive Vice President and Treasurer.

Ryan Merkel - William Blair & Company L.L.C., Research Division Sam Darkatsh - Raymond James & Associates, Inc., Research Division Trey Grooms - Stephens Inc., Research Division David J. Manthey - Robert W. Baird & Co. Incorporated, Research Division Kathryn I. Thompson - Thompson Research Group, LLC Brent D.

Rakers - Wunderlich Securities Inc., Research Division Neil Frohnapple - Longbow Research LLC.

Good morning, ladies and gentlemen, and welcome to Beacon Roofing Supply's Fiscal Year 2014 Third Quarter Conference Call. My name is Mar, and I will be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes.

This call will contain forward-looking statements that fall within the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 regarding future events and the future financial performance of the company, including the company's financial outlook.

Bear in mind that such statements are only predictions, and actual results may differ materially as a result of risks and uncertainties that pertain to our business. These risks are highlighted in our quarterly and annual SEC filings.

The forward-looking statements contained in this call are based on information as of today, August 8, 2014, and except as required by law, the company undertakes no obligation to update or revise any of these forward-looking statements. Finally, this call will contain references to certain non-GAAP measures.

The reconciliation of these non-GAAP measures is set forth in today's press release. On this call, Beacon Roofing Supply may make forward-looking statements, including statements about its plans and objectives and future economic performance. Forward-looking statements are subject to a number of risks and uncertainties.

Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including but not limited to, those set forth in the Risk Factor section of the company's latest Form 10-K.

The company has posted a summary financial slide presentation on the Investors section of its website under Events & 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..

Thanks, Mar. Good morning, and welcome to our 2014 third quarter call. We are pleased to report solid Q3 sales growth of 5.8% and nearly flat EPS to the prior year. We accomplished this while encountering headwinds in the Residential Roofing market from continued softer demand and increased competition.

Diluted earnings per share for the quarter ended at $0.54 versus $0.55 last year. This was a significant rebound from Q2 and good performance, given the pricing and competitive environment combined with our investments related to growth.

Our sales results in this softer residential market demonstrates the strength of the overall re-roof market, which makes up over 80% of our sales volume. For the most part, re-roofing is not a discretionary spend and not a luxury spend. Roofs do fail. Hail damage is also part of this.

This year, we have serviced hail damage, but in total less than what we serviced last year and much less than 2011 and 2012. As we have said in the past, this repair work does fluctuate year-to-year, but it does exist year-to-year. In the quarter, we also achieved growth in all 3 of our product lines, with Commercial being very strong.

This speaks to the diversity of these product lines across our expanding branch footprint. Our line of business, our Commercial products grew fastest at 9.7%, followed by Complementary at 6.4% and Residential at 2.7%. Complementary is another bright spot for the quarter that continued into July.

For the last 4 to 5 quarters, we have seen positive existing sales growth for all 3 product lines. Q2 was the exception with the difficult weather conditions. We are confident we can continue to grow each of our lines of business, especially our Residential business as we move through fourth quarter.

Although not a direct indicator of distributor sell-through, reported shipments of shingles into distribution as reported by ARMA, was down nearly 3% in the second quarter and down 5.4%, if you include Canada as our numbers do. Again, we believe this points to the strength of re-roof and our ability to grow in the down shingle market.

We have been able to capitalize on the strong Commercial market because of our regional strength and product diversity. While it has driven our top line, it does impact our overall gross margins as commercial projects typically carry lower margin rates. This mix impact is nothing new to us as sales fluctuates over time.

Mix impacted gross margins by 20 basis points in the quarter. Our greenfield branches continue to contribute our -- to our solid growth rate for the quarter, and actually drove almost 1/2 of our year-over-year growth. Most of this greenfield growth is going to re-roof customers.

From a geographic standpoint, 5 of our 7 reported regions had positive growth quarter-over-quarter. This is good news. The Northeast and Midwest rebounded well from Q2 weather-related impacts.

Leading the way was our Midwest region with a very strong 18.4% growth; followed by the West region at 11%; mid-Atlantic at 9%; Canada at 4.9%; and the Northeast at 4%. These regions offset declines in our Southeast and Southwest regions at 8.4% and 4.6%, respectively.

Sales growth trending by month in Q3 was up 1.6% in April, 8.3% up in May and 6.7% up in June, positive trends in all months, although June was impacted by a stretch of wet weather in the South and West that impacted our customer's ability to start work. Gross margins ended the quarter at 22.7%.

Although down year-over-year, they are slightly up from Q2. All 3 of our lines of business had GM rates up sequentially from Q2. These were slight gains but progress, nonetheless. Year-over-year pricing did decline 2.6% in total.

There has been -- as I said, there has been market pressure in almost all regions with the Southeast and Southwest seeing the most pressure. Residential pricing has been impacted the most. Fortunately, we have been able to offset most of the negative price with lower input costs. Joe will give more detail during his portion of the call.

As discussed on the last call, we have attempted to raise price with earlier price increase announcements. Obviously, distribution has not been able to achieve price gains year-to-date. As you would expect, price increases from the manufacturers have, for the most part, not gone through.

We do expect the challenging price environment to continue in the short term, although we are still actively working to drive price realization. We continue to focus on growth in all of our markets as we attempt to stabilize pricing. Related to new branch openings, we continue with our greenfield investment strategy.

We opened 9 new branches in the quarter, which makes 17 for the year and 26 since last year. In the quarter, incremental operating expenses from these 26 greenfields contributed an additional $5 million in cost versus the third quarter of last year. We believe these investments are clearly having the favorable sales impact we intended.

And we are on track to open 25 new branches for the full year as we have said on past calls. Through July, we added 5 more to bring the total to 22. These branches should add approximately 2% organic growth for the year.

For 2015 and beyond, we were planning approximately 20 new openings, as I've said in the past, many of which are in progress at this point. So we're very excited about our new branch opening strategy. July sales were up sequentially, 7% over June sales. In addition, year-over-year, they were up 9%.

We're off to a solid start as we enter some of our historically busiest months, especially considering July of 2013 was up 11% versus 2012 organically. For July, residential sales were up 6.5%, so better than where we ended Q3. Commercial up 10% and Complementary was up a very strong 14%.

Taking a look at the full year, organic sales growth should be in the 4% to 5% range. We do see overall strong demand continuing in Q4, benefiting from our diverse product offering, coupled with our greenfield strategy. As a result, we should see sales growth in the range of 7% to 10% for the quarter versus 7.4% organic growth in Q4 of 2013.

It has been a challenging gross margin environment this year as a result of softer residential demand. As I said, it increased competitive pricing. However, with the pickup in residential demand, which we believe we will see in Q4, we think margins in Q4 will improve slightly, sequentially.

An item, of course, that could impact this is stronger-than-expected Commercial volumes in the corresponding mix impact. We will continue to focus on offsets to lower gross margins such as higher sales and additional cost reductions.

As we have said in the past, we believe gross margins over time will be in the 22.5% to 24% range based on mix, seasonality and, of course, demand. We believe full year operating expenses will be in the 18% range, much like last year, which ended at 17.9%. And for the full year, we believe EPS will be at the bottom end of the current analyst range.

Consistent with what I've said in the past, we remained very active in the acquisition market. We're very optimistic. We continue to talk to numerous companies. It's still very difficult, of course, to predict when owners will sell, but our intent is not diminished. This has been and will be a vital part of our growth story.

I'm confident we'll be able to execute transactions in the near future. But as always, any investment in an acquisition has to have the proper return criteria, and I know our investor base appreciates this.

As I've said in the past, our long-term focus and execution has not changed on a very solid market that has demonstrated steady growth over many years. We are driving growth and will continue to do so. We have a great team of people who focus on our customer base by providing excellent service every single day.

And as always, we will continue to focus on sales attainment, gross margin increase and cost control. And now I'd like to turn the call over to Joe, who'll go over a little more detail on the financials..

total leverage ratio increased to 2.26:1 compared to 1.61 last year, and our interest coverage ratio decreased to 15.54:1 compared to 16.72:1 last year.

Our additional investments in greenfields, fleet equipment and inventory drove the majority of the change in these ratios, so even at the current levels, they still demonstrate the flexibility and capability to execute on our growth strategy.

We believe both should improve as we go to the next 2 quarters where we traditionally worked on inventory and drive additional cash flow as a result of higher revenues. With that, we will now respond to any questions that you may have..

[Operator Instructions] We go first to Ryan Merkel with William Blair..

So just want to follow-up on the gross margin commentary. I think you said sequentially, you thought gross margin could improve slightly.

And I'm just wondering, what gives you the confidence there? Is it kind of the better sales in July? Is it the gross margin that you saw in July? Is it maybe volumes, you feel like it firming up, because it just feels like there's a lot of inventory still out there. As you mentioned, ARMA data was down 3% in the second quarter.

It just looks like shipments are down year-over-year. So maybe just walk us through why you think the gross margins could be up sequentially..

Yes, and obviously, as we talked about on our Q2 call, our estimates, as best we can kind of buttonhole, there's no doubt that there was some noise in the Q3 number in terms of increased Commercial direct shipments and 2-step shipments that some of those should have fell in our Q2. So that gives us reason to believe that they'll increase.

And then there's also the belief that despite the pressure on the residential pricing that, that volumes will be higher. July is a good evidence that -- and it's only one data point. We don't have GM for July yet. But it's good evidence that we're going to hopefully see that increased residential growth rate.

So we don't want to be talking about that we're going to get up into the 23.5% range, but we -- just looking at all the factors that we can see, input cost, incentive rates, the mix and then the start in July, gives us a stronger belief that we'll be up slightly sequentially, but we say slightly from the 22.7%..

Okay. And then for my follow-up, again, back to the ARMA data and back to resi shingles being down about 3% year-over-year in the quarter and just generally, re-roofing shingles have been declining for a few years now. I'm just wondering what you think has changed in the roofing market? Why have the shingles continued to decline.

Is there a few factors that you can point to?.

I mean without me being able to interpolate all the economic data, I think a big piece, Ryan, are the storms that we saw in '11 and '12 that took an awful lot of housing stock out of that. And I -- based on some data and big-ticket spend, although consumer confidence is increasing, I just think maybe folks aren't releasing some of that.

I do think though that it's no different than '10, when we had a down year in '09. I know we were towards the end of that recession, I think the industry cycles. But the fact is, on the resi side especially, there's tens of millions of structures put in place, right, that were put in place 40 years ago, 30, 20, 10 years ago.

I think it's like 140 million structures. Those roofs are failing, they're going to fail, and it's just a question of when? So our job is to, whether the ARMA data ends up at 112 million squares for the year or 116 million, which should be up from last year. We have to figure out how to gain more shares through service excellence.

So it's not -- I can't give you an exact reason, but I can say that the industry, through decades, has been steady. The housing stock is still, even though there's obviously a lot of new homes, there's still a lot of old housing stock, not even talking about the Commercial side, right, that will fail.

So I think we're just -- there was a lot of pull forward, and we see at the microcosm of that, as we see it in our, for instance, in the -- get too specific, but the Southeast region, which is now getting pummeled with low price, very weak demand.

Nothing has really changed there, other than 2 years ago, they had mammoth storms across that whole area, including the hurricane that brushed up against the coast. And our sales were record -- I'm sure our competitors' sales were a record. I'm sure I didn't go back and look at that ARMA data, I'm sure it was up heavily.

And as we talk internally without any jaded glasses on, we still see the -- that impacting them as we strip through all the other layers of what's really going on. So you have our competitors that go into that region that start a business up, because the volume was strong.

It takes more out of the market then, if they don't leave, it's just -- it's a -- same relatively smaller pie with more competitors. So I think that little microcosm occurs across the country. And that's what I think we're seeing. But that can change very easily.

Which we're still bullish, of course, on the entire industry and the market, as I said, and we're still bullish on next year that we're going to -- we'll return to normal growth rates, normal storm rates.

And then as we continue to do everything we do internally, with process improvement, share gain, not giving away anything and that's why we attack on price, and you see price going down, but we can't give away our share, good things will happen..

And for our next call, we move to Sam Darkatsh with Raymond James..

The -- 2 quick questions. First, I guess it's hard to figure out the status of channel inventories now. But as it relates to pricing, you said the pricing was down 2.6% in the quarter and residential was down 3.8%.

Did it get a little bit easier as the quarter progressed? What does July pricing look like? Are we starting to see some signs of stabilization there? Or is it still at this 3%, 4% of degradation range? And then I've got a quick follow-up..

Yes, Sam, I think part of the 3.8%, there's no doubt there was impact with some of the mix that I talked about with heavier 2 step in the quarter and heavier direct Commercial which impacted. Some of that was lower pricing also. We don't have hard numbers that I can talk about for July.

We do feel though, overall, that we're in the trough, not that we're going to springboard out of a trough. But we think there's -- it's -- there are signs across our regions that gross margins are stabilizing and they will increase slightly, and that therein lies the sequential -- slight sequential gain quarter-to-quarter.

I think what happened is we came out of the winter, all of us were hungry for sales growth, which we all went after. Demand didn't plump up as we thought there. It was some storm volume. It is though, overall, less than last year, at least in our regions. And there's just much more intense competition. You even see the Commercial pricing down slightly.

I won't say that's noise, but it is an indication even with the robust sales that there is still some -- a little bit of pressure on pricing. So we believe we are in the trough. Of course, time will tell with that, and things should improve as we go through this quarter..

My follow-up question, I noticed the reversal on the stock option expense, the $2.4 million, which I think, if my math holds, is a $0.03 benefit in the quarter.

Do you have a sense of where we should be looking at stock comp on a quarterly basis going forward once that adjustment has already been made?.

Well, [indiscernible] and Joe can chime in. The only reason that would get reintroduced, right, is as we go through time, we have the confidence based on our forecast, based against our internal plan. Because we do a variable comp plan for the executives that, that would change, and then we will put a charge in there.

In terms of predictability going forward, Joe, you can comment on that..

Yes. I think for the current year, Sam, we're in pretty good shape, so we've accrued it to the level where we need to be. So it shouldn't be an impact significantly favorable or unfavorable in the fourth quarter. And then next year kind of going forward, probably get back to some of the normal levels that we had in place around that..

And our next question comes from Trey Grooms at Stephens..

First question is around Commercial strength that you have discussed.

With that, I mean, I'm sure a lot of that is being driven by re-roofing, of course, but are you guys getting a sense that we're starting to see any improvement in new Commercial and you guys are seeing any benefit from that?.

Yes, I don't have enough data -- hard data in front of me, Trey. But I do know that quite a bit of the -- what we saw -- goodness, we saw in the quarter in July had a new roof component into it. So I think that's good news. I just don't have the split. So I know our percentage of growth in the quarter mimics what Carlisle is seeing.

We're not obviously queued to them all over, but we do have a big upper Midwest Northeast pretty large presence with them. So all that's good news. And it continues, as I said in July, which is great news..

Right, absolutely. Okay. And then given the current pricing dynamics, where they stand in both res and non-res, especially given the outperformance in non-res, can you kind of update us on that margin difference there? I guess it's typically in that 1,000 to 1,100 basis points, I think is what you've mentioned before.

Is that -- are we still kind of in that range or is that changed given what we've seen in pricing?.

No, I think -- no, in general, it's at same range. I mean we could go 50 or 100 either way but it's still 1,100 or so basis points, yes..

As you've seen, the pricing on the Residential, as we talked about, yes, a little bit more compressed than the pricing on the Commercial parts. So that may have narrowed the gap a little bit in there, Trey, but not significantly..

For our next question, we move to David Manthey with Robert W. Baird..

First-off on shingle pricing.

Could you just talk somewhat qualitatively about that market? And what do you think that it's going to take to get some meaningful, sustainable improvement in shingle prices? Do you think we need higher asphalt prices, consolidation, supplier behavior? I mean is it just storms? What do you -- as you look forward, how do you map out shingle pricing over, say in the next 3 to 5 years?.

Yes, Dave, you hit a lot of them right there. I think the storms obviously helped. It's the consistencies -- consistency of the storms year-to-year, right? So as I talked about Southeast, where we have mammoth storms, we do quite well, but then we see a trough.

But if we had that consistency across the country, right? Where there's some normalized volumes year-to-year that's somewhat equal, that kind of takes that equation out. I think general economic health, maybe with homeowners having more either equity or disposable income to spend on re-roof, that's going to help. I think there are a number of factors.

I just think for the last couple of years, we've been in a somewhat of a little bit of an economic malaise that's kept shingle growth square shipments, i.e., growth down to relative flat level, 110, 112, 113 or so. I do also think, Dave, you mentioned consolidation. I think that will help in time. It's not going to be in the near term.

But as the industry on the distribution side continues to consolidate, which it will, that should help pricing greatly, because there's an awful lot of folks out there. And that, obviously, creates an awful lot of pricing pressure, some of it unfounded, in my mind..

Okay. And a follow-up then. Over the past couple of years, you've clearly loaded up on inventory and the pre-buy. I'm just wondering, any thoughts as we look to next year, how you're going to approach that? And one thesis is that there's too many locations out there, and there's too much inventory in the system broadly.

When you look at the inventory per location at Beacon, that number is up, by my numbers, maybe as much as 25% or 30% versus where it used to be.

Just wondering has something changed in the business or is this just all indicative of loading up on the pre-buy, and the demand just not materializing and that number will drift down over time?.

Yes, Dave, I think it is the latter, which you just stated. We made a conscious decision to load up. We think we did it effectively, and I think it shows in our COGS, especially as we've gone through these last 2 quarters, because we're making progress on the cost side. So I don't think anything inherently has changed.

I think it's just opportunistic on our part and really part of our strategy. So in terms of what we'll do next year, that's a little bit ways away. I mean the year prior, we took a much more relaxed approach to loading up per se.

And negative things happened with price increases and then us thinking we were going to get price increases and us reloading at the same time. This really didn't happen this year because we had the inventory.

Ideally, in any lean situation, you'd love to have no inventory, or as -- and we'd love to have much lower inventory just from a cash standpoint, but when you're weighed against the cost of capital and what we get on the other side of COGS, I think it's positive.

In Q2, Dave, quite frankly, didn't help us, right? Because we loaded up and then, as you know, where our sales went, that put a tamp, and then we made good progress, as Joe said, in Q3 with the inventory reduction.

And then we're going to have a natural burn in that $50 million to call it, $75 million, $80 million range between -- or the end of Q3 to Q4, which is the natural burn. We won't be near that -- on the $250 million as Joe said, but we'll be in decent shape considering the greenfields..

One other thing I wanted to add to that, Dave, as well to it and Paul started to get to it is keep in mind a good portion of our inventory build-up in the greenfields, right? Which you have a lot of inventory in those not exactly generating as much revenue now. But if you go back to the specific numbers, you're right.

Inventory per branch right now about $1.570 million a year ago; same quarter, about $1.465 million; 2 years ago, about $1.422 million. So while it's up some at this particular point in time of the year, it's always a little bit higher when you look at inventory per branch..

Yes, Dave, the other thing I think that's important, Joe gives a little more color on that, that jog my memory. The 10 greenfields we opened up in '13, we opened up most of those towards the end of Q4 of last year, right? And we just opened up 5 more in July, which had virtually no sales.

And then we still have a number planned, the balance estimated 3 to get to the 25 in Q4. And then we already have a number of the ones in for next year, the 20. Some of those have already been incurring inventories. So it is kind of a mixed piece of very low sales.

But on the pure branch card, you're right, with much higher inventory because we're loading up the greenfields..

Okay. I guess we're looking at a trailing basis and per location, so the sales levels wouldn't matter, and where we are in the season shouldn't matter either. You're saying there's nothing different about the business.

It's more just the demand dynamics, is what I'm hearing?.

Yes, I think it's a demand dynamic and then the fact that this year, we bought more winter buy inventory. That's it. And we did it for our -- we believe now all the right reasons, just because if you look at our COGS, you can see it, and that's a function of that..

Moving on, we take a question from Kathryn Thompson at Thompson Research Group..

Just one point of clarification on [indiscernible].

You said the lower end of the current analyst range, but I assume that would put it in for the next quarter in the mid-$0.60s in terms of EPS?.

Yes. When you do the math, that's -- we're trying to keep it to a range because as we found out last quarter, things change, but yes, as best we can tell, that lower end is in the -- I think it's $1.27, might have changed already to $1.28, $1.29 range. And then with the $0.59, yes, you can do the math on the mid-$0.60s, yes..

Okay, perfect. And then could give just a little bit more color on acquisitions? I know it's been a central portion of your strategy, but obviously, you can't force a sale and the environment has to be potentially kind of really -- your target has to be in the mood to sell.

But what about the current market dynamics make it more or less favorable? And what is the pipeline right now in terms of potential acquisitions?.

Yes, a good question. Obviously, I can't share any of the confidential information. But I can say our pipeline is more robust than it's been for a long time. The discussions we're having are more robust than they've been for a long time. I think the low we saw in '13 was a function of the market being down and a lot of folks' margin being impacted.

We go back to our basic premise that we will continue to acquire, but we do have hurdle rates that we look at, whether it be return, IRR or ROIC to make sure we get to -- obviously, those get mitigated by strategic importance. So all I can say is the timing does fluctuate. We've seen lows before, not just in the last 1.5 years, 1.75 years.

We've seen them 5 years ago, 6 years ago. We have every expectation that in time, we will execute more acquisitions and they will be good acquisitions. We've been very fortunate to buy high-quality companies throughout our -- the lineage of Beacon even before being public.

So we're positive about what we're going to be able to execute in the coming months, years. But it's a never end -- it's a never-ending quest to stay in contact and evaluate that whole process..

And our next question comes from Brent Rakers with Wunderlich Securities..

Yes, I was hoping you could talk through a little bit on the new branches. You talked around the revenue contribution in the quarter, and obviously, you gave some of the SG&A numbers.

Just maybe if you could talk to the specifics on revenue and then also accretion dilution from that in the quarter, the target for the year, and then maybe, also, how historically that the revenues and profit contribution has ramped on a greenfield opening..

I'll let Joe take that, and then I'll chime in as necessary..

Brent, I'll give you a little bit of information in regards to it. It's also we don't go to that level of detail disclosure, but from the top level perspective, I think as Paul mentioned, we saw about $18 million in revenue from the greenfields for the quarter based on the new ones, and on a year-to-date basis somewhere around $29 million.

So some good growth from them. Our margins tend to be in line with the rest of our margins of our business. So they tend to focus more on residential when we start them up, so you have a little bit higher margins, but from a line of business perspective, they tend to be pretty much aligned with it.

Obviously, as we kind of ramp-up from a volume perspective, our -- traditionally, the first year is anywhere from $1 million to $3 million in revenue on a full year kind of basis to them.

Obviously, the cost of getting -- a lot of caution put in place early on, but our intent is we've been pushing all of our greenfields, is regardless of that to still be at a breakeven level in the first year, definitely cash flow positive, but trying to get them to breakeven.

For the second year, they're usually coming close -- the ramp-up in revenue is pretty much close to kind of doubling at that point in time. And they're clearly driving positive and favorable in operating income at that level.

It's usually by around the fourth year, maybe a little longer, fifth year for some depending on the specific market, where you -- where you'll start to see them getting back to more of our traditional values around operating income levels for them, so..

Okay. Great, Joe, that's actually, that details real helpful. And then maybe from my follow-up, I just -- one more to follow-up on some of Dave's questions, about the impact of the pre-buy this year.

Just wanted may be kind of your thought process on, obviously the next year pre-buy, but do you believe that -- or to what magnitude did the pre-buy this year create some sort of negative influence on industry pricing, given kind of supply-demand balance for this season?.

That's a very difficult question for us to answer, given we only have so much insight into the markets, right? And everyone else is a private company. I think -- our history with pricing has been fairly steady and positive. As I did say though earlier, we're going to compete on price, we will not lose share.

But we'll fight on the other side, the cost side to try to offset that, especially during this period. So Brent, I can't say and I don't think it had an impact in terms of taking the market down.

I -- whether we bought 3 months or 6 months, and I'm just using that for example purposes, I don't think it has much bearing on what happens in the marketplace. We've -- in terms of pricing of that product, we keep it at a very, very contained level within our own organization. So I don't think we're aware of the issue at all by any means..

Paul, do you think current spot pricing for manufacturers is comparable to the level of pricing paid on the pre-buys over the winter?.

Yes, I mean, for us, I can't really comment. I -- yes, it's a tough question for me to answer because I don't have -- when you say spot, I mean, I would think that other smaller competitors of ours would have a much higher pricing, I would think. But without having data, Brent, it'd be irresponsible for me to say anything..

We move now to Neil Frohnapple with Longbow Research..

Paul, could you elaborate a little bit more on what caused the magnitude of the Non-residential Roofing product price decrease? I know you mentioned heavier direct Commercial sales. But I was just surprised it was down despite the higher volumes and given that it's less inventory intensive than residential.

And then, I mean, obviously, there's a July 1 price increase from the manufacturers. I'm just wondering if you're seeing any signs of traction with the higher volumes? Or if it -- if that leaves stabilized pricing at this point..

Yes, good question. And I mentioned earlier that the Commercial job wasn't noise for sure, but it wasn't mammoth, we've had past quarters where we've had up volume with price down 0.5 point or even 1 point.

I think part of it, Neil, was just quite frankly, the mix of products we sold across the country, maybe some larger jobs with a little less favorable pricing, I'll say. I think that will levelize. It is important for us to continue to drive sales.

We are a very strong partner with a number of these Commercial manufacturers, and I think it's in both of our interest -- all our interest to continue to drive share gain across the country.

So I'm not at all concerned about the -- about the pricing because that can fluctuate, and I don't see any -- there's no evidence that pricing on the Commercial side is deteriorating. To anything, our expectation is that it would improve from Q3. Price increases, they're two-fold.

I think anything that the Commercial folks push through, there's going to be more acceptance in the marketplace, just given that to your point, the volume. On the residential side, where there's been price increases, I think in general, there's going to be massive pushback to accepting anything for the fall.

I mean, very little, if any, other than special cases, right, where you have special orders. Very little has been accepted from the spring price increases. I just don't see it happening in the fall at all.

Internally, of course -- of course, internally with our price being down, Neil, we would never want to accept any kind of a price increase on the residential side..

Right, right. Okay. And then obviously, the FY 2015 is very difficult to predict at this point and you're probably not ready to guess on guidance. But just as you look at your gross margin range for this year of 23% to 24%, obviously, will probably come out the lower end of the range.

But what will it take to get back to sort of the 23.5%, upwards to 24%? I mean certainly, if the difficult March and June quarters don't repeat, you'll be in much better position.

But has anything changed in the business where you might see more like 22.5% to 23% for an extended period of time, especially if we see some sort of mid single-digit type organic volume growth?.

Yes, I mean, in my comments, I said in the near term, we're going to see pricing pressure and gross margin pressure. I talked about very slight increases from Q3 to Q4, so whether that plays out for a quarter. And then we're into the winter anyways, right, for 2 quarters.

I think normalized economic activity, normalized storm volume for us internally, selling more shingles, we still have a huge opportunity to sell more Complementary product, which has higher gross margins than our average rate, I think all of those things are going to help. We certainly don't want to minimize our Commercial product sales.

But as shingles get back to normal, and if Complementary can continue to grow, we saw some good things in the quarter, and I know July is only one little piece. But it's been a while since we saw a 14% Complementary gain. I think those are the things that will get us back.

Besides the bigger picture of industry consolidation, maybe less erratic competitive behavior, which we do see, specially we've seen in the Southeast and the Southwest. I think those things will get us back to where we normally have been..

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

Great. Just a few things that I want to emphasize on my close. And they are repeats. Sales were up to $663 million, which is that 5.8%. Strong Commercial sales growth and relatively good Complementary growth.

We did achieve, as Joe mentioned, a record $1.6 billion of revenue through the first 9 months, so we're pleased with that and we're pleased with our progress on growth. With that, all 3 of our major product lines had existing sales growth and in the last -- also, in the last 4 of 5 quarters other than this tough weather-based Q2 this year we had.

And despite this resi pricing pressure that we saw, we were able to offset it with lower product costs, and that's just a, I think, a product of how tight we run the business. We're going to continue to invest in growth with our greenfield openings.

We will end up at 25 or more for the full year, and we have 20 earmarked minimum for next year, the year after and the year after. As I reiterated on my comments and the answers to questions, we're still very active in this acquisition market, and we do have a robust pipeline.

And this portion, for sure, of our growth strategy has been uneven in the past, but we're still very positive about making additional acquisitions. With that, I want to thank all of our investors for their interest in our company, as well as our customers and employees for their loyalty. This concludes our earnings call. Have a good day..

Ladies and gentlemen, again, that does conclude today's conference. We thank everyone for joining us..