CKX Lands M&A announcement

Good morning, everybody. With me today in Greenwich are QXO's Chief Strategy Officer, Matt Fassler, and Chief Investment Officer, Mark Manduca. The purpose of this call is twofold. First, I will cover the new venture I am starting, as announced earlier today, and then we will spend most of the time on the excellent progress we are making at QXO. This includes our pre-released third quarter results, our detailed progress with core components of the business, and the opportunities ahead. After my prepared remarks, Mark, Matt, and I will be happy to take your questions. To launch the new venture, I will be leading a $1 billion cash investment in what will be the ninth company I have started. As described in today's press release, my family office, Jacobs Private Equity, together with a group of minority co-investors, has agreed to invest in a public company called CKX Lands.

CKX is listed on the NYSE American under the ticker CKX. The investment is expected to consist of $900 million from me and $100 million from co-investors led by HRTG Partners, formerly Sequoia Heritage. Upon closing, I will own a majority stake in CKX and become its chairman and CEO, while continuing to serve as chairman and CEO of QXO. CKX is currently a land management company. It earns its revenue from royalty interests and mineral leases related to oil and gas production on its land, as well as timber sales and surface rents. The industry for my new venture is still to be determined. Once we close the investment, CKX will become a platform for growth, operating as a standalone public company under a new name.

The proposed transaction is intended to give CKX's existing stockholders the opportunity to receive an upfront cash payment of $20.8 million, retain the value of the existing business, and participate in the potential upside of our future plans. Completion of the investment remains subject to applicable closing conditions, including CKX stockholder approval. Over my career, I founded and led $8 billion or multi-billion dollar businesses, including six public companies. I love building multi-billion dollar market leaders, and I am excited to have the opportunity to do it again. My approach to creating value has been consistent across a wide range of industries. It is bring in exceptional people, improve operations, invest in technology, and grow both organically and through disciplined acquisitions. My teams and I have completed approximately 500 M&A transactions across these businesses. Last year, I concluded my chairmanships of XPO, GXO, and RXO.

That gave me the capacity to create this new venture while continuing to lead QXO to its massive potential. Now let's talk about QXO. I want to emphasize that I remain intensely committed to QXO. My enthusiasm for QXO is sky-high, and the progress we're making gives me even more confidence in our ability to accelerate organic growth, expand margins, and create substantial shareholder value. As you may have gathered from our preliminary release this morning, the month of September came in much stronger than expected. We pre-released third quarter adjusted EBITDA of $557 million on revenue of $4.9 billion, with an adjusted EBITDA margin of 11.4%. We'll provide many more details later this week in our earnings release and 10-Q, but suffice it to say, the quarter ended on a high note.

Today, I want to focus on why we're so excited about the progress we're making at QXO and the positive outlook from here. Our acquisitions of Beacon, Kodiak, and TopBuild gave us leadership positions in some of the most important parts of the building products industry, extensive customer relationships, and management depth. These are the critical attributes to create substantial shareholder value. In North America, we're now the number 1 distributor of insulation products, number 1 in waterproofing, number 2 in roofing, and number 1 or number 2 in lumber and building materials in key regions. We're also the number 1 installer in the insulation space. Our company's 28,000 employees serve 194,000 customers through a network of 1,150 branches across all 50 states and seven Canadian provinces.

Our customers include residential, commercial, and industrial general contractors, subcontractors of all types, including roofing, insulation, and framing, as well as production and custom home builders. Our third quarter performance demonstrates that our strategy is working across the board. We're achieving stronger pricing, customer engagement, cross-selling, and service execution. These are accelerating sales trends and profitable market share gains. Company-wide, in the third quarter, trends in organic revenue per day improved for the second consecutive quarter, and pricing improved overall by 2.2% year-over-year, with nine of our 11 areas delivering positive pricing. In roofing and waterproofing, sales of higher-margin complementary products grew 4.2% to $607 million, including 16% growth in gutters and accessories, 15% in fiber cement, and 7% in windows. Private label penetration in roofing and waterproofing also reached a record 10.6% of sales, up about 50 basis points year-over-year.

Together, these results demonstrate our growing ability to capture a greater share of customer spending across a broader range of products. Sales momentum accelerated into October, with daily sales increasing 5.4% year-over-year across the company by month's end. Roofing and waterproofing, which we have owned the longest, grew 9.1% in October. These results build on a year of profitable market share gains and demonstrate the growing impact of our commercial initiatives and service improvements. In the third quarter, on-time delivery in roofing and waterproofing improved by 650 basis points, and out-of-stocks for key products improved more than 25%. Invoice accuracy improved from the low 90s at the outset of the year to the high 90s in the third quarter. Face-to-face customer meetings increased 57% from July to early November.

A third of our regions are already exceeding our 95% on-time delivery target, with a large opportunity to replicate these improvements across the network. Critically, our commercial momentum is translating into improved profitability. In Q3, year-over-year gross margin in roofing and waterproofing inflected positively despite the soft external environment. We are encouraged by the direction of the metrics, and we are still in the early stages of realizing the full benefits of the changes underway. Our insulation distribution business continues to perform well, with revenue accelerating in Q3. We generated a particularly strong performance in our mechanical insulation distribution unit, which posted a strong 16% year-over-year revenue increase, due in part to its leading position with data centers. Our pricing to customers is a major company-specific lever for us.

Importantly, our investments in growth have strengthened our ability to earn more price by improving the customer experience and creating a more compelling value proposition. We have built a broader offering, wider product availability, and faster customer service with more reliable deliveries. We have instilled more rigorous governance over excessive price overrides and improved the tools, management, and incentives that support pricing decisions. Our goal is to price consistently based on data and in a way that is fair to our customers and to QXO. Company-wide, our year-over-year pricing has improved by 400 basis points from negative 1.7% in April to positive 2.3% in September. Pricing turned positive in June and has strengthened in each subsequent month throughout Q3. Roofing and waterproofing showed an even larger improvement over the same period, moving from negative 1.1% in April to positive 4.1% in September.

These metrics demonstrate our ability to improve pricing even during the current soft environment. Going forward, we are implementing sophisticated pricing analytics across the acquired businesses, and we see multiple runways to improve pricing, including the commercial deal process, customer-specific negotiations, and linking quoting decisions more closely to customer profitability. Procurement is another major lever for us. We have established centralized category leadership, and we are in the process of bringing our spend together across the businesses. Our three major acquisitions have approximately $12 billion of spend, including about $11 billion in direct products and materials and more than $1.1 billion in indirect goods and services. Approximately $7.6 billion of that spend is with suppliers serving at least two of legacy Beacon, Kodiak, or TopBuild. This includes over 1,000 direct suppliers and about 200 indirect suppliers.

Within that overlap, approximately $5 billion is with suppliers serving all three legacy businesses. These existing supplier relationships represent an opportunity to align pricing, rebates, and contract terms, and to negotiate using our combined purchasing power. We are pursuing these opportunities through coordinated negotiations, supplier consolidations, stronger rebate capture, and wider adoption of common purchasing agreements. Our goal is to reward strategic supplier partners with more of our business, allowing them to grow rapidly with us while we improve cost, availability, and service for our customers. We have already realized procurement synergies across a number of indirect categories such as fleet, technology, and waste disposal. Cross-selling is another key focus as we continue to integrate the three businesses. We have about 194,000 unique customers now, and almost none of them currently buy our full product offering.

We already have ongoing relationships with these customers, and in many cases, we're already on their job sites. We've developed a good sense of their requirements and their total spend. Our goal is to earn a much larger share of their business and drive substantial organic growth. The majority of our customers have compelling reasons to consolidate suppliers and reduce complexity. Many need multiple categories of traditional building materials, and some also need engineered components. The total scope of our offering can help customers reduce their total construction costs, address labor shortages, simplify procurement, and mitigate project delays. For example, our strong relationships with production home builders are typically rooted in our truss and wall panel capabilities, as well as insulation, where we solve some of their greatest needs.

At the same time, it creates an opportunity for us to expand share of wallet by becoming their primary supplier for a wider range of building materials, with the added value of scale to support their growth. We're achieving early success with a cross-selling pilot in Tampa, where we serve 18 trades. The pilot is surfacing the time and cost efficiencies QXO can bring to a single project by combining distribution, installation services, and field management across the trades. By coordinating crews and services, we can eliminate duplicate trips to job sites, reduce material handling, improve scheduling, and shorten construction cycles. For example, we can combine interior trim and garage door installation into a single visit or arrange to have the work performed on site. We can also help customers realize scalable savings in their most precious resource, labor, including time spent in coordination and construction.