Record Levels of Net Sales, Net Income and Adjusted EBITDA; Improving Commercial Backdrop

GMS Inc. (NYSE: GMS), a leading North American specialty building products distributor, today reported financial results for the fiscal first quarter ended July 31, 2022.

First Quarter Fiscal 2023 Highlights

(Comparisons are to the first quarter of fiscal 2022)

  • Net sales of $1,359.6 million increased 30.5%; organic net sales increased 24.1%.
  • Net income of $89.5 million, or $2.07 per diluted share, increased 46.2% compared to net income of $61.2 million, or $1.39 per diluted share; Adjusted net income of $105.2 million, or $2.43 per diluted share, compared to $73.3 million, or $1.67 per diluted share.
  • Adjusted EBITDA of $175.0 million increased $46.9 million, or 36.6%; Adjusted EBITDA margin improved 60 basis points to 12.9% from 12.3%.
  • Net debt leverage was 1.8 times as of the end of the first quarter of fiscal 2023, down from 2.7 times a year ago.

“Continuing the solid momentum from fiscal 2022, we again achieved record levels of quarterly net sales, net income and Adjusted EBITDA for our fiscal first quarter of 2023,” said John C. Turner, Jr., President and Chief Executive Officer of GMS. “Volumes were up in Wallboard, Ceilings and Complementary Products, including our first quarterly year-over-year increase in commercial Wallboard volumes since before the pandemic. The inflationary pricing environment together with strong residential construction activity and an improving commercial landscape, combined with our team’s commitment to delivering outstanding service and the execution of our strategic priorities drove our performance this quarter.”

Turner continued, “While builders are reporting an affordability-driven moderation in single-family housing demand, construction activity in this sector remained robust during the first quarter and into our second quarter as the industry works through a sizable backlog of homes started but not yet completed. While single family homebuilding will likely soften, the degree, timing and duration is yet to be determined. However, commercial construction is improving and multi-family construction remains strong. We are confident we are well-positioned to adjust as needed to meet demand in all three end markets.”

First Quarter Fiscal 2023 Results

Net sales for the first quarter of fiscal 2023 of $1.36 billion increased 30.5% as compared with the prior year quarter, primarily due to inflationary pricing, active residential construction, volume growth in Wallboard, Ceilings and Complementary Products, an improving commercial landscape, and the acquisition of AMES Taping Tools. Organic net sales increased 24.1%.

Year-over-year sales increases by product category were as follows:

  • Wallboard sales of $521.6 million increased 33.7% (up 31.6% on an organic basis).
  • Ceilings sales of $167.3 million increased 21.2% (up 17.8% on an organic basis).
  • Steel Framing sales of $274.9 million increased 40.1% (up 34.6% on an organic basis).
  • Complementary Product sales of $395.8 million increased 24.6% (up 11.2% on an organic basis).

Gross profit of $434.7 million increased 29.4% compared to the first quarter of fiscal 2022 primarily due to the successful pass through of product inflation, continued strength in residential market demand, an improving commercial landscape, and incremental gross profit from acquisitions. Gross margin of 32.0%, declined 20 basis points year-over-year primarily due to the timing and elasticity of inflationary price-cost dynamics in the market.

Selling, general and administrative (“SG&A”) expense as a percentage of net sales improved 80 basis points to 19.7% for the quarter compared to 20.5% in the first quarter of fiscal 2022. Adjusted SG&A expense as a percentage of net sales of 19.2% improved 100 basis points from 20.2% in the prior year quarter as product inflation outpaced increases in operating costs.

Net income increased 46.2% to $89.5 million, or $2.07 per diluted share, compared to net income of $61.2 million, or $1.39 per diluted share, in the first quarter of fiscal 2022. Adjusted net income was $105.2 million, or $2.43 per diluted share, compared to $73.3 million, or $1.67 per diluted share, in the first quarter of the prior fiscal year.

Adjusted EBITDA increased $46.9 million, or 36.6%, to $175.0 million compared to the prior year quarter. Adjusted EBITDA margin of 12.9% improved 60 basis points from 12.3% for the first quarter of fiscal 2022.

Balance Sheet, Liquidity and Cash Flow

As of July 31, 2022, the Company had cash on hand of $106.6 million, total debt of $1.2 billion and $270.2 million of available liquidity under its revolving credit facilities. Net debt leverage was 1.8 times as of the end of the quarter, down from 2.7 times at the end of the first quarter of fiscal 2022.

The Company recorded cash used by operating activities and free cash flow of $4.4 million and $15.3 million, respectively, for the quarter ended July 31, 2022. For the quarter ended July 31, 2021, the Company recorded cash used by operating activities and free cash flow of $75.1 million and $81.9 million, respectively.

During the quarter, the Company repurchased common stock of $23.8 million, of which $10.8 million was repurchased under a previous authorization and $13.0 million was repurchased under an expanded authorization approved during the quarter. As of July 31, 2022, the Company had $187.0 million of repurchase authorization remaining.

Platform Expansion Activities

During the first quarter of fiscal 2023, GMS acquired Construction Supply of Southwest Florida, Inc. (“CSSWF”). CSSWF is a leading distributor of various stucco, building and waterproofing supplies serving the Sarasota, Bradenton, Venice and North Port local markets, with broader outreach to the Tampa and Fort Myers markets. This acquisition further expands GMS’s Complementary Products offerings and establishes an inaugural stucco-focused location in the state of Florida.

Also, during the period, the Company opened two new greenfield yards in Wildwood, Florida and Cleveland, Ohio as well as six new AMES stores.

Conference Call and Webcast

GMS will host a conference call and webcast to discuss its results for the first quarter of fiscal 2023 ended July 31, 2022 and other information related to its business at 8:30 a.m. Eastern Time on Thursday, September 1, 2022. Investors who wish to participate in the call should dial 877-407-3982 (domestic) or 201-493-6780 (international) at least 5 minutes prior to the start of the call. The live webcast will be available on the Investors section of the Company’s website at www.gms.com. There will be a slide presentation of the results available on that page of the website as well. Replays of the call will be available through October 1, 2022 and can be accessed at 844-512-2921 (domestic) or 412-317-6671 (international) and entering the pass code 13732210.

About GMS Inc.

Founded in 1971, GMS operates a network of approximately 300 distribution centers with extensive product offerings of wallboard, ceilings, steel framing and complementary construction products. In addition, GMS operates approximately 100 tool sales, rental and service centers, providing a comprehensive selection of building products and solutions for its residential and commercial contractor customer base across the United States and Canada. The Company’s unique operating model combines the benefits of a national platform and strategy with a local go-to-market focus, enabling GMS to generate significant economies of scale while maintaining high levels of customer service.

Use of Non-GAAP Financial Measures

GMS reports its financial results in accordance with GAAP. However, it presents Adjusted net income, free cash flow, Adjusted SG&A, Adjusted EBITDA, and Adjusted EBITDA margin, which are not recognized financial measures under GAAP. GMS believes that Adjusted net income, free cash flow, Adjusted SG&A, Adjusted EBITDA, and Adjusted EBITDA margin assist investors and analysts in comparing its operating performance across reporting periods on a consistent basis by excluding items that the Company does not believe are indicative of its core operating performance. The Company’s management believes Adjusted net income, Adjusted SG&A, free cash flow, Adjusted EBITDA and Adjusted EBITDA margin are helpful in highlighting trends in its operating results, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which the Company operates and capital investments. In addition, the Company utilizes Adjusted EBITDA in certain calculations in its debt agreements.

You are encouraged to evaluate each adjustment and the reasons GMS considers it appropriate for supplemental analysis. In addition, in evaluating Adjusted net income, Adjusted SG&A and Adjusted EBITDA, you should be aware that in the future, the Company may incur expenses similar to the adjustments in the presentation of Adjusted net income, Adjusted SG&A and Adjusted EBITDA. The Company’s presentation of Adjusted net income, Adjusted SG&A, Adjusted SG&A margin, Adjusted EBITDA, and Adjusted EBITDA margin should not be construed as an inference that its future results will be unaffected by unusual or non-recurring items. In addition, Adjusted net income, free cash flow, Adjusted SG&A and Adjusted EBITDA may not be comparable to similarly titled measures used by other companies in GMS’s industry or across different industries. Please see the tables at the end of this release for a reconciliation of Adjusted EBITDA, free cash flow, Adjusted SG&A and Adjusted net income to the most directly comparable GAAP financial measures.

When calculating organic net sales growth, the Company excludes from the calculation (i) net sales of acquired businesses until the first anniversary of the acquisition date, and (ii) the impact of foreign currency translation.

Forward-Looking Statements and Information

This press release includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. You can generally identify forward-looking statements by the Company’s use of forward-looking terminology such as “anticipate,” “believe,” “confident,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “seek,” or “should,” or the negative thereof or other variations thereon or comparable terminology. In particular, statements about the markets in which GMS operates, including in particular residential and commercial construction, and the economy generally, pricing, the demand for the Company’s products, supply chain issues and related project timing, the Company’s strategic priorities and the results thereof, service levels and the ability to drive value and results contained in this press release may be considered forward-looking statements. The Company has based forward-looking statements on its current expectations, assumptions, estimates and projections. While the Company believes these expectations, assumptions, estimates, and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond its control, including current and future public health issues that may affect the Company’s business. Forward-looking statements involve risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section in the Company’s most recent Annual Report on Form 10-K, and in its other periodic reports filed with the SEC. In addition, the statements in this release are made as of September 1, 2022. The Company undertakes no obligation to update any of the forward-looking statements made herein, whether as a result of new information, future events, changes in expectation or otherwise. These forward-looking statements should not be relied upon as representing the Company’s views as of any date subsequent to September 1, 2022.

GMS Inc.

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except per share data)

 

Three Months Ended

 

July 31,

2022

 

2021

Net sales

$

1,359,553

 

 

$

1,042,076

 

Cost of sales (exclusive of depreciation and amortization shown separately below)

 

924,832

 

 

 

706,243

 

Gross profit

 

434,721

 

 

 

335,833

 

Operating expenses:

 

 

 

Selling, general and administrative

 

267,689

 

 

 

214,081

 

Depreciation and amortization

 

32,440

 

 

 

27,714

 

Total operating expenses

 

300,129

 

 

 

241,795

 

Operating income

 

134,592

 

 

 

94,038

 

Other (expense) income:

 

 

 

Interest expense

 

(14,661

)

 

 

(13,657

)

Other income, net

 

1,569

 

 

 

792

 

Total other expense, net

 

(13,092

)

 

 

(12,865

)

Income before taxes

 

121,500

 

 

 

81,173

 

Provision for income taxes

 

32,030

 

 

 

19,971

 

Net income

$

89,470

 

 

$

61,202

 

Weighted average common shares outstanding:

 

 

 

Basic

 

42,549

 

 

 

43,089

 

Diluted

 

43,317

 

 

 

43,972

 

Net income per common share:

 

 

 

Basic

$

2.10

 

 

$

1.42

 

Diluted

$

2.07

 

 

$

1.39

 

GMS Inc.

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except per share data)

 

July 31, 2022

 

April 30, 2022

Assets

Current assets:

 

 

Cash and cash equivalents

$

106,613

 

 

$

101,916

 

Trade accounts and notes receivable, net of allowances of $9,583 and $9,346, respectively

 

820,589

 

 

 

750,046

 

Inventories, net

 

577,938

 

 

 

550,953

 

Prepaid expenses and other current assets

 

24,856

 

 

 

20,212

 

Total current assets

 

1,529,996

 

 

 

1,423,127

 

Property and equipment, net of accumulated depreciation of $237,746 and $227,288, respectively

 

359,556

 

 

 

350,679

 

Operating lease right-of-use assets

 

158,295

 

 

 

153,271

 

Goodwill

 

698,631

 

 

 

695,897

 

Intangible assets, net

 

438,103

 

 

 

454,747

 

Deferred income taxes

 

19,415

 

 

 

17,883

 

Other assets

 

8,429

 

 

 

8,795

 

Total assets

$

3,212,425

 

 

$

3,104,399

 

Liabilities and Stockholders’ Equity

Current liabilities:

 

 

 

Accounts payable

$

363,287

 

 

$

367,315

 

Accrued compensation and employee benefits

 

62,344

 

 

 

107,925

 

Other accrued expenses and current liabilities

 

153,380

 

 

 

127,938

 

Current portion of long-term debt

 

47,712

 

 

 

47,605

 

Current portion of operating lease liabilities

 

39,904

 

 

 

38,415

 

Total current liabilities

 

666,627

 

 

 

689,198

 

Non-current liabilities:

 

 

 

Long-term debt, less current portion

 

1,192,101

 

 

 

1,136,585

 

Long-term operating lease liabilities

 

116,815

 

 

 

112,161

 

Deferred income taxes, net

 

48,114

 

 

 

46,802

 

Other liabilities

 

49,544

 

 

 

55,155

 

Total liabilities

 

2,073,201

 

 

 

2,039,901

 

Commitments and contingencies

 

 

 

Stockholders' equity:

 

 

 

Common stock, par value $0.01 per share, 500,000 shares authorized; 42,298 and 42,773 shares issued and outstanding as of July 31, 2022 and April 30, 2022, respectively

 

423

 

 

 

428

 

Preferred stock, par value $0.01 per share, 50,000 shares authorized; 0 shares issued and outstanding as of July 31, 2022 and April 30, 2022

 

 

 

 

 

Additional paid-in capital

 

502,536

 

 

 

522,136

 

Retained earnings

 

637,447

 

 

 

547,977

 

Accumulated other comprehensive loss

 

(1,182

)

 

 

(6,043

)

Total stockholders' equity

 

1,139,224

 

 

 

1,064,498

 

Total liabilities and stockholders' equity

$

3,212,425

 

 

$

3,104,399

 

GMS Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

 

 

Three Months Ended July 31,

2022

 

2021

Cash flows from operating activities:

 

 

Net income

$

89,470

 

 

$

61,202

 

Adjustments to reconcile net income to net cash used in operating activities:

 

Depreciation and amortization

 

32,440

 

 

 

27,714

 

Amortization of debt discount and debt issuance costs

 

425

 

 

 

642

 

Equity-based compensation

 

5,971

 

 

 

3,160

 

Gain on disposal and impairment of assets

 

(284

)

 

 

(78

)

Deferred income taxes

 

(945

)

 

 

(140

)

Other items, net

 

2,958

 

 

 

1,573

 

Changes in assets and liabilities net of effects of acquisitions:

 

Trade accounts and notes receivable

 

(69,635

)

 

 

(73,479

)

Inventories

 

(28,712

)

 

 

(87,313

)

Prepaid expenses and other assets

 

(3,709

)

 

 

(1,491

)

Accounts payable

 

(4,405

)

 

 

(4,265

)

Accrued compensation and employee benefits

 

(46,065

)

 

 

(24,219

)

Other accrued expenses and liabilities

 

18,088

 

 

 

21,617

 

Cash used in operating activities

 

(4,403

)

 

 

(75,077

)

Cash flows from investing activities:

 

 

 

Purchases of property and equipment

 

(10,943

)

 

 

(6,814

)

Proceeds from sale of assets

 

272

 

 

 

287

 

Acquisition of businesses, net of cash acquired

 

(2,606

)

 

 

(123,049

)

Cash used in investing activities

 

(13,277

)

 

 

(129,576

)

Cash flows from financing activities:

 

 

 

Repayments on revolving credit facilities

 

(141,247

)

 

 

(102,872

)

Borrowings from revolving credit facilities

 

195,113

 

 

 

195,049

 

Payments of principal on long-term debt

 

(1,278

)

 

 

(1,278

)

Payments of principal on finance lease obligations

 

(7,639

)

 

 

(7,397

)

Repurchases of common stock

 

(23,795

)

 

 

(3,855

)

Proceeds from exercises of stock options

 

29

 

 

 

863

 

Payments for taxes related to net share settlement of equity awards

 

(300

)

 

 

(256

)

Proceeds from issuance of stock pursuant to employee stock purchase plan

 

1,329

 

 

 

1,140

 

Cash provided by financing activities

 

22,212

 

 

 

81,394

 

Effect of exchange rates on cash and cash equivalents

 

165

 

 

 

(163

)

Increase (decrease) in cash and cash equivalents

 

4,697

 

 

 

(123,422

)

Cash and cash equivalents, beginning of period

 

101,916

 

 

 

167,012

 

Cash and cash equivalents, end of period

$

106,613

 

 

$

43,590

 

Supplemental cash flow disclosures:

 

 

 

Cash paid for income taxes

$

3,232

 

 

$

1,007

 

Cash paid for interest

 

17,834

 

 

 

8,616

 

GMS Inc.

Net Sales by Product Group (Unaudited)

(dollars in thousands)

 

Three Months Ended

July 31, 2022

 

% of Total

 

July 31, 2021

 

% of Total

 

 

 

 

 

 

 

Wallboard

$

521,554

 

38.4

%

 

$

390,135

 

37.4

%

Ceilings

 

167,275

 

12.3

%

 

 

138,071

 

13.2

%

Steel framing

 

274,896

 

20.2

%

 

 

196,276

 

18.8

%

Complementary products

 

395,828

 

29.1

%

 

 

317,594

 

30.6

%

Total net sales

$

1,359,553

 

 

 

$

1,042,076

 

 

GMS Inc.

Reconciliation of Net Income to Adjusted EBITDA (Unaudited)

(in thousands)

 

Three Months Ended

July 31,

2022

 

2021

 

 

 

 

Net income

$

89,470

 

 

$

61,202

 

Interest expense

 

14,661

 

 

 

13,657

 

Interest income

 

(56

)

 

 

 

Provision for income taxes

 

32,030

 

 

 

19,971

 

Depreciation expense

 

14,993

 

 

 

12,925

 

Amortization expense

 

17,447

 

 

 

14,789

 

EBITDA

$

168,545

 

 

$

122,544

 

Stock appreciation expense(a)

 

2,344

 

 

 

892

 

Redeemable noncontrolling interests and deferred compensation(b)

 

495

 

 

 

310

 

Equity-based compensation(c)

 

3,132

 

 

 

1,958

 

Severance and other permitted costs(d)

 

352

 

 

 

147

 

Transaction costs (acquisitions and other)(e)

 

386

 

 

 

575

 

Gain on disposal of assets(f)

 

(284

)

 

 

(78

)

Effects of fair value adjustments to inventory(g)

 

44

 

 

 

1,731

 

EBITDA addbacks

 

6,469

 

 

 

5,535

 

Adjusted EBITDA

$

175,014

 

 

$

128,079

 

 

 

 

Net sales

$

1,359,553

 

 

$

1,042,076

 

Adjusted EBITDA Margin

 

12.9

%

 

 

12.3

%

___________________________________

(a)

Represents changes in the fair value of stock appreciation rights.

(b)

Represents changes in the fair values of noncontrolling interests and deferred compensation agreements.

(c)

Represents non-cash equity-based compensation expense related to the issuance of share-based awards.

(d)

Represents severance expenses and other costs permitted in the calculation of Adjusted EBITDA under the ABL Facility and the Term Loan Facility, including certain unusual, nonrecurring costs and credits due to COVID-19.

(e)

Represents costs related to acquisitions paid to third parties.

(f)

Includes gains from the sale of assets.

(g)

Represents the non-cash cost of sales impact of acquisition accounting adjustments to increase inventory to its estimated fair value

GMS Inc.

Reconciliation of Cash Used In Operating Activities to Free Cash Flow (Unaudited)

(in thousands)

 

Three Months Ended

July 31,

2022

 

2021

Cash used in operating activities

$

(4,403

)

 

$

(75,077

)

Purchases of property and equipment

 

(10,943

)

 

 

(6,814

)

Free cash flow (a)

$

(15,346

)

 

$

(81,891

)

________________________________________

(a)

Free cash flow is a non-GAAP financial measure that we define as net cash provided by (used in) operations less capital expenditures.

GMS Inc.

Reconciliation of Selling, General and Administrative Expense to Adjusted SG&A (Unaudited)

(in thousands)

 

Three Months Ended

July 31,

2022

 

2021

Selling, general and administrative expense

$

267,689

 

 

$

214,081

 

 

 

 

 

Adjustments

 

 

 

Stock appreciation expense(a)

 

(2,344

)

 

 

(892

)

Redeemable noncontrolling interests and deferred compensation(b)

 

(495

)

 

 

(310

)

Equity-based compensation(c)

 

(3,132

)

 

 

(1,958

)

Severance and other permitted costs(d)

 

(337

)

 

 

(161

)

Transaction costs (acquisitions and other)(e)

 

(386

)

 

 

(575

)

Gain on disposal of assets(f)

 

284

 

 

 

78

 

Adjusted SG&A

$

261,279

 

 

$

210,263

 

 

 

 

 

Net sales

$

1,359,553

 

 

$

1,042,076

 

Adjusted SG&A margin

 

19.2

%

 

 

20.2

%

___________________________________

(a)

Represents changes in the fair value of stock appreciation rights.

(b)

Represents changes in the fair values of noncontrolling interests and deferred compensation agreements.

(c)

Represents non-cash equity-based compensation expense related to the issuance of share-based awards.

(d)

Represents severance expenses and other costs permitted in the calculation of Adjusted EBITDA under the ABL Facility and the Term Loan Facility, including certain unusual, nonrecurring costs and credits due to COVID-19.

(e)

Represents costs related to acquisitions paid to third parties.

(f)

Includes gains from the sale of assets.

GMS Inc.

Reconciliation of Income Before Taxes to Adjusted Net Income (Unaudited)

(in thousands, except per share data)

 

Three Months Ended

July 31,

2022

 

2021

 

 

 

 

Income before taxes

$

121,500

 

 

$

81,173

 

EBITDA add-backs

 

6,469

 

 

 

5,535

 

Acquisition accounting depreciation and amortization (1)

 

13,278

 

 

 

10,318

 

Adjusted pre-tax income

 

141,247

 

 

 

97,026

 

Adjusted income tax expense

 

36,018

 

 

 

23,771

 

Adjusted net income

$

105,229

 

 

$

73,255

 

Effective tax rate (2)

 

25.5

%

 

 

24.5

%

 

 

 

 

Weighted average shares outstanding:

 

 

 

Basic

 

42,549

 

 

 

43,089

 

Diluted

 

43,317

 

 

 

43,972

 

Adjusted net income per share:

 

 

 

Basic

$

2.47

 

 

$

1.70

 

Diluted

$

2.43

 

 

$

1.67

 

________________________________________

(1)

Depreciation and amortization from the increase in value of certain long-term assets associated with the April 1, 2014 acquisition of the predecessor company and amortization of intangible assets from the acquisitions of Titan, Westside Building Material and Ames Taping Tools.

 

(2)

Normalized cash tax rate excluding the impact of acquisition accounting and certain other deferred tax amounts.

 

Investors: Carey Phelps ir@gms.com 770-723-3369

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