Notes to Consolidated Financial Statements
1. Business, Basis of Presentation and Summary of Significant Accounting Policies
Business
Founded in 1971, GMS Inc. (together with its consolidated subsidiaries, “we,” “our,” “us,” “GMS” or the “Company”), through its wholly owned operating subsidiaries, operates a network of nearly 300 distribution centers with extensive product offerings of wallboard, ceilings, steel framing and complementary construction products. The Company also operates nearly 100 tool sales, rental and service centers. Through these operations, the Company provides 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 the Company to generate significant economies of scale while maintaining high levels of customer service.
Principles of Consolidation
The consolidated financial statements present the results of operations, financial position, stockholders’ equity and cash flows of the Company and its subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. The results of operations of businesses acquired are included from their respective dates of acquisition.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Foreign Currency Translation
Assets and liabilities of the Company’s Canadian subsidiaries are translated at the exchange rate prevailing at the balance sheet date, while income and expenses are translated at average rates for the period. Translation gains and losses are reported as a separate component of stockholders’ equity and other comprehensive income (loss). Gains and losses on foreign currency transactions are recognized in the Consolidated Statements of Operations and Comprehensive Income (Loss) within other income, net.
Reclassifications
Certain amounts in the prior year notes to consolidated financial statements have been reclassified to conform to the current year presentation.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
Trade Accounts Receivable
The Company records accounts and notes receivable net of allowances, including an allowance for expected credit losses. The Company maintains an allowance for estimated losses due to the failure of customers to make required payments, as well as allowances for cash discounts. The Company’s estimate of the allowance for expected credit losses is based on an assessment of individual past due accounts, historical loss information, accounts receivable aging and current economic factors and the Company’s expectation of future economic conditions. Account balances are written off when the potential for recovery is considered remote. Other receivables primarily include vendor rebate receivables. Other allowances includes reserves for cash discounts and reserves for service charges.
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
The Company routinely assesses the financial strength of its customers and generally does not require collateral. Concentrations of credit risk with respect to trade accounts receivable are limited due to the large number of geographically diverse customers comprising the Company’s customer base.
Inventories
Inventories primarily consist of finished goods purchased for resale and include wallboard, ceilings, steel framing and other complementary products. Included within complementary products are parts, merchandise and tools held for sale. Inventories are valued at the lower of cost or market (net realizable value). The cost of inventories is determined by the moving average cost method. The Company routinely evaluates inventory for excess or obsolescence and considers factors such as historical usage rates and demand.
Property and Equipment
Property and equipment is recorded at cost less accumulated depreciation. Property and equipment obtained through business combinations is stated at estimated fair value as of the acquisition date. Expenditures for improvements are capitalized, while the costs of maintenance and repairs are charged to operating expense as incurred. Gains and losses related to the sale of property and equipment are recorded in selling, general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income (Loss).
Depreciation expense for property and equipment of U.S. subsidiaries is determined using the straight-line method over the estimated useful lives of the various asset classes. The estimated useful lives of property and equipment are as follows:
| | | | | |
Buildings | 25 - 39 years |
Furniture, fixtures and automobiles | 3 - 5 years |
Computer hardware and software | 3 - 5 years |
Warehouse, delivery equipment and tools | 3 - 10 years |
Leasehold improvements | Shorter of estimated useful life or lease term |
Depreciation expense for property and equipment of Canadian subsidiaries is recognized over the estimated useful lives of the various asset classes as follows:
| | | | | |
Vehicles and trucks | 30% - 40% declining balance |
Furniture and fixtures | 8% - 20% declining balance |
Buildings | 4% declining balance |
Machinery and equipment | 30% declining balance |
Leasehold improvements | Straight-line over shorter of estimated useful life or lease term |
Goodwill
Goodwill is the excess of the consideration transferred over the fair value of identifiable net assets acquired in business combinations accounted for under the acquisition method of accounting. The Company does not amortize goodwill. The Company tests its goodwill annually during the fourth quarter of its fiscal year or when events and circumstances indicate goodwill might be impaired. Impairment testing of goodwill is required at the reporting unit level (operating segment or one level below operating segment). The Company may make a qualitative assessment of the likelihood of goodwill impairment in order to determine whether a detailed quantitative analysis is required. The quantitative impairment test involves comparing the estimated fair values of the Company’s reporting units with the reporting units’ carrying amounts, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, a goodwill impairment loss is measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill.
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Intangible Assets
Intangible assets consist of customer relationships, trade names and other assets acquired in conjunction with the purchases of businesses or purchases of assets from other companies. The Company typically uses an income method to estimate the acquisition date fair value of intangible assets obtained through a business combination, which is based on forecasts of the expected future cash flows attributable to the respective assets. When management determines material intangible assets are acquired in conjunction with the purchase of a business, the Company determines the fair values of the identifiable intangible assets by considering management’s own analysis and an independent third-party valuation specialist’s appraisal. Intangible assets determined to have definite lives are amortized over their estimated useful lives. Intangible assets determined to have indefinite lives are tested for impairment annually during the fourth quarter of the Company's fiscal year or when events and circumstances indicate that it is more likely than not that the asset is impaired.
Long-Lived Assets
The Company evaluates the recoverability of long-lived assets, including property and equipment, operating lease right-of-use ("ROU") assets and definite-lived intangible assets, for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used or a significant adverse change that would indicate the carrying amount of an asset or group of assets is not recoverable. For long-lived assets to be held and used, the Company recognizes an impairment loss if the carrying amount is not recoverable through the undiscounted cash flows and measures an impairment loss, if any, based on the difference between the carrying amount and fair value. Long-lived assets held for sale are reported at the lower of cost or fair value less costs to sell and are recorded within prepaid expenses and other current assets in the Consolidated Balance Sheets. The Company classifies assets as held for sale if it commits to a plan to sell the asset within one year and actively markets the asset in its current condition for a price that is reasonable in comparison to its estimated fair value.
Leases
The Company leases facilities, distribution and warehouse equipment and its fleet of vehicles. The Company’s leases have lease terms ranging from one to eleven years. The Company's facility leases generally contain renewal options for periods ranging from one to five years. The exercise of lease renewal options is typically at the Company’s sole discretion. The Company does not recognize ROU assets or lease liabilities for renewal options unless it is determined that the Company is reasonably certain of exercising renewal options at lease inception. Certain of the Company’s equipment leases include options to purchase the leased property and residual value guarantees. Any residual value payment deemed probable is included in the Company’s lease liability. The Company’s lease agreements do not contain any material restrictive covenants.
The Company determines if an arrangement is a lease at inception and evaluates whether the lease meets the classification criteria of a finance or operating lease. Operating leases are included in operating lease right-of-use assets, current portion of operating lease liabilities and long-term operating lease liabilities in the Consolidated Balance Sheets. Finance leases are included in property and equipment, current portion of long-term debt and long-term debt in the Consolidated Balance Sheets.
Lease ROU assets and lease liabilities are recognized at the commencement date based on the present value of the future lease payments over the lease term. For leases that do not provide an implicit rate, the Company uses its incremental borrowing rate in determining the present value of future payments. The Company determines its incremental borrowing rate based on the applicable lease terms and the current economic environment. Lease ROU assets also include any lease payments made in advance and excludes lease incentives and initial direct costs incurred. Some of the Company’s lease agreements contain rent escalation clauses (including index-based escalations), rent holidays, capital improvements funding or other lease concessions. Lease expense is recognized on a straight-line basis based on the fixed component over the lease term. Variable lease costs consist primarily of taxes, insurance and common area or other maintenance costs for leased facilities and vehicles and equipment, which are expensed as incurred. The Company also made the accounting policy election to not separate lease components from non-lease components related to its fleet of vehicles.
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Insurance Liabilities
The Company is self-insured for certain losses related to medical claims. The Company has stop-loss coverage to limit the exposure arising from medical claims. In addition, the Company has deductible-based insurance policies for certain losses related to general liability, automobile and workers’ compensation. The expected ultimate cost for claims incurred as of the balance sheet date is not discounted and is recognized as a liability. Insurance losses for claims filed and claims incurred but not reported are accrued based upon estimates of the aggregate liability for uninsured claims using historical loss development factors and actuarial assumptions followed in the insurance industry.
The following table presents the Company’s aggregate liabilities for medical self-insurance, general liability, automobile and workers’ compensation and the expected recoveries for medical self-insurance, general liability, automobile and workers’ compensation. Liabilities for medical self-insurance are included in other accrued expenses and current liabilities. Reserves for general liability, automobile and workers’ compensation are included in other accrued expenses and current liabilities and other liabilities in the Consolidated Balance Sheets. Expected recoveries for insurance liabilities are included in prepaid expenses and other current assets and other assets in the Consolidated Balance Sheets.
| | | | | | | | | | | |
| April 30, |
| 2022 | | 2021 |
| (in thousands) |
Medical self-insurance | $ | 3,371 | | | $ | 3,852 | |
General liability, automobile and workers’ compensation | 21,707 | | | 19,807 | |
Expected recoveries for insurance liabilities | (4,973) | | | (3,209) | |
Restructuring
The Company recognizes a liability for costs associated with an exit or disposal activity when the liability is incurred. After the appropriate level of management approves the detailed restructuring plan and the appropriate criteria for recognition are met, the Company establishes accruals for employee termination and other costs, as applicable. During the fourth quarter of 2020, the Company initiated a restructuring plan to close one of its facilities. The Company recorded $2.2 million of restructuring costs, consisting of $1.9 million for impairment of the operating lease right-of-use asset and $0.3 million for severance and other employee costs. Restructuring costs are classified within selling, general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income (Loss).
Debt Issuance Costs
The Company defers debt issuance costs and amortizes them over the term of the related debt. The Company uses the straight-line method to amortize debt issuance costs for its revolving credit facilities and uses the effective interest method to amortize debt issuance costs for its other debt facilities. Amortization of debt issuance costs is recorded in interest expense in the Consolidated Statements of Operations and Comprehensive Income (Loss). The Company classifies debt issuance costs for its revolving credit facilities as an asset in the Consolidated Balance Sheets and classifies debt issuance costs for its other debt facilities as a reduction of the related debt in the Consolidated Balance Sheets.
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Stock Appreciation Rights, Deferred Compensation and Liabilities to Noncontrolling Interest Holders
Certain subsidiaries have equity-based compensation agreements with the subsidiary’s employees and minority stockholders. These agreements are stock appreciation rights, deferred compensation agreements and liabilities to noncontrolling interest holders. Since these agreements are typically settled in cash or notes, they are accounted for as liability awards and measured at fair value. See Note 13, “Stock Appreciation Rights, Deferred Compensation and Redeemable Noncontrolling Interests,” for additional information with respect to these agreements.
Derivative Instruments
The Company has entered into derivative instruments to manage its exposure to certain financial risks. The Company’s derivative financial instruments are recognized as either assets or liabilities in the Consolidated Balance Sheets and measured at fair value. Derivative instruments that do not qualify as a hedge or are not designated as a hedge are adjusted to estimated fair value in earnings. Derivative instruments that meet hedge criteria are designated as hedges. For derivative instruments designated as a cash flow hedge, the Company recognizes the change in fair value, net of taxes, to accumulated other comprehensive income (loss) in the Consolidated Balance Sheets, and an amount is reclassified out of accumulated other comprehensive income (loss) into earnings to offset the earnings impact that is attributable to the risk being hedged. See Note 14, “Fair Value Measurements,” for additional information with respect to the Company’s derivative instruments.
Revenue Recognition
General. Revenue is recognized upon transfer of control of promised goods to customers at an amount that reflects the consideration the Company expects to receive in exchange for those goods. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. The Company includes shipping and handling costs billed to customers in net sales. These costs are recognized as a component of selling, general and administrative expenses. See Note 17, “Segments,” for information regarding disaggregation of revenue, including revenue by product and by geographic area.
Performance Obligations. The Company satisfies its performance obligations at a point in time, which is upon delivery of products. The Company’s payment terms vary by the type and location of its customers. The amount of time between point of sale and when payment is due is not significant and the Company has determined its contracts do not include a significant financing component.
The Company’s contracts with customers involve performance obligations that are one year or less. Therefore, the Company applied the standard’s optional exemption that permits the omission of information about its unfulfilled performance obligations as of the balance sheet dates.
Significant Judgments. The Company’s contracts may include terms that could cause variability in the transaction price, including customer rebates, returns and cash discounts for prompt payment. Variable consideration is estimated and included in the transaction price based on the expected value method. These estimates are based on historical experience, anticipated performance and other factors known at the time. The Company only includes estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved.
Cost of Sales
Cost of sales reflects the direct cost of goods purchased from third parties, rebates earned from vendors, adjustments for inventory reserves and the cost of inbound freight.
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Vendor Rebates
Typical arrangements with vendors provide for the Company to receive a rebate of a specified amount after it achieves any of a number of measures generally related to the volume of our purchases over a period of time. The Company records these rebates to effectively reduce its cost of sales in the period in which the Company sells the product. Throughout the year, the Company estimates the amount of rebates receivable for the periodic programs based upon the expected level of purchases. The Company accrues for the receipt of vendor rebates based on purchases and reduces inventory to reflect the deferral of cost of sales.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include expenses related to the delivery and warehousing of the Company's products, as well as employee compensation and benefits expenses for employees in the Company's branches and yard support center, as well as other administrative expenses, such as legal, accounting and information technology costs. Selling, general and administrative expenses included delivery expenses of $275.0 million, $232.8 million and $243.0 million during the years ended April 30, 2022, 2021 and 2020, respectively.
Advertising Expense
The cost of advertising is expensed as incurred and included in selling, general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income (Loss). Advertising expense was $4.2 million, $2.3 million and $3.3 million during the years ended April 30, 2022, 2021 and 2020, respectively.
Equity-Based Compensation
As of April 30, 2022, the Company had various stock-based compensation plans, which are more fully described in Note 12, “Equity-Based Compensation.” The Company measures compensation cost for all share-based awards at fair value on the grant date (or measurement date if different) and recognizes compensation expense, net of estimated forfeitures, over the requisite service period for awards expected to vest. The Company estimates the fair value of stock options using the Black-Scholes valuation model and determines the fair value of restricted stock units based on the quoted price of GMS’s common stock on the date of grant. The Company estimates forfeitures based on historical analysis of actual forfeitures and employee turnover. Actual forfeitures are recorded when incurred and estimated forfeitures are reviewed at least annually.
Income Taxes
Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized based on the difference between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Inherent in the measurement of deferred balances are certain judgments and interpretations of existing tax law and published guidance as applicable to our operations.
The Company evaluates its deferred tax assets to determine if valuation allowances are required. In assessing the realizability of deferred tax assets, we consider both positive and negative evidence in determining whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The primary negative evidence considered includes the cumulative operating losses generated in prior periods. The primary positive evidence considered includes the reversal of deferred tax liabilities related to depreciation and amortization that would occur within the same jurisdiction and during the carry-forward period necessary to absorb the federal and state net operating losses and other deferred tax assets. The reversal of such liabilities supports the realizability of the federal and state net operating losses and other deferred tax assets.
The Company records amounts for uncertain tax positions that management believes are supportable but are potentially subject to successful challenge by the applicable taxing authority. Consequently, changes in our assumptions and judgments could materially affect amounts recognized related to income tax uncertainties and may affect our results of operations or financial position. We believe our assumptions for estimates are reasonable, although actual results may have a positive or negative material impact on the balances of such tax positions. Historically, the variation of estimates to actual results is not significant and material variation is not expected in the future.
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Concentrations of Risk
COVID-19 Pandemic. The Company continues to monitor the COVID-19 pandemic and its impact on the Company's financial condition, results of operations and cash flows. The Company will continue to implement, as deemed necessary or advisable, procedures and processes to protect the health and safety of its employees, customers, partners and suppliers. While the COVID-19 pandemic had a limited impact on the Company's financial results and operations during the year ended April 30, 2022, there is no guarantee that the COVID-19 pandemic or its contributory effects will not have a material impact on future financial results or operations.
Credit Risk. Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents and trade accounts and notes receivable. The Company assesses the credit standing of counterparties as considered necessary. The Company routinely assesses the financial strength of its customers and generally does not require collateral. Concentrations of credit risk with respect to trade accounts receivable are limited due to the substantial number of geographically diverse customers comprising the Company’s customer base. Additionally, the Company maintains allowances for expected credit losses. The Company does not enter into financial instruments for trading or speculative purposes. As of April 30, 2022 and 2021, no customer accounted for more than 10% of gross accounts receivable.
Supply Risk. The Company purchases most of its inventories from a select group of vendors. Without these vendors, the Company’s ability to acquire inventory would be significantly impaired.
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Authoritative guidance for fair value measurements establishes a three-level hierarchy that prioritizes the inputs to valuation models based upon the degree to which they are observable. The three levels of the fair value measurement hierarchy are as follows:
Level 1Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.
Level 2Inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3Inputs are unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.
The carrying values of the Company’s cash, cash equivalents, trade receivables and trade payables approximate their fair values because of their short-term nature. Based on borrowing rates available to the Company for loans with similar terms, the carrying values of the Company’s variable rate debt instruments approximate fair value. See Note 14, “Fair Value Measurements,” for additional information with respect to the Company’s fair value measurements.
Earnings Per Share
Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of outstanding shares of common stock for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock, including stock options and restricted stock units (collectively “Common Stock Equivalents”), were exercised or converted into common stock. The dilutive effect of outstanding stock options and restricted stock units is reflected in diluted earnings per share by application of the treasury stock method. In applying the treasury stock method for stock-based compensation arrangements, the assumed proceeds are computed as the sum of the amount the employee must pay upon exercise and the amount of compensation cost attributed to future services and not yet recognized. Diluted earnings per share is computed by increasing the weighted-average number of outstanding shares of common stock computed in basic earnings per share to include the dilutive effect of Common Stock Equivalents for the period. In periods of net loss, the number of shares used to calculate diluted loss per share is the same as basic net loss per share.
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
The holders of the Company’s Exchangeable Shares (as defined in Note 11, “Stockholders’ Equity”) were entitled to receive dividends or distributions that were equal to any dividends or distributions on the Company’s common stock. As a result, when the Exchangeable Shares were outstanding during the year ended April 30, 2020, they were classified as a participating security and thereby required the allocation of income that would have otherwise been available to common stockholders when calculating earnings per share. Diluted earnings per share for the year ended April 30, 2020 was calculated by utilizing the most dilutive result of the if-converted and two-class methods. In both methods, net income attributable to common stockholders and the weighted-average common shares outstanding are adjusted to account for the impact of the assumed issuance of potential common shares that are dilutive, subject to dilution sequencing rules.
Recently Issued Accounting Pronouncements
Reference Rate Reform – In March 2020, the Financial Accounting Standards Board (“FASB”) issued new guidance to temporarily ease the potential burden in accounting for reference rate reform. The guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rates that are expected to be discontinued, such as the London Interbank Offered Rate (“LIBOR”). The guidance was effective upon issuance and generally can be applied through December 31, 2022. However, the new guidance is not applicable to contract modifications made, and hedging relationships entered into or evaluated after, December 31, 2022. The Company will adopt this guidance when its relevant contracts are modified to alternative reference rates. The Company does not expect the adoption to have a material impact on its consolidated financial statements.
Business Combinations – In October 2021, the FASB issued new guidance which requires the recognition and measurement of contract assets and contract liabilities acquired in a business combination in accordance with Accounting Standards Code 606, "Revenue from Contracts with Customers." This creates an exception to the general recognition and measurement principles in existing business combination guidance. The new guidance is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The amendments in this new guidance should be applied prospectively to business combinations occurring on or after the effective date of the amendments. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
2. Business Combinations
The Company accounts for business combinations by recognizing the assets acquired and liabilities assumed at the acquisition date fair value. In valuing certain acquired assets and liabilities, fair value estimates use Level 3 inputs, including future expected cash flows and discount rates. Goodwill is measured as the excess of consideration transferred over the fair values of the assets acquired and the liabilities assumed. While the Company uses its best estimates and assumptions to value assets acquired and liabilities assumed at the acquisition date, the Company’s estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments arising from new facts and circumstances are recorded to the Consolidated Statements of Operations and Comprehensive Income (Loss). The results of operations of acquisitions are reflected in the Company’s Consolidated Financial Statements from the date of acquisition. The Company's Consolidated Statement of Operations and Comprehensive Income for the year ended April 30, 2022 included $237.9 million of net sales and $4.6 million of net income from acquisitions made in fiscal 2022. The Company recorded transaction cost of $3.5 million, $1.1 million and $2.4 million during the years ended April 30, 2022, 2021 and 2020, respectively.
Fiscal 2022 Acquisitions
Westside Acquisition
On July 1, 2021, the Company acquired substantially all the assets of Westside Building Material (“Westside”), one of the largest independent distributors of interior building products in the U.S., for preliminary consideration of $140.1 million. Westside is a leading supplier of steel framing, wallboard, ceilings, insulation and complementary building products serving commercial and residential markets. Westside’s distribution network comprises ten locations, including nine across California (Anaheim, Hesperia, Oakland, Chatsworth, Fresno, Lancaster, Santa Maria, San Diego and National City) and one in Las Vegas, Nevada. The acquisition was funded with cash on hand and borrowings under the Company's asset based revolving credit facility. The primary purpose of the transaction was to expand the geographical coverage of the Company and grow the business.
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
The assets acquired and liabilities assumed were recognized at their acquisition date fair values. The acquisition accounting is subject to change as the Company obtains additional information during the measurement period about the facts and circumstances that existed as of the acquisition date. The primary area of the preliminary acquisition accounting that is not yet finalized relates to settlement of the holdback liability.
The following table summarizes the components of the preliminary consideration:
| | | | | |
| (in thousands) |
Cash consideration | $ | 126,608 | |
Holdback liability | 13,500 | |
Total preliminary consideration transferred | $ | 140,108 | |
Included in the total preliminary consideration as of April 30, 2022 is a $13.5 million holdback liability for general representations and warranties of the sellers that is scheduled to be settled 15 months after the acquisition date.
The following table summarizes the preliminary acquisition accounting for this acquisition, and subsequent measurement period adjustments recorded, based on currently available information:
| | | | | | | | | | | | | | | | | |
| Initial Acquisition Accounting | | Adjustments | | Updated Acquisition Accounting |
| (in thousands) |
Trade accounts and notes receivable | $ | 27,081 | | | $ | (799) | | | $ | 26,282 | |
Inventories | 28,900 | | | (145) | | | 28,755 | |
Prepaid and other current assets | 228 | | | — | | | 228 | |
Property and equipment | 16,687 | | | — | | | 16,687 | |
Operating lease right-of-use assets | 20,782 | | | — | | | 20,782 | |
Customer relationships | 51,500 | | | — | | | 51,500 | |
Tradenames | 11,300 | | | — | | | 11,300 | |
Goodwill | 13,351 | | | 1,363 | | | 14,714 | |
Accounts payable and accrued expenses | (14,375) | | | 54 | | | (14,321) | |
Operating lease liabilities | (15,819) | | | — | | | (15,819) | |
Fair value of consideration transferred | $ | 139,635 | | | $ | 473 | | | $ | 140,108 | |
Goodwill recognized is attributable to synergies achieved through the streamlining of operations combined with improved margins attainable through increased market presence and is attributable to the Company's geographic divisions reportable segment. Goodwill is expected to be deductible for U.S. federal income tax purposes. The estimated useful life for the customer relationships is 12 years and the estimated useful life for the tradenames is 15 years.
Trade accounts and notes receivable had an estimated fair value of $26.3 million and a gross contractual value of $26.4 million. The difference represents the Company’s best estimate of the contractual cash flows that will not be collected.
Ames Acquisition
On December 1, 2021, the Company acquired Ames Taping Tools Holding LLC (“Ames”) for preliminary consideration of $226.7 million in cash. Ames is the leading provider of automatic taping and finishing (“ATF”) tools and related products to the professional drywall finishing industry. Ames operates nearly 100 retail locations servicing professionals in the interior finishing market. The acquisition was primarily funded with borrowings under the Company's asset based revolving credit facility. The primary purpose of the transaction was to expand the Company's complementary product offerings and grow the business.
The assets acquired and liabilities assumed were recognized at their acquisition date fair values. The acquisition accounting is subject to change as the Company obtains additional information during the measurement period about the facts and circumstances that existed as of the acquisition date. The primary areas of the preliminary acquisition accounting that are
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
not yet finalized relate to the finalization of working capital adjustments and residual goodwill.
The following table summarizes the preliminary acquisition accounting for this acquisition, and subsequent measurement period adjustments recorded, based on currently available information:
| | | | | | | | | | | | | | | | | |
| Initial Acquisition Accounting | | Adjustments | | Updated Acquisition Accounting |
| (in thousands) |
Cash and cash equivalents | $ | 10,692 | | | $ | — | | | $ | 10,692 | |
Trade accounts and notes receivable | 9,955 | | | (54) | | | 9,901 | |
Inventories | 15,464 | | | 870 | | | 16,334 | |
Prepaid and other current assets | 1,941 | | | — | | | 1,941 | |
Property and equipment | 6,165 | | | — | | | 6,165 | |
Operating lease right-of-use assets | 8,238 | | | (235) | | | 8,003 | |
Customer relationships | 63,000 | | | (3,000) | | | 60,000 | |
Tradenames | 53,000 | | | (4,000) | | | 49,000 | |
Patents | 3,000 | | | — | | | 3,000 | |
Goodwill | 104,557 | | | 3,383 | | | 107,940 | |
Accounts payable and accrued expenses | (14,827) | | | 3,170 | | | (11,657) | |
Deferred tax liability | (28,440) | | | 1,794 | | | (26,646) | |
Operating lease liabilities | (8,238) | | | 235 | | | (8,003) | |
Fair value of consideration transferred | $ | 224,507 | | | $ | 2,163 | | | $ | 226,670 | |
Goodwill recognized is attributable to expected synergies and the expected value in the potential to expand and enhance the Company's complementary product offerings and is attributable to the Company's other reportable segment. Goodwill is not expected to be deductible for U.S. federal income tax purposes. The estimated useful life for the customer relationships is 11 years and the estimated useful life for the patents is 10 years. Tradenames valued at $26.0 million have an estimated useful life of 15 years and tradenames valued at $23.0 million are expected to have an indefinite useful life.
Trade accounts and notes receivable had an estimated fair value of $9.9 million and a gross contractual value of $11.6 million. The difference represents the Company’s best estimate of the contractual cash flows that will not be collected.
Pro Forma Financial Information
The following table presents the unaudited pro forma consolidated net sales and net income for the Company for the periods indicated:
| | | | | | | | | | | |
| Year Ended April 30, |
| 2022 | | 2021 |
| (in thousands) |
Net sales | $ | 4,718,531 | | | $ | 3,579,882 | |
Net income | 281,151 | | | 113,478 | |
The above pro forma results have been calculated by combining the historical results of the Company, Westside and Ames as if the acquisitions of Westside and Ames had occurred on May 1, 2020, the first day of the comparable prior reporting period. The pro forma results include estimates for intangible asset amortization, depreciation, interest expense and income taxes, and are subject to change once final asset values have been determined. The pro forma information is not necessarily indicative of the results that would have been achieved had the transactions occurred on the first day of each of the periods presented or that may be achieved in the future.
Other Acquisitions
On June 3, 2021, the Company acquired the assets of Architectural Coatings Distributors, Inc. (“Architectural Coating”). Architectural Coating is an interior building products distributor in Cleveland, Ohio. On August 2, 2021, the
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Company acquired certain assets of DK&B Construction Specialties, Inc. (“DK&B”). DK&B is a distributor of External Insulation and Finishing Systems (“EIFS”) and stucco products through one location in Omaha, Nebraska. On December 1, 2021, the Company acquired the assets of Kimco Supply Company (“Kimco”). Kimco sells building and construction supplies through two locations in the Tampa, Florida area. The impact of these acquisitions is not material to the Company’s Consolidated Financial Statements.
Fiscal 2021 Acquisition
On February 1, 2021, the Company acquired 100% of the outstanding stock of D.L. Building Materials Inc. (“D.L. Building Materials”) for consideration of approximately $38.9 million ($49.9 million Canadian dollars). D.L. Building Materials distributes wallboard, acoustical ceilings, steel framing, insulation and related building products in the Eastern Ontario and Western Quebec markets through two locations in Gatineau, Quebec and Kingston, Ontario.
The assets acquired and liabilities assumed were recognized at their acquisition date fair values. The following table summarizes the acquisition accounting:
| | | | | | | | | | | | | | | | | |
| Preliminary Acquisition Accounting | | Adjustments | | Final Acquisition Accounting |
| (in thousands) |
Cash | $ | 4,179 | | | $ | — | | | $ | 4,179 | |
Trade accounts and notes receivable | 8,325 | | | (24) | | | 8,301 | |
Inventories | 5,075 | | | (8) | | | 5,067 | |
Prepaid and other current assets | 675 | | | — | | | 675 | |
Property and equipment | 2,721 | | | — | | | 2,721 | |
Operating lease right-of-use assets | 1,103 | | | — | | | 1,103 | |
Customer relationships | 20,926 | | | (476) | | | 20,450 | |
Tradenames | 2,498 | | | — | | | 2,498 | |
Goodwill | 9,084 | | | — | | | 9,084 | |
Liabilities assumed | (12,282) | | | (45) | | | (12,327) | |
Deferred income taxes | (2,830) | | | — | | | (2,830) | |
Fair value of consideration transferred | $ | 39,474 | | | $ | (553) | | | $ | 38,921 | |
Goodwill recognized is attributable to synergies achieved through the streamlining of operations combined with improved margins attainable through increased market presence and is all attributable to the Company's geographic divisions reportable segment. Goodwill is not deductible for U.S. federal income tax purposes. The pro forma impact of this acquisition is not presented as it is not considered material to the Company's Consolidated Financial Statements.
Fiscal 2020 Acquisitions
In fiscal 2020, the Company completed the following acquisitions, with an aggregate purchase price of $24.9 million of cash consideration. The purpose of these acquisitions was to expand the geographical coverage of the Company and grow the business.
| | | | | | | | | | | | | | |
Company Name | | Form of Acquisition | | Date of Acquisition |
J.P. Hart Lumber Company | | Purchase of net assets | | June 3, 2019 |
Rigney Building Supplies Ltd. | | Purchase of 100% of outstanding common stock | | November 1, 2019 |
Trowel Trades Supply, Inc. | | Purchase of net assets | | February 1, 2020 |
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
3. Accounts Receivable
The Company’s trade accounts and notes receivable consisted of the following:
| | | | | | | | | | | |
| April 30, |
| 2022 | | 2021 |
| (in thousands) |
Trade receivables | $ | 675,724 | | | $ | 488,002 | |
Other receivables | 83,668 | | | 76,941 | |
Allowance for expected credit losses | (5,087) | | | (3,254) | |
Other allowances | (4,259) | | | (3,028) | |
Trade accounts and notes receivable | $ | 750,046 | | | $ | 558,661 | |
The following table presents the change in the allowance for expected credit losses during the year ended April 30, 2022:
| | | | | |
| (in thousands) |
Balance as of April 30, 2021 | $ | 3,254 | |
Provision | 1,588 | |
Other | 245 | |
Balance as of April 30, 2022 | $ | 5,087 | |
Receivables from contracts with customers, net of allowances, were $666.4 million and $481.7 million as of April 30, 2022 and 2021, respectively. The Company did not have material amounts of contract assets or liabilities as of April 30, 2022 or 2021.
4. Property and Equipment
The Company’s property and equipment consisted of the following:
| | | | | | | | | | | |
| April 30, |
| 2022 | | 2021 |
| (in thousands) |
Land | $ | 62,185 | | | $ | 56,841 | |
Buildings and leasehold improvements | 130,824 | | | 120,616 | |
Machinery and equipment | 381,090 | | | 324,375 | |
Construction in progress | 3,868 | | | 2,858 | |
Total property and equipment | 577,967 | | | 504,690 | |
Less: accumulated depreciation and amortization | 227,288 | | | 193,364 | |
Total property and equipment, net of accumulated depreciation | $ | 350,679 | | | $ | 311,326 | |
Depreciation expense for property and equipment, which includes amortization of property under finance leases, was $55.4 million, $50.5 million and $51.3 million during the years ended April 30, 2022, 2021 and 2020, respectively.
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
5. Goodwill and Intangible Assets
Goodwill
The following table presents changes in the carrying amount of goodwill:
| | | | | | | | | | | | | | | | | |
| Gross | | Accumulated | | Net |
| Carrying Amount | | Impairment Loss | | Carrying Amount |
| (in thousands) |
Balance as of April 30, 2021 | $ | 645,377 | | | $ | (69,047) | | | $ | 576,330 | |
Goodwill recognized from acquisitions | 125,842 | | | — | | | 125,842 | |
Acquisition accounting adjustments | (476) | | | — | | | (476) | |
Translation adjustment | (8,319) | | | 2,520 | | | (5,799) | |
Balance as of April 30, 2022 | $ | 762,424 | | | $ | (66,527) | | | $ | 695,897 | |
Goodwill recognized from acquisitions includes $107.9 million assigned to the Company's other segment. All other goodwill relates to the Company's geographic divisions reportable segment.
In connection with the Company's annual goodwill impairment test during the fourth quarter of fiscal 2022, the Company performed a qualitative assessment of the carrying value of its goodwill. This assessment took into consideration changes in the broader economy, the Company's industry and the Company's business since the last quantitative impairment test. Based on the Company's assessment, the Company concluded there was no impairment of goodwill. The Company identified nine reporting units for evaluating goodwill for the fiscal 2022 annual impairment test, which were Central, Midwest, Northeast, Southern, Southeast, Southwest, Western, Canada and Ames. Each of these reporting units constitutes a business for which discrete financial information is available and segment management regularly reviews the operating results. The Company evaluates its reporting units on an annual basis.
When the Company performs a quantitative test, the Company estimates the fair values of its reporting units based on weighting of the income and market approaches. These models use significant unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy. Under the income approach, the Company calculates the fair value of the reporting unit based on the present value of estimated cash flows using a discounted cash flow method. The significant assumptions used in the discounted cash flow method include internal forecasts and projections developed by management for planning purposes, available industry/market data, discount rates and the growth rate to calculate the terminal value. Under the market approach, the fair value is estimated using the guideline company method. The Company selects guideline companies in the industry in which each reporting unit operates. The Company primarily uses revenue and EBITDA multiples based on the multiples of the selected guideline companies.
The Company recognized a $63.1 million non-cash impairment charge to write off goodwill related to its Canada reporting unit in conjunction with its annual goodwill impairment test performed in the fourth quarter of fiscal 2020. This charge was included in impairment of goodwill in the Consolidated Statement of Operations and Comprehensive Income (Loss) for the year ended April 30, 2020. The Company’s annual impairment test during the fourth quarter of fiscal 2020 indicated the estimated fair values of its other reporting units exceeded their carrying values. The primary factors contributing to the impairment was an increase in the discount rate and a decrease in market multiples, combined with a decrease in the reporting unit’s forecasted near-term cash flows, primarily resulting from COVID-19 driven economic uncertainty. The impairment charge was equal to the excess of the reporting unit’s carrying value over its fair value. The Company's annual impairment tests during the fourth quarters of fiscal 2022 and 2021 indicated that the fair value of the Company’s reporting units exceeded their carrying values. As of April 30, 2022, the Company had $138.3 million of remaining goodwill related to its Canada reporting unit.
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Intangible Assets
The following tables present the components of the Company’s definite-lived intangible assets:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Estimated Useful Lives (years) | | Weighted Average Amortization Period | | April 30, 2022 |
| | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Value |
| (dollars in thousands) |
Customer relationships | 5 - 16 | | 12.5 | | $ | 669,018 | | | $ | (381,650) | | | $ | 287,368 | |
Definite-lived tradenames | 5 - 20 | | 15.6 | | 97,453 | | | (19,496) | | | 77,957 | |
Vendor agreements | 8 - 10 | | 10.0 | | 1,000 | | | (475) | | | 525 | |
Developed technology | 5 - 10 | | 6.8 | | 8,471 | | | (4,462) | | | 4,009 | |
Other | 3 - 5 | | 3.6 | | 1,761 | | | (1,240) | | | 521 | |
Definite-lived intangible assets | | | | | $ | 777,703 | | | $ | (407,323) | | | $ | 370,380 | |
Indefinite-lived intangible assets | | | | | | | | | 84,367 | |
Total intangible assets, net | | | | | | | | | $ | 454,747 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Estimated Useful Lives (years) | | Weighted Average Amortization Period | | April 30, 2021 |
| | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Value |
| (dollars in thousands) |
Customer relationships | 5 - 16 | | 13.3 | | $ | 569,255 | | | $ | (330,880) | | | $ | 238,375 | |
Definite-lived tradenames | 5 - 20 | | 16.8 | | 62,084 | | | (14,842) | | | 47,242 | |
Vendor agreements | 8 - 10 | | 8.3 | | 6,644 | | | (5,372) | | | 1,272 | |
Developed technology | 5 | | 4.9 | | 5,699 | | | (3,381) | | | 2,318 | |
Other | 3 - 5 | | 3.3 | | 4,291 | | | (3,996) | | | 295 | |
Definite-lived intangible assets | | | | | $ | 647,973 | | | $ | (358,471) | | | $ | 289,502 | |
Indefinite-lived intangible assets | | | | | | | | | 61,367 | |
Total intangible assets, net | | | | | | | | | $ | 350,869 | |
The Company’s indefinite-lived intangible assets, other than goodwill, consist of tradenames that had a carrying amount of $84.4 million and $61.4 million as of April 30, 2022 and 2021, respectively. In connection with the Company's annual impairment test during the fourth quarter of fiscal 2022, the Company performed a qualitative assessment of the carrying value of its indefinite-lived intangible assets similar to the goodwill assessment described above. Based on the Company's assessment, the Company concluded there was no impairment of its indefinite-lived intangible assets.
Definite-lived intangible assets are amortized over their estimated useful lives. The Company amortizes its customer relationships using an accelerated method to match the estimated cash flow generated by such assets and amortizes its other definite-lived intangibles using the straight-line method because a pattern to which the expected benefits will be consumed or otherwise used up could not be reliably determined. Amortization expense related to definite-lived intangible assets was $63.8 million, $57.6 million and $65.2 million during the years ended April 30, 2022, 2021 and 2020, respectively, and is recorded in depreciation and amortization expense in the Consolidated Statements of Operations and Comprehensive Income (Loss).
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
The following table summarizes the estimated future amortization expense for definite-lived intangible assets. Actual amortization expense to be reported in future periods could differ materially from these estimates as a result of acquisitions, changes in useful lives, foreign currency exchange rate fluctuations and other relevant factors.
| | | | | |
Year Ending April 30, | (in thousands) |
2023 | $ | 66,574 | |
2024 | 55,679 | |
2025 | 46,644 | |
2026 | 39,412 | |
2027 | 34,300 | |
Thereafter | 127,771 | |
Total | $ | 370,380 | |
6. Other Accrued Expenses and Current Liabilities
The Company’s other accrued expenses and current liabilities consisted of the following:
| | | | | | | | | | | |
| April 30, |
2022 | | 2021 |
(in thousands) |
Insurance related liabilities | $ | 14,775 | | | $ | 14,301 | |
Customer rebates payable | 16,724 | | | 12,723 | |
Sales taxes payable | 16,702 | | | 11,529 | |
Income taxes payable | 7,125 | | | 5,928 | |
Holdback liability(a) | 14,179 | | | — | |
Reserve for sales returns | 9,772 | | | 6,028 | |
Accrued interest(b) | 8,953 | | | 881 | |
Derivative liability(c) | 1,136 | | | 11,817 | |
Other | 38,572 | | | 23,931 | |
Total other accrued expenses and current liabilities | $ | 127,938 | | | $ | 87,138 | |
___________________________________
(a)The holdback liability as of April 30, 2022 primarily consists of a holdback liability for general representation and warranties of the sellers for the Westside acquisition that is scheduled to be released 15 months from the acquisition date. See Note 2, “Business Combinations,” for more information.
(b)Accrued interest as of April 30, 2022 primarily consists of accrued interest on the Company's senior unsecured notes issued in April 2021, in which interest is paid semi-annually in arrears on May 1 and November 1. See Note 7, “Long-Term Debt,” for more information.
(c)Derivative liability represents the current portion of the fair value of the Company's interest rate swap agreements. The amount decreased due to an increase in interest rates and due to the agreements approaching the February 2023 termination date. See Note 14, “Fair Value Measurements,” for more information.
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
7. Long-Term Debt
The Company’s long-term debt consisted of the following:
| | | | | | | | | | | |
| April 30, |
| 2022 | | 2021 |
| (in thousands) |
Term Loan Facility | $ | 504,613 | | | $ | 509,722 | |
Unamortized discount and deferred financing costs on Term Loan Facility | (3,581) | | | (4,735) | |
ABL Facility | 211,134 | | | — | |
Senior Notes | 350,000 | | | 350,000 | |
Unamortized discount and deferred financing costs on Senior Notes | (4,836) | | | (5,485) | |
Finance lease obligations | 120,138 | | | 117,948 | |
Installment notes at fixed rates up to 5.0%, due in monthly and annual installments through 2025 | 7,086 | | | 11,716 | |
Unamortized discount on installment notes | (364) | | | (739) | |
Carrying value of debt | 1,184,190 | | | 978,427 | |
Less current portion | 47,605 | | | 46,018 | |
Long-term debt | $ | 1,136,585 | | | $ | 932,409 | |
Term Loan Facility
The Company’s wholly owned subsidiaries, GYP Holdings II Corp., as parent guarantor (in such capacity, “Holdings”), and GYP Holdings III Corp., as borrower (in such capacity, the “Borrower” and, together with Holdings and the Subsidiary Guarantors (as defined below), the “Loan Parties”), have a senior secured first lien term loan facility (the “Term Loan Facility”). The Term Loan Facility permits the Borrower to add one or more incremental term loans up to a fixed amount of $100.0 million plus a certain amount depending on a secured first lien leverage ratio test included in the Term Loan Facility. The Company is required to make scheduled quarterly payments of $1.3 million, or 0.25% of the aggregate principal amount of the Term Loan Facility, with the balance due June 1, 2025. Provided that the individual affected lenders agree accordingly, the maturities of the Term Loan Facility may, upon the Borrower’s request and without the consent of any other lender, be extended. GYP Holdings II Corp., the sole entity between borrower and financial reporting entity, is a holding company with no other operations, assets, liabilities or cash flows other than through its ownership of the Borrower and its operating subsidiaries. As of April 30, 2022, the applicable rate of interest was 3.26%.
On September 30, 2019, the Company made a $50.0 million prepayment of outstanding principal amount of its Term Loan Facility. On March 6, 2020, the Company made an additional $50.0 million prepayment of outstanding principal amount of its Term Loan Facility. The Company recorded total write-offs of debt discount and deferred financing fees of $1.3 million, which is included in write-off of discount and deferred financing fees in the Consolidated Statement of Operations and Comprehensive Income (Loss) for the year ended April 30, 2020.
On April 22, 2021, the Company entered into the Fourth Amendment to its First Lien Credit Agreement (the “Fourth Amendment”) that, among other things, reduced the applicable interest rate to LIBOR plus 2.50%, with a 0% floor. The Company used net proceeds from the issuance of senior unsecured notes due May 2029 (the "Senior Notes") on April 22, 2021 to repay a portion of outstanding borrowings under the Company's Term Loan Facility. The Company recorded a write-off of debt discount and deferred financing fees of $4.6 million, which is included in write-off of debt discount and deferred financing fees in the Consolidated Statement of Operations and Comprehensive Income for the year ended April 30, 2021.
Asset Based Lending Facility
The Company has an asset based lending facility ("ABL Facility") that provides for aggregate revolving commitments of $545.0 million. GYP Holdings III Corp. is the lead borrower (in such capacity, the “Lead Borrower”). Extensions of credit under the ABL Facility are limited by a borrowing base calculated periodically based on specified percentages of the value of eligible inventory and eligible accounts receivable, subject to certain reserves and other adjustments.
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
On November 30, 2021, the Company amended its ABL Facility to, among other things, increase the commitments thereunder by $100.0 million from $445.0 million to $545.0 million and change the interest rate provisions from LIBOR to Secured Overnight Financing Rate ("SOFR").
At the Company’s option, the interest rates applicable to the loans under the ABL Facility are based at SOFR or base rate plus, in each case, an applicable margin. The margins applicable for each elected interest rate are subject to a pricing grid, as defined in the ABL Facility agreement, based on average daily availability for the most recent fiscal quarter. The ABL Facility also contains an unused commitment fee subject to utilization, as included in the ABL Facility agreement. As of April 30, 2022, the applicable base rate of interest was 3.50%.
As of April 30, 2022, the Company had available borrowing capacity of $307.4 million under the ABL Facility. The ABL Facility matures on September 30, 2024 unless the individual affected lenders agree to extend the maturity of their respective loans under the ABL Facility upon the Company’s request and without the consent of any other lender. The ABL Facility contains a cross default provision with the Term Loan Facility.
Terms of the ABL Facility and Term Loan Facilities
Collateral
The ABL Facility is collateralized by (a) first priority perfected liens on the following assets of the Loan Parties: (i) accounts receivable; (ii) inventory; (iii) deposit accounts; (iv) cash and cash equivalents; (v) tax refunds and tax payments; (vi) chattel paper; and (vii) documents, instruments, general intangibles, securities accounts, books and records, proceeds and supporting obligations related to each of the foregoing, subject to certain exceptions (collectively, “ABL Priority Collateral”) and (b) second priority perfected liens on the remaining assets of the Loan Parties not constituting ABL Priority Collateral, subject to customary exceptions (collectively, “Term Priority Collateral”) and excluding real property.
The Term Loan Facility is collateralized by (a) first priority liens on the Term Priority Collateral and (b) second priority liens on the ABL Priority Collateral, subject to customary exceptions.
Prepayments
The Term Loan Facility may be prepaid at any time. Under certain circumstances and subject to certain exceptions, the Term Loan Facility will be subject to mandatory prepayments in an amount equal to:
•100% of the net proceeds of certain asset sales and issuances or incurrences of nonpermitted indebtedness; and
•50% of annual excess cash flow for any fiscal year, such percentage to decrease to 25% or 0% depending on the attainment of certain total leverage ratio targets.
As of April 30, 2022, there was no prepayment required related to excess cash flow.
The ABL Facility may be prepaid at the Company’s option at any time without premium or penalty and will be subject to mandatory prepayment if the outstanding ABL Facility exceeds the lesser of the (i) borrowing base and (ii) the aggregate amount of commitments. Mandatory prepayments do not result in a permanent reduction of the lenders’ commitments under the ABL Facility.
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Guarantees
Holdings guarantees the payment obligations under the ABL Facility and the Term Loan Facility. Certain of Holdings’ subsidiaries (i) guarantee the payment obligations under the Term Loan Facility (in such capacity, the “Subsidiary Guarantors”) and (ii) are co-borrowers under the ABL Facility.
Covenants
The ABL Facility contains certain affirmative covenants, including financial and other reporting requirements. The Company was in compliance with all such covenants as of April 30, 2022.
The Term Loan Facility contains a number of covenants that limit the Company’s ability and the ability of the Company’s restricted subsidiaries, as described in the respective credit agreement, to: incur more indebtedness; pay dividends, redeem or repurchase stock or make other distributions; make investments; create restrictions on the ability of our restricted subsidiaries to pay dividends to us or make other intercompany transfers; create liens securing indebtedness; transfer or sell assets; merge or consolidate; enter into certain transactions with our affiliates; and prepay or amend the terms of certain indebtedness. The Company was in compliance with all covenants as of April 30, 2022.
Events of Default
The ABL Facility and Term Loan Facility also provide for customary events of default, including non-payment of principal, interest or fees, violation of covenants, material inaccuracy of representations or warranties, specified cross default to other material indebtedness, certain bankruptcy events, certain ERISA events, material invalidity of guarantees or security interest, material judgments and changes of control.
Senior Notes
On April 22, 2021, the Company issued $350.0 million of Senior Notes in a private offering. Proceeds from the Senior Notes were used to repay a portion of outstanding borrowings under the Company's Term Loan Facility and to pay related transaction fees and expenses. The Senior Notes bear interest at 4.625% per annum and mature on May 1, 2029. Interest is payable semi-annually in arrears on May 1 and November 1.
The Senior Notes are general senior unsecured obligations, rank equally in right of payment with all existing and future senior indebtedness of the Company, including the Term Loan Facility and ABL Facility, and are senior in right of payment to any existing and future subordinated indebtedness of the Company. The Senior Notes and the related guarantees are effectively subordinated to all existing and future secured indebtedness of the Company and the Company’s subsidiaries guaranteeing the notes, including indebtedness under the Term Loan Facility and the ABL Facility, to the extent of the value of the assets securing such indebtedness. The Senior Notes and the related guarantees are structurally subordinated to all of the existing and future indebtedness and other liabilities of the Company’s subsidiaries that do not guarantee the Senior Notes, including the senior secured asset-based revolving credit facility of Titan (the “Canadian Facility”).
The Company may redeem some or all of the Senior Notes at any time on or after May 1, 2024, at the redemption prices set forth in the indenture, plus accrued and unpaid interest up to, but not including, the redemption date. Prior to May 1, 2024, the Company may redeem some or all of the Senior Notes at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, plus the “make-whole” premium set forth in the indenture. The Company may redeem up to 40% of the Senior Notes at any time prior to May 1, 2024, with the proceeds of certain equity offerings at the redemption prices set forth in the Indenture. If the Company sells certain assets or consummates certain change in control transactions, the Company will be required to make an offer to repurchase the Senior Notes.
The indenture contains certain covenants that, among other things, limit the Company’s ability and the ability of its restricted subsidiaries to incur additional indebtedness, make certain dividends, repurchase Company stock or make other distributions, make certain investments, create liens, transfer or sell assets, merge or consolidate, and enter into transactions with the Company’s affiliates. Such covenants are subject to important exceptions and qualifications set forth in the Indenture. The indenture also contains certain customary events of default, including failure to make payments in respect of the principal amount of the Senior Notes, failure to make payments of interest on the Senior Notes when due and payable, failure to comply with certain covenants and agreements and certain events of bankruptcy or insolvency.
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Canadian Revolving Credit Facility
The Company has a Canadian Facility that provides for aggregate revolving commitments of $23.3 million ($30.0 million Canadian dollars), as amended. The Canadian Facility bears interest at the Canadian prime rate plus a marginal rate based on the level determined by the total debt to EBITDA ratio of the Company's Canadian subsidiaries at the end of the most recently completed fiscal quarter or year. During the year ended April 30, 2021, the Company amended the Canadian Facility to, among other things, extend the maturity date and remove the highest pricing level applicable to borrowings under the Canadian Facility. As of April 30, 2022, the Company had available borrowing capacity of $23.3 million under the Canadian Facility. The Canadian Facility matures on January 12, 2026.
Installment Notes
The Company’s installment notes include notes for subsidiary stock repurchases from stockholders, notes for the payout of stock appreciation rights and a note to the seller of an acquired company. See Note 13, “Stock Appreciation Rights, Deferred Compensation and Redeemable Noncontrolling Interests.”
Debt Maturities
As of April 30, 2022, the maturities of existing long-term debt and finance leases were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Term Loan Facility | | ABL Facility | | Senior Notes | | Finance Leases | | Installment Notes | | Total |
Year Ending April 30, | (in thousands) |
2023 | $ | 5,110 | | | $ | — | | | $ | — | | | $ | 38,208 | | | $ | 4,505 | | | $ | 47,823 | |
2024 | 5,110 | | | — | | | — | | | 31,606 | | | 1,881 | | | 38,597 | |
2025 | 5,110 | | | 211,134 | | | — | | | 21,940 | | | 700 | | | 238,884 | |
2026 | 489,283 | | | — | | | — | | | 14,899 | | | — | | | 504,182 | |
2027 | — | | | — | | | — | | | 8,936 | | | — | | | 8,936 | |
Thereafter | — | | | — | | | 350,000 | | | 4,549 | | | — | | | 354,549 | |
| $ | 504,613 | | | $ | 211,134 | | | $ | 350,000 | | | $ | 120,138 | | | $ | 7,086 | | | $ | 1,192,971 | |
8. Leases
The components of lease expense were as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended April 30, |
| 2022 | | 2021 | | 2020 |
| (in thousands) |
Finance lease cost: | | | | | |
Amortization of right-of-use assets | $ | 22,295 | | | $ | 23,769 | | | $ | 24,352 | |
Interest on lease liabilities | 8,179 | | | 11,164 | | | 13,316 | |
Operating lease cost | 47,778 | | | 42,383 | | | 42,846 | |
Variable lease cost | 17,825 | | | 12,914 | | | 12,555 | |
Total lease cost | $ | 96,077 | | | $ | 90,230 | | | $ | 93,069 | |
Operating lease cost, including variable lease cost, is included in selling, general and administrative expenses; amortization of finance ROU assets is included in depreciation and amortization; and interest on finance lease liabilities is included in interest expense in the Consolidated Statements of Operations and Comprehensive Income (Loss).
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Supplemental cash flow information related to leases was as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended April 30, |
| 2022 | | 2021 | | 2020 |
| (in thousands) |
Cash paid for amounts included in the measurement of lease liabilities | | | | | |
Operating cash flows from operating leases | $ | 48,283 | | | $ | 42,876 | | | $ | 42,150 | |
Operating cash flows from finance leases | 8,179 | | | 11,164 | | | 13,316 | |
Financing cash flows from finance leases | 31,365 | | | 30,371 | | | 25,275 | |
Right-of-use assets obtained in exchange for lease obligations | | | | | |
Operating leases(a) | 71,252 | | | 37,513 | | | 38,143 | |
Finance leases | 41,699 | | | 27,400 | | | 50,484 | |
_________________________________________
(a) Includes operating lease right-of-use assets obtained in acquisitions. See Note 2, “Business Combinations” for more information on business combinations.
Other information related to leases was as follows:
| | | | | | | | | | | |
| April 30, |
| 2022 | | 2021 |
| (in thousands) |
Finance leases included in property and equipment | | | |
Property and equipment | $ | 193,380 | | | $ | 176,591 | |
Accumulated depreciation | (57,363) | | | (51,869) | |
Property and equipment, net | $ | 136,017 | | | $ | 124,722 | |
Weighted-average remaining lease term (years) | | | |
Operating leases | 4.6 | | 4.7 |
Finance leases | 3.7 | | 3.5 |
Weighted-average discount rate | | | |
Operating leases | 4.7 | % | | 5.5 | % |
Finance leases | 4.2 | % | | 4.6 | % |
Future minimum lease payments under non-cancellable leases as of April 30, 2022 were as follows:
| | | | | | | | | | | |
| Finance | | Operating |
Year Ending April 30, | (in thousands) |
2023 | $ | 43,734 | | | $ | 44,730 | |
2024 | 34,501 | | | 42,299 | |
2025 | 23,492 | | | 31,526 | |
2026 | 15,718 | | | 20,125 | |
2027 | 9,308 | | | 10,836 | |
Thereafter | 4,688 | | | 18,924 | |
Total lease payments | 131,441 | | | 168,440 | |
Less imputed interest | 11,303 | | | 17,864 | |
Total | $ | 120,138 | | | $ | 150,576 | |
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
9. Retirement Plan
The Company maintains a 401(k) defined contribution retirement plan for its employees. Participants are allowed to choose from a selection of mutual funds to designate how both employer and employee contributions are invested. Under the plan, the Company matches 50% of each employee’s contributions on the first 4% of the employee’s compensation contributed. The Company contributed $6.8 million, $3.2 million and $5.3 million, during the years ended April 30, 2022, 2021 and 2020, respectively. In June 2020, the Company suspended matching contributions under the plan. In January 2021, the Company reinstated its matching contributions.
10. Income Taxes
The following table presents the components of income before taxes for the years ended April 30, 2022, 2021 and 2020:
| | | | | | | | | | | | | | | | | |
| Year Ended April 30, |
2022 | | 2021 | | 2020 |
(in thousands) |
United States | $ | 320,353 | | | $ | 106,059 | | | $ | 106,850 | |
Foreign | 44,466 | | | 31,035 | | | (60,525) | |
Income before taxes | $ | 364,819 | | | $ | 137,094 | | | $ | 46,325 | |
The following table presents the components of income tax expense for the years ended April 30, 2022, 2021 and 2020:
| | | | | | | | | | | | | | | | | |
| Year Ended April 30, |
2022 | | 2021 | | 2020 |
(in thousands) |
Current | | | | | |
Federal | $ | 60,406 | | | $ | 27,171 | | | $ | 12,537 | |
Foreign | 11,995 | | | 9,098 | | | 1,624 | |
State | 19,327 | | | 5,594 | | | 7,857 | |
Total Current | 91,728 | | | 41,863 | | | 22,018 | |
Deferred | | | | | |
Federal | 4,657 | | | (4,653) | | | 8,986 | |
Foreign | (4,216) | | | (5,870) | | | (7,347) | |
State | (792) | | | 194 | | | (713) | |
Total Deferred | (351) | | | (10,329) | | | 926 | |
Total provision for income taxes | $ | 91,377 | | | $ | 31,534 | | | $ | 22,944 | |
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
The following table summarizes the significant differences between the U.S. federal statutory tax rate and the Company’s effective tax rate for financial statement for the years ended April 30, 2022, 2021 and 2020:
| | | | | | | | | | | | | | | | | |
| Year Ended April 30, |
2022 | | 2021 | | 2020 |
(in thousands) |
Federal income taxes at statutory rate | $ | 76,613 | | | $ | 28,793 | | | $ | 9,747 | |
State income taxes, net of federal income tax benefit | 14,730 | | | 4,000 | | | 4,054 | |
Impact of foreign rate differences | (2,827) | | | (1,055) | | | (2,861) | |
Impact of rate difference on impairment of goodwill | — | | | — | | | 7,630 | |
Net change in valuation allowance | 350 | | | 578 | | | 9,070 | |
Equity-based compensation | (1,659) | | | (1,012) | | | (1,196) | |
GILTI | 1,076 | | | 1,911 | | | 704 | |
Financing structure | — | | | (2,315) | | | (5,361) | |
Other | 3,094 | | | 634 | | | 1,157 | |
Total provision for income taxes | $ | 91,377 | | | $ | 31,534 | | | $ | 22,944 | |
The tax effects of temporary differences, which give rise to deferred income taxes as of April 30, 2022 and 2021 are as follows:
| | | | | | | | | | | |
| April 30, |
| 2022 | | 2021 |
Deferred income tax assets: | (in thousands) |
Allowances on accounts and notes receivable | $ | 4,314 | | | $ | 2,617 | |
Accrued payroll and related costs | 3,758 | | | 5,093 | |
Insurance reserves | 4,079 | | | 4,086 | |
Inventory costs | 4,606 | | | 3,252 | |
Deferred compensation | 9,038 | | | 7,892 | |
Equity compensation | 3,253 | | | 2,612 | |
Derivative instrument | 281 | | | 5,083 | |
Acquisition related costs | 1,356 | | | 1,202 | |
Net operating loss carry-forwards | 1,815 | | | 1,591 | |
Disallowed interest expense | 1,330 | | | 974 | |
Investment in partnerships | 26,700 | | | 24,316 | |
Operating lease liability | 37,746 | | | 30,322 | |
Other deferred tax assets, net | 2,359 | | | 1,147 | |
Total deferred income tax assets | 100,635 | | | 90,187 | |
Less: Valuation allowance | (11,719) | | | (11,768) | |
Total deferred income tax assets, net of valuation allowance | 88,916 | | | 78,419 | |
Deferred income tax liabilities: | | | |
Amortization of intangible assets | (43,314) | | | (19,488) | |
Operating lease right-of-use assets | (37,043) | | | (29,493) | |
Depreciation | (37,027) | | | (25,668) | |
Other deferred tax liabilities, net | (451) | | | (783) | |
Total deferred income tax liabilities | (117,835) | | | (75,432) | |
Deferred income tax (liabilities) assets, net | $ | (28,919) | | | $ | 2,987 | |
GILTI. The Company is subject to current tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740 No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary differences expected to
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred. The Company has elected to recognize the tax on GILTI as a period expense in the period the tax is incurred.
As of April 30, 2022, the Company’s assertion has not changed from the year ended April 30, 2021 that it does not intend to permanently reinvest its accumulated earnings in its non-U.S. subsidiaries and will continue to periodically distribute the earnings on an as needed basis. The Company does not anticipate significant tax consequences from any future distributions.
NOLs. During recent tax years, the Company generated certain state net operating loss carry-forwards which are available for use against taxable income in each respective state. The Company had gross state net operating losses available for carry-forward of $28.1 million and $29.7 million as of April 30, 2022 and 2021, respectively, which expire beginning in 2024.
Valuation allowance. Deferred tax assets and liabilities are computed by applying the federal and state income tax rates in effect to the gross amounts of temporary differences and other tax attributes, such as net operating loss carry-forwards. As of each reporting date, the Company considers new evidence, both positive and negative, that could affect the future realization of deferred tax assets. Valuation allowances are established if management believes that it is more likely than not the related tax benefits will not be realized. The valuation allowance as of April 30, 2022 and 2021 primarily relates to a portion of the Titan outside basis difference that was created as a result of the impairment of goodwill recognized during the year ended April 30, 2020 and state tax attribute carry forwards. The net operating loss carryforwards expire from 2024 to 2042.
Uncertain tax positions. The Company recognizes the effect of income tax positions only if those positions are more likely than not to be sustained. The Company’s policy for recording penalties and interest associated with uncertain tax positions is to record such items as a component of selling, general and administrative expense. The Company had no reserve for uncertain tax positions as of April 30, 2022 and 2021.
As of April 30, 2022, the tax years ended April 30, 2019 through 2022 remain subject to examination by the U.S. Internal Revenue Service. As of April 30, 2022, the tax years ended April 30, 2021 and 2022 remain subject to examination by the Barbados Revenue Authority and the tax years ended April 30, 2018 through 2022 remain subject to examination by the Canada Revenue Agency. In states in which the Company conducts business, the statute of limitation periods for examination generally vary from three to four years. Net operating losses dating back to 2008 are still being carried forward and remain subject to examination by the taxing authorities. The Company regularly assesses the potential outcomes of future examinations to ensure the Company’s provision for income taxes is sufficient. The Company recognizes liabilities based on estimates of whether additional taxes will be due and believes that no liability for uncertain tax position is necessary as of April 30, 2022 and 2021.
11. Stockholders’ Equity
Exchangeable Shares
In connection with the acquisition of WSB Titan on June 1, 2018, the Company issued 1.1 million shares of equity that were exchangeable for the Company's common stock ("Exchangeable Shares"). The Exchangeable Shares contained rights that allowed the holders to exchange their Exchangeable Shares for GMS common stock at any time on a one-for-one basis. On June 13, 2019, the holders of the Exchangeable Shares exchanged all the Exchangeable Shares for 1.1 million shares of the Company’s common stock. Following such exchange, the Exchangeable Shares ceased to be outstanding.
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Share Repurchase Program
On November 30, 2018, the Company's Board of Directors authorized a common stock repurchase program to repurchase up to $75.0 million of outstanding common stock. The Company repurchased 715 thousand and 134 thousand shares of its common stock for $35.5 million and $4.2 million during the years ended April 30, 2022 and April 30, 2021, respectively, pursuant to its share repurchase program. The Company did not repurchase any shares of its common stock during the year ended April 30, 2020. The repurchased common stock was retired. As of April 30, 2022, the Company had $18.8 million of remaining repurchase authorization under this share repurchase program.
On June 23, 2022, the Company's Board of Directors approved an expanded share repurchase program under which the Company is authorized to repurchase up to $200.0 million of its outstanding common stock. This expanded program replaces the Company’s previous share repurchase authorization of $75.0 million. The Company may conduct repurchases under the share repurchase program through open market transactions, under trading plans in accordance with SEC Rule 10b5-1 and/or in privately negotiated transactions, in each case in compliance with Rule 10b-18 under the Exchange Act of 1934, as amended. The timing and amount of any purchases of the Company's common stock are subject to a variety of factors, including, but not limited to, the Company’s liquidity, credit availability, general business and market conditions, debt covenants and the availability of alternative investment opportunities. The share repurchase program does not obligate the Company to acquire any particular amount of common stock, and it may be suspended or terminated at any time at the Company’s discretion.
Accumulated Other Comprehensive Income (Loss)
The following table sets forth the changes to accumulated other comprehensive income (loss), net of tax, by component for the years ended April 30, 2022, 2021 and 2020:
| | | | | | | | | | | | | | | | | |
| Foreign Currency Translation | | Derivative Financial Instruments | | Accumulated Other Comprehensive Income (Loss) |
| (in thousands) |
Balance as of April 30, 2019 | $ | (22,320) | | | $ | (4,254) | | | $ | (26,574) | |
Other comprehensive loss before reclassification | (18,257) | | | (22,263) | | | (40,520) | |
Reclassification to earnings from accumulated other comprehensive income (loss) | — | | | 2,012 | | | 2,012 | |
Balance as of April 30, 2020 | (40,577) | | | (24,505) | | | (65,082) | |
Other comprehensive income (loss) before reclassification | 61,341 | | | (311) | | | 61,030 | |
Reclassification to earnings from accumulated other comprehensive income (loss) | — | | | 8,811 | | | 8,811 | |
Balance as of April 30, 2021 | 20,764 | | | (16,005) | | | 4,759 | |
Other comprehensive income (loss) before reclassification | (25,805) | | | 6,127 | | | (19,678) | |
Reclassification to earnings from accumulated other comprehensive income (loss) | — | | | 8,876 | | | 8,876 | |
Balance as of April 30, 2022 | $ | (5,041) | | | $ | (1,002) | | | $ | (6,043) | |
Other comprehensive loss on derivative instruments for the years ended April 30, 2022, 2021 and 2020 is net of tax of $2.0 million, $0.1 million and $6.4 million, respectively. Reclassification to earnings from accumulated other comprehensive income (loss) for the years ended April 30, 2022, 2021 and 2020 is net of tax of $2.9 million, $2.8 million and $0.6 million, respectively.
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
12. Equity-Based Compensation
General
The Company has granted options and restricted stock units to employees and non-employee directors to purchase the Company’s common stock under various stock incentive plans. The plans are administered by a committee of the Board of Directors, which determines the terms of the awards granted. The committee may grant various forms of equity-based incentive compensation, including stock options, stock appreciation rights, restricted stock, restricted stock units and performance awards, among others. Stock options are granted with an exercise price equal to the closing market value of GMS common stock on the date of grant, have a term of ten years, and vest over terms of three to four years from the date of grant. Restricted stock units are granted with various vesting terms that range from one to three years from the date of grant. The Company’s current stock incentive plan provides for the issuance of a maximum of 2.4 million shares, of which 2.0 million shares were still available for grant as of April 30, 2022. The Company intends to use authorized and unissued shares to satisfy share award exercises.
Share-based compensation expense related to stock options and restricted stock units was $10.4 million, $7.9 million and $6.5 million during the years ended April 30, 2022, 2021 and 2020, respectively, and is included in selling, general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income (Loss).
Stock Option Awards
The following table presents stock option activity as of and for the year ended April 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| Number of Options | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life (years) | | Aggregate Intrinsic Value |
| (shares and dollars in thousands) |
Outstanding as of April 30, 2021 | 1,289 | | | $ | 20.86 | | | 6.8 | | $ | 29,465 | |
Options granted | 208 | | | 49.77 | | | | | |
Options exercised | (222) | | | 20.02 | | | | | |
Options forfeited | (30) | | | 29.24 | | | | | |
Outstanding as of April 30, 2022 | 1,245 | | | $ | 25.65 | | | 6.4 | | $ | 28,121 | |
Exercisable as of April 30, 2022 | 732 | | | $ | 20.24 | | | 4.9 | | $ | 20,272 | |
Vested and expected to vest as of April 30, 2022 | 1,241 | | | $ | 25.61 | | | 6.4 | | $ | 28,086 | |
The aggregate intrinsic value represents the excess of the Company’s closing stock price on the last trading day of the period over the weighted average exercise price multiplied by the number of options outstanding, exercisable or expected to vest. Options expected to vest are unvested shares net of expected forfeitures. The total intrinsic value of options exercised during the years ended April 30, 2022, 2021 and 2020 was $7.5 million, $9.9 million and $11.5 million, respectively. As of April 30, 2022, there was $4.5 million of total unrecognized compensation cost related to stock options. That cost is expected to be recognized over a weighted-average period of 1.9 years.
The fair value of stock options granted during the years ended April 30, 2022, 2021 and 2020 was estimated using the Black-Scholes option-pricing model with the following assumptions and resulting weighted average grant date fair value:
| | | | | | | | | | | | | | | | | |
| Year Ended April 30, |
| 2022 | | 2021 | | 2020 |
Volatility | 43.13 | % | | 51.28 | % | | 49.86 | % |
Expected life (years) | 6.0 | | 6.0 | | 6.0 |
Risk-free interest rate | 0.89 | % | | 0.30 | % | | 1.97 | % |
Dividend yield | — | % | | — | % | | — | % |
Grant date fair value | $ | 20.86 | | | $ | 11.13 | | | $ | 10.59 | |
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
The expected volatility was based on historical and implied volatility. The expected life of stock options was based on previous history of exercises. The risk-free rate was based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the stock option. The expected dividend yield was 0% as we have not declared any common stock dividends to date and do not expect to declare common stock dividends in the near future. The fair value of the underlying common stock at the date of grant was determined based on the value of the Company’s closing stock price on the date of the grant.
Restricted Stock Units
The following table presents restricted stock unit activity for the year ended April 30, 2022:
| | | | | | | | | | | |
| Number of Restricted Stock Units | | Weighted Average Exercise Price |
| (shares in thousands) |
Outstanding as of April 30, 2021 | 361 | | | $ | 22.92 | |
Granted | 164 | | | 49.51 | |
Vested | (182) | | | 23.14 | |
Forfeited | (13) | | | 28.62 | |
Outstanding as of April 30, 2022 | 330 | | | $ | 35.83 | |
As of April 30, 2022, there was $6.3 million of total unrecognized compensation cost related to nonvested restricted stock units. That cost is expected to be recognized over a weighted-average period of 1.9 years.
Employee Stock Purchase Plan
The Company has an employee stock purchase plan (“ESPP”) which allows for qualified employees (as defined) to participate in the purchase of shares of the Company’s common stock at a price equal to 90% of the lower of the closing price at the beginning or end of the last day of the purchase period, which is a six-month period ending on December 31 and June 30 of each year. The ESPP authorizes the issuance of a total 2.0 million shares, of which 1.6 million shares were still available for issuance as of April 30, 2022. The Company recognized $0.6 million, $0.5 million and $0.5 million of stock-based compensation expense in during the years ended April 30, 2022, 2021 and 2020, respectively, related to the ESPP.
The following table presents the number of shares of the Company’s common stock purchased under the ESPP and average price per share:
| | | | | | | | | | | | | | | | | |
| Year Ended April 30, |
| 2022 | | 2021 | | 2020 |
| (shares in thousands) |
Number of shares purchased under the ESPP | 70 | | 95 | | 115 |
Average purchase price | $ | 33.19 | | | $ | 21.78 | | | $ | 15.62 | |
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
13. Stock Appreciation Rights, Deferred Compensation and Redeemable Noncontrolling Interests
The following table presents a summary of changes to the liabilities for stock appreciation rights, deferred compensation and redeemable noncontrolling interests:
| | | | | | | | | | | | | | | | | |
| Stock Appreciation Rights | | Deferred Compensation | | Redeemable Noncontrolling Interests |
| (in thousands) |
Balance as of April 30, 2020 | $ | 24,205 | | | $ | 1,660 | | | $ | 8,300 | |
Amounts redeemed | (583) | | | — | | | — | |
Change in fair value | 3,173 | | | 215 | | | 1,073 | |
Balance as of April 30, 2021 | 26,795 | | | 1,875 | | | 9,373 | |
Amounts redeemed | (320) | | | — | | | — | |
Change in fair value | 4,403 | | | 330 | | | 1,653 | |
Balance as of April 30, 2022 | $ | 30,878 | | | $ | 2,205 | | | $ | 11,026 | |
| | | | | |
Classified as current as of April 30, 2021 | $ | 1,305 | | | $ | — | | | $ | — | |
Classified as long-term as of April 30, 2021 | 25,490 | | | 1,875 | | | 9,373 | |
| | | | | |
Classified as current as of April 30, 2022 | $ | 1,532 | | | $ | — | | | $ | — | |
Classified as long-term as of April 30, 2022 | 29,346 | | | 2,205 | | | 11,026 | |
Total expense related to these instruments was $6.4 million, $4.5 million and $2.1 million during the years ended April 30, 2022, 2021 and 2020, respectively, and was included in selling, general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income (Loss). Current and long-term liabilities for stock appreciation rights, deferred compensation and redeemable noncontrolling interests are included in other accrued expenses and liabilities and other liabilities, respectively, in the Condensed Consolidated Balance Sheets.
The Company uses a lognormal binomial method to determine the fair value of stock appreciation rights, deferred compensation and redeemable noncontrolling interests at redemption date. Significant inputs used in this method include volatility rates, a discount rate, the expected time to redemption of the liabilities, historical values of the book equity of certain subsidiaries and market information for comparable entities. The use of these inputs to derive the fair value of the liabilities at a point in time can result in volatility to the financial statements.
Stock Appreciation Rights
Certain subsidiaries have granted stock appreciation rights to certain employees under which payments are dependent on the appreciation in the book value per share, adjusted for certain provisions, of the applicable subsidiary. Settlements of the awards can be made in a combination of cash or installment notes, generally paid over five years, upon a triggering event. As of April 30, 2022, all stock appreciation rights were vested. Liabilities related to these agreements are classified as share-based liability awards and are measured at fair value.
Deferred Compensation
Subsidiaries’ stockholders have entered into other deferred compensation agreements that granted the stockholders a payment based on a percentage in excess of book value, adjusted for certain provisions, upon an occurrence as defined in the related agreements. These instruments are redeemed in cash or installment notes, generally paid in annual installments over the five years following termination of employment. Liabilities related to these agreements are classified as share-based liability awards and are measured at fair value.
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Redeemable Noncontrolling Interests
Noncontrolling interests were issued to certain employees of certain of the Company’s subsidiaries. The noncontrolling interest awards are subject to mandatory redemption on termination of employment for any reason. These instruments are redeemed in cash or installment notes, generally paid in annual installments over the five years following termination of employment. Under the terms of the employee agreements, the redemption value is determined based on the book value of the subsidiary, as adjusted for certain items. Liabilities related to these agreements are classified as share-based liability awards and are measured at fair value.
Upon the termination of employment or other triggering events including death or disability of the noncontrolling stockholders in the Company’s subsidiaries, we have to purchase, or redeem, the noncontrolling interests at either an agreed upon price or a formula value provided in the stockholder agreements. This formula value is typically based on the book value per share of the subsidiary’s equity, including certain adjustments.
14. Fair Value Measurements
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents the estimated carrying amount and fair value of the Company’s liabilities measured at fair value on a recurring basis:
| | | | | | | | | | | |
| April 30, |
| 2022 | | 2021 |
| (in thousands) |
Interest rate swaps (Level 2) | $ | 1,136 | | | $ | 21,004 | |
The Company has interest rate swap agreements with notional amounts totaling $500.0 million to convert the variable interest rate on a portion of its Term Loan Facility to a fixed 1-month LIBOR interest rate of 2.46%. The contracts were effective on February 28, 2019 and terminate on February 28, 2023. The objective of the interest rate swap agreements is to eliminate the variability of interest payment cash flows associated with variable interest rates. The Company believes there have been no material changes in the creditworthiness of the counterparty to this interest rate swap and believes the risk of nonperformance by such party is minimal. The Company designated the interest rate swaps as a cash flow hedges.
As of April 30, 2022, the $1.1 million interest rate swap liability was classified in other accrued expenses and current liabilities in the Condensed Consolidated Balance Sheet. As of April 30, 2021, $11.8 million of the interest rate swap liability was classified in other accrued expenses and current liabilities and $9.2 million was classified in other liabilities in the Condensed Consolidated Balance Sheet. The Company recognized losses, net of tax, of $8.9 million, $8.8 million and $2.0 million in earnings during the years ended April 30, 2022, 2021 and 2020 respectively, related to its interest rate swaps. These losses are included in interest expense in the Consolidated Statements of Operations and Comprehensive Income and within cash flows from operating activities within the Consolidated Statements of Cash Flows. As of April 30, 2022, the Company expects that approximately $1.1 million of pre-tax net losses will be reclassified from accumulated other comprehensive income (loss) into earnings during the next twelve months.
The fair value of interest rate swaps is determined using Level 2 inputs. The Company obtains the Level 2 inputs from its counterparties. Substantially all of the inputs throughout the full term of the instruments can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. The fair value of the Company’s interest rate swap was determined using widely accepted valuation techniques including a discounted cash flow analysis on the expected cash flows of the derivative. This analysis reflected the contractual terms of the derivatives, including the period to maturity, and used observable market-based inputs, including interest rate curves and implied volatilities.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Disclosures are required for certain assets and liabilities that are measured at fair value on a nonrecurring basis in periods after initial recognition. Such measurements of fair value relate primarily to assets and liabilities measured at fair value in connection with business combinations and asset impairments. For more information on business combinations, see Note 2, “Business Combinations.” During the year ended April 30, 2021, the Company recorded a $1.0 million impairment of operating
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
lease ROU assets. During the fourth quarter of 2020, the Company recognized a $63.1 million non-cash impairment charge to goodwill related to its Canada reporting unit. See Note 5, “Goodwill and Intangible Assets,” for more information regarding the impairment of goodwill and the fair value methodology. Also during the fourth quarter of 2020, the Company initiated a restructuring plan to close one of its facilities and recorded a $1.9 million impairment of the operating lease ROU asset. There were no other material long-lived asset impairments during the years ended April 30, 2022, 2021 or 2020.
Fair Value of Debt
The estimated fair value of the Company’s Senior Notes was determined based on Level 2 input using observable market prices in less active markets. The carrying amount of the Company’s Term Loan Facility and ABL Facility approximates its fair value as the interest rates are variable and reflective of market rates. The following table presents the carrying value and fair value of the Company’s Senior Notes:
| | | | | | | | | | | | | | | | | | | | | | | |
| April 30, 2022 | | April 30, 2021 |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
| (in thousands) |
Senior Notes | $ | 350,000 | | | $ | 310,625 | | | $ | 350,000 | | | $ | 350,000 | |
15. Transactions With Related Parties
The Company purchases inventories from Southern Wall Products, Inc. (“SWP”) on a continuing basis. During the years ended April 30, 2021 and 2020, certain former executive officers and stockholders and certain directors and stockholders of the Company were stockholders of SWP. As of April 30, 2021, these executive officers and directors were no longer with the Company. The Company purchased inventory from SWP for distribution in the amount of $7.3 million and $14.3 million during the years ended April 30, 2021 and 2020, respectively.
16. Commitments and Contingencies
General
The Company is a defendant in various lawsuits and administrative actions associated with personal injuries, claims of former employees, and other events arising in the normal course of business. As discussed in Note 1, “Business, Basis of Presentation and Summary of Significant Accounting Policies” under the heading “Insurance Liabilities,” the Company records liabilities for these claims, as well as assets for amounts recoverable from the insurer, for claims covered by insurance.
Favorable Class Action Settlement
During the years ended April 30, 2021 and 2020, the Company received proceeds as part of a class action settlement against certain drywall manufacturers related to purchases made during calendar years 2012 and 2013. The Company recorded a gain on legal settlement of $1.4 million and $14.0 million during the years ended April 30, 2021 and 2020, respectively.
17. Segments
General
The Company defines operating segments as components of the organization for which discrete financial information is available and operating results are evaluated on a regular basis by the Chief Operating Decision Maker (“CODM”) in order to assess performance and allocate resources. The Company’s CODM is its Chief Executive Officer. The Company has nine operating segments based on the Company’s eight geographic divisions, which are Central, Midwest, Northeast, Southern, Southeast, Southwest, Western and Canada, and Ames. The Company aggregates its eight geographic divisions operating segments into one reportable segment based on similarities between the operating segments’ economic characteristics, nature of products sold, production process, type of customer and methods of distribution. The accounting policies of the operating segments are the same as those described in the summary of significant policies. In addition to the Company’s reportable segment, the Company’s consolidated results include both corporate activities and certain other activities. Corporate includes
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
the Company’s corporate office building and support services provided to its subsidiaries. Other includes Tool Source Warehouse, Inc., which functions primarily as an internal distributor of tools, and Ames.
Segment Results
The CODM assesses the Company’s performance based on the periodic review of net sales, Adjusted EBITDA and certain other measures for each of the operating segments. Adjusted EBITDA is not a recognized financial measure under GAAP. However, we believe it assists investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. Management believes Adjusted EBITDA is helpful in highlighting trends in our operating results, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital investments. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations -- Non-GAAP Financial Measures” for a further discussion of this non-GAAP measure.
The following tables present segment results:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended April 30, 2022 | | April 30, 2022 |
| Net Sales | | Gross Profit | | Depreciation and Amortization | | Adjusted EBITDA | | Total Assets |
| (in thousands) |
Geographic divisions | $ | 4,559,477 | | | $ | 1,451,748 | | | $ | 111,452 | | | $ | 551,200 | | | $ | 2,809,394 | |
Other | 75,398 | | | 36,527 | | | 6,120 | | | 15,721 | | | 290,341 | |
Corporate | — | | | — | | | 1,660 | | | — | | | 4,664 | |
| $ | 4,634,875 | | | $ | 1,488,275 | | | $ | 119,232 | | | $ | 566,921 | | | $ | 3,104,399 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended April 30, 2021 | | April 30, 2021 |
| Net Sales | | Gross Profit | | Depreciation and Amortization | | Adjusted EBITDA | | Total Assets |
| (in thousands) |
Geographic divisions | $ | 3,263,893 | | | $ | 1,051,741 | | | $ | 106,152 | | | $ | 316,774 | | | $ | 2,459,344 | |
Other | 34,930 | | | 10,962 | | | 364 | | | 2,597 | | | 20,339 | |
Corporate | — | | | — | | | 1,609 | | | — | | | 4,215 | |
| $ | 3,298,823 | | | $ | 1,062,703 | | | $ | 108,125 | | | $ | 319,371 | | | $ | 2,483,898 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended April 30, 2020 | | April 30, 2020 |
| Net Sales | | Gross Profit | | Depreciation and Amortization | | Adjusted EBITDA | | Total Assets |
| (in thousands) |
Geographic divisions | $ | 3,213,938 | | | $ | 1,053,555 | | | $ | 114,279 | | | $ | 297,646 | | | $ | 2,299,880 | |
Other | 27,369 | | | 9,659 | | | 233 | | | 2,113 | | | 18,745 | |
Corporate | — | | | — | | | 2,021 | | | — | | | 5,829 | |
| $ | 3,241,307 | | | $ | 1,063,214 | | | $ | 116,533 | | | $ | 299,759 | | | $ | 2,324,454 | |
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
The following table presents a reconciliation of Adjusted EBITDA to net income:
| | | | | | | | | | | | | | | | | |
| Year Ended April 30, |
| 2022 | | 2021 | | 2020 |
| (in thousands) |
Net income | $ | 273,442 | | | $ | 105,560 | | | $ | 23,381 | |
Interest expense | 58,097 | | | 53,786 | | | 67,718 | |
Write-off of debt discount and deferred financing fees | — | | | 4,606 | | | 1,331 | |
Interest income | (163) | | | (86) | | | (88) | |
Provision for income taxes | 91,377 | | | 31,534 | | | 22,944 | |
Depreciation expense | 55,437 | | | 50,480 | | | 51,332 | |
Amortization expense | 63,795 | | | 57,645 | | | 65,201 | |
Impairment of goodwill | — | | | — | | | 63,074 | |
Stock appreciation expense(a) | 4,403 | | | 3,173 | | | 1,572 | |
Redeemable noncontrolling interests(b) | 1,983 | | | 1,288 | | | 520 | |
Equity-based compensation(c) | 10,968 | | | 8,442 | | | 7,060 | |
Severance and other permitted costs(d) | 1,132 | | | 2,948 | | | 5,733 | |
Transaction costs (acquisitions and other)(e) | 3,545 | | | 1,068 | | | 2,414 | |
(Gain) loss on disposal and impairment of assets(f) | (913) | | | (1,011) | | | 658 | |
Effects of fair value adjustments to inventory(g) | 3,818 | | | 788 | | | 575 | |
Gain on legal settlement | — | | | (1,382) | | | (14,029) | |
Secondary public offering costs(h) | — | | | — | | | 363 | |
Debt transaction costs(i) | — | | | 532 | | | — | |
Adjusted EBITDA | $ | 566,921 | | | $ | 319,371 | | | $ | 299,759 | |
__________________________________________
(a)Represents changes in the fair value of stock appreciation rights.
(b)Represents changes in the fair values of noncontrolling interests.
(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 and impairment of assets resulting from restructuring plans to close certain facilities.
(g)Represents the non-cash cost of sales impact of acquisition accounting adjustments to increase inventory to its estimated fair value.
(h)Represents costs paid to third-party advisors related to secondary offerings of our common stock.
(i)Represents costs paid to third-party advisors related to debt refinancing activities.
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Revenues by Product
The following table presents Company’s net sales to external customers by main product line:
| | | | | | | | | | | | | | | | | |
| Year Ended April 30, |
| 2022 | | 2021 | | 2020 |
| (in thousands) |
Wallboard | $ | 1,710,851 | | | $ | 1,346,648 | | | $ | 1,329,775 | |
Ceilings | 567,700 | | | 451,766 | | | 475,827 | |
Steel framing | 1,027,941 | | | 469,048 | | | 502,122 | |
Complementary products | 1,328,383 | | | 1,031,361 | | | 933,583 | |
Total net sales | $ | 4,634,875 | | | $ | 3,298,823 | | | $ | 3,241,307 | |
Geographic Information
The following table presents the Company’s net sales by major geographic area:
| | | | | | | | | | | | | | | | | |
| Year Ended April 30, |
| 2022 | | 2021 | | 2020 |
| (in thousands) |
United States | $ | 3,993,717 | | | $ | 2,770,450 | | | $ | 2,805,920 | |
Canada | 641,158 | | | 528,373 | | | 435,387 | |
Total net sales | $ | 4,634,875 | | | $ | 3,298,823 | | | $ | 3,241,307 | |
The following table presents the Company’s property and equipment by major geographic area:
| | | | | | | | | | | |
| April 30, 2022 | | April 30, 2021 |
| (in thousands) |
United States | $ | 311,061 | | | $ | 271,346 | |
Canada | 39,618 | | | 39,980 | |
Total property and equipment, net | $ | 350,679 | | | $ | 311,326 | |
18. Earnings Per Common Share
The following table sets forth the computation of basic and diluted earnings per share of common stock:
| | | | | | | | | | | | | | | | | |
| Year Ended April 30, |
| 2022 | | 2021 | | 2020 |
| (in thousands, except per share data) |
Net income | $ | 273,442 | | | $ | 105,560 | | | $ | 23,381 | |
Less: Net income allocated to participating securities | — | | | — | | | 74 | |
Net income attributable to common stockholders | $ | 273,442 | | | $ | 105,560 | | | $ | 23,307 | |
Basic earnings per common share: | | | | | |
Basic weighted average common shares outstanding | 43,075 | | | 42,765 | | | 41,853 | |
Basic earnings per common share | $ | 6.35 | | | $ | 2.47 | | | $ | 0.56 | |
Diluted earnings per common share: | | | | | |
Basic weighted average common shares outstanding | 43,075 | | | 42,765 | | | 41,853 | |
Add: Common Stock Equivalents | 823 | | | 578 | | | 651 | |
Diluted weighted average common shares outstanding | 43,898 | | | 43,343 | | | 42,504 | |
Diluted earnings per common share | $ | 6.23 | | | $ | 2.44 | | | $ | 0.55 | |
During the years ended April 30, 2021 and 2020, approximately 0.3 million and 0.8 million, respectively, stock options and restricted stock units were excluded from the calculation of diluted earnings per share because their effect would
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
have been anti-dilutive. During the year ended April 30, 2022, the number of Common Stock Equivalents excluded from the calculation of diluted earnings per share was not material. Anti-dilutive securities could be dilutive in future periods.
19. Valuation and Qualifying Accounts
Allowances for Accounts Receivable
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| Balance at Beginning of Period | | Provision | | Charged to Other Accounts(a) | | Deductions | | Balance at End of Period |
| (in thousands) |
Fiscal Year Ended April 30, 2022 | $ | (6,282) | | | $ | (1,588) | | | $ | (2,714) | | | $ | 1,238 | | | $ | (9,346) | |
Fiscal Year Ended April 30, 2021 | (5,141) | | | (1,774) | | | (477) | | | 1,110 | | | (6,282) | |
Fiscal Year Ended April 30, 2020 | (6,432) | | | (2,348) | | | 938 | | | 2,701 | | | (5,141) | |
__________________________________________
(a)Charged to other accounts represents the net (increase) decrease for specifically reserved accounts, as well as the net change in reserves for sales discounts, service charges and sales returns.
Valuation Allowance on Deferred Tax Assets Rollforward
| | | | | | | | | | | | | | | | | | | | | | | |
| Balance at Beginning of Period | | Additions Charged to Costs and Expenses | | Deductions | | Balance at End of Period |
| (in thousands) |
Fiscal Year Ended April 30, 2022 | $ | (11,768) | | | $ | (1,248) | | | $ | 1,297 | | | $ | (11,719) | |
Fiscal Year Ended April 30, 2021 | (10,183) | | | (1,585) | | | — | | | (11,768) | |
Fiscal Year Ended April 30, 2020 | (1,112) | | | (9,071) | | | — | | | (10,183) | |
20. Selected Quarterly Financial Data (Unaudited)
The following table sets forth certain unaudited financial information for each quarter of the years ended April 30, 2022 and 2021. The unaudited quarterly information includes all adjustments (consisting of normal recurring adjustments) that, in the opinion of management, are necessary for the fair presentation of the information presented.
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| Year Ended April 30, 2022 |
| First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter |
| (in thousands, except per share data) |
Net sales | $ | 1,042,076 | | | $ | 1,150,551 | | | $ | 1,153,595 | | | $ | 1,288,653 | |
Gross profit | 335,833 | | | 371,870 | | | 367,772 | | | 412,800 | |
Net income | 61,202 | | | 74,361 | | | 61,383 | | | 76,496 | |
Per share data | | | | | | | |
Weighted average shares outstanding(1): | | | | | | | |
Basic | 43,089 | | | 43,135 | | | 43,094 | | | 42,977 | |
Diluted | 43,972 | | | 43,894 | | | 43,945 | | | 43,776 | |
Net income per share(1): | | | | | | | |
Basic | $ | 1.42 | | | $ | 1.72 | | | $ | 1.42 | | | $ | 1.78 | |
Diluted | $ | 1.39 | | | $ | 1.69 | | | $ | 1.40 | | | $ | 1.75 | |
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
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| Year Ended April 30, 2021 |
| First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter |
| (in thousands, except per share data) |
Net sales | $ | 802,573 | | | $ | 812,856 | | | $ | 751,191 | | | $ | 932,203 | |
Gross profit | 260,458 | | | 265,071 | | | 243,324 | | | 293,850 | |
Net income | 27,219 | | | 28,469 | | | 16,126 | | | 33,746 | |
Per share data | | | | | | | |
Weighted average shares outstanding(1): | | | | | | | |
Basic | 42,624 | | | 42,723 | | | 42,726 | | | 42,994 | |
Diluted | 43,017 | | | 43,174 | | | 43,361 | | | 43,828 | |
Net income per share(1): | | | | | | | |
Basic | $ | 0.64 | | | $ | 0.67 | | | $ | 0.38 | | | $ | 0.78 | |
Diluted | $ | 0.63 | | | $ | 0.66 | | | $ | 0.37 | | | $ | 0.77 | |
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(1)Basic and diluted net income per share are computed independently for each of the quarters presented. Therefore, the sum of the quarterly basic and diluted net income per share amounts may not equal annual basic and diluted net income per share amounts.
21. Subsequent Event
On June 1, 2022, the Company acquired certain assets of Construction Supply of Southwest Florida, Inc. (“CSSWF”). CSSWF is a distributor of various stucco, building and waterproofing supplies serving markets in the southwest Florida area.