Business Wire | Sep 3, 2020 06:00AM EDT

GMS Reports First Quarter Fiscal 2021 Results

Sep. 03, 2020

TUCKER, Ga.--(BUSINESS WIRE)--Sep. 03, 2020--GMS Inc. (NYSE:GMS), a leading North American specialty distributor of interior building products, today reported financial results for the first quarter of fiscal 2021 ended July 31, 2020.

First Quarter Fiscal 2021 Highlights(Comparisons are to the first quarter of fiscal 2020, except where noted.)

* Net sales of $802.6 million decreased 5.3%; organic net sales decreased 5.7%. * Gross margin of 32.5% improved 20 basis points. * Net income of $27.2 million, or $0.63 per diluted share, increased 9.7%. * Adjusted net income of $40.3 million, or $0.94 per diluted share, increased 7.5%. * Adjusted EBITDA margin of 10.3% improved 40 basis points. * Net debt leverage was 3.0 times as of the end of the first quarter of fiscal 2021 compared to 2.9 times as of the end of the fourth quarter of fiscal 2020 and 3.7 times as of the end of the first quarter of fiscal 2020. * As of July 31, 2020, the Company had cash on hand of $139.7 million, and $372.5 million of available liquidity under its revolving credit facilities.

"Our first quarter results reflect outstanding execution by our entire team against the backdrop of a business environment that remained challenging throughout the period," said John C. Turner, Jr., President and Chief Executive Officer. "Despite lower sales resulting from the impact of the COVID-19 pandemic on our business and overall industry, we generated higher net income and Adjusted net income compared to the first quarter of last fiscal year, as well as year-over-year expansion of both gross margin and Adjusted EBITDA margin. This improvement is a result of the rapid alignment of our cost structure to current demand, our balanced product and market mix, which has been strengthened through execution of our growth initiatives, and a relentless focus on serving our customers with operational excellence. At the same time, the health and safety of our employees, business partners and communities remains our top priority, and all of us at GMS continue to express our gratitude to all those who have been and continue to be on the frontlines every day during these unprecedented times."

Mr. Turner continued, "While there is continued uncertainty regarding the near-term outlook for the construction industry and the broader economy, I am confident in our team's ability to continue to quickly and nimbly address challenges and leverage opportunities. We firmly believe the foundation we have built at GMS, coupled with our strong liquidity and ability to generate cash, positions us well for the duration of this period and for the long term."

First Quarter Fiscal 2021 Results

Net sales for the first quarter of fiscal 2021 were $802.6 million, down 5.3%, compared to $847.2 million for the first quarter of the prior fiscal year, as a result of continued COVID-19 related market declines. Organic net sales declined 5.7%.

* Wallboard sales of $328.0 million decreased 4.0% (4.1% on an organic basis) compared to the first quarter of fiscal 2020, principally due to a decline in both price and mix and, to a lesser extent, lower volumes. * Ceilings sales of $113.7 million decreased 11.9% (12.5% on an organic basis) year over year driven by lower volumes and product mix, partially offset by higher pricing. * Steel framing sales of $110.5 million decreased 16.2% (16.4% on an organic basis) year over year due primarily to a decline in volumes and pricing, partially offset by higher product mix. * Other product sales of $250.4 million increased 2.3% (1.5% on an organic basis) year over year due to positive contributions from acquisitions and execution of growth initiatives.

Year over year sales declines were more pronounced in ceilings and steel framing, as these product categories are tied primarily to commercial construction which remained relatively more challenged than the residential market during the quarter.

Gross profit of $260.5 million decreased 4.8% compared to the first quarter of fiscal 2020 primarily due to lower sales. Gross margin of 32.5% improved 20 basis points year over year as a result of favorable product mix and purchasing initiatives.

Selling, general and administrative ("SG&A") expense as a percentage of net sales was 22.8% for the quarter compared to 23.0% in the first quarter of fiscal 2020. Adjusted SG&A expense as a percentage of net sales was 22.2% compared to 22.6% in the prior year quarter. This 40 basis point improvement directly resulted from the proactive measures taken to defer or limit non-essential operating and other discretionary expenses and to align the Company's cost structure with the current demand environment resulting from the COVID-19 pandemic. These benefits were partially offset primarily by deflationary market pricing of certain of the Company's products.

Net income of $27.2 million, or $0.63 per diluted share, increased 9.7% from $24.8 million, or $0.59 per diluted share, in the first quarter of the prior fiscal year. Adjusted net income of $40.3 million, or $0.94 per diluted share, increased 7.5% from $37.5 million, or $0.89 per diluted share, in the first quarter of the prior fiscal year. Adjusted EBITDA of $83.1 million compared to $83.6 million in the first quarter of the prior fiscal year. Adjusted EBITDA margin of 10.3% improved 40 basis points from 9.9% a year ago.

Balance Sheet and Liquidity

As of July 31, 2020, the Company had cash on hand of $139.7 million and total debt of $1.0 billion. Net debt leverage was 3.0 times as of the end of the quarter compared to 2.9 times as of the end of the fourth quarter of fiscal 2020 and 3.7 times as of the end of the first quarter of fiscal 2020.

As is typical during the Company's first quarter of the fiscal year, the Company recorded a use of cash from operating activities and free cash flow, which totaled $15.7 million and $20.5 million, respectively, in the first quarter. This compared to a use of cash from operating activities and free cash flow of $12.4 million and $18.3 million, respectively, in the first quarter of the prior fiscal year.

Conference Call and Webcast

GMS will host a conference call and webcast to discuss its results for the first quarter of fiscal 2021 ended July 31, 2020 and other information related to its business at 8:30 a.m. Eastern Time on Thursday, September 3, 2020. Investors who wish to participate in the call should dial 877-407-3982 (domestic) or 201-493-6780 (international) at least 5 minutes prior to the start of the call. The live webcast will be available on the Investors section of the Company's website at www.gms.com. There will be a slide presentation of the results available on that page of the website as well. Replays of the call will be available through October 3, 2020 and can be accessed at 844-512-2921 (domestic) or 412-317-6671 (international) and entering the pass code 13708456.

About GMS Inc.

Founded in 1971, GMS operates a network of 260 distribution centers across the United States and Canada. GMS's extensive product offering of wallboard, suspended ceilings systems, or ceilings, and complementary construction products is designed to provide a comprehensive one-stop-shop for our core customer, the interior contractor who installs these products in commercial and residential buildings.

Use of Non-GAAP Financial Measures

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

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

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

Forward-Looking Statements and Information:

This press release includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. You can generally identify forward-looking statements by the Company's use of forward-looking terminology such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "might," "plan," "potential," "predict," "seek," or "should," or the negative thereof or other variations thereon or comparable terminology. In particular, statements about the markets in which GMS operates and the economy generally, actions taken to optimize our operations and align our business consistent with demand, our ability to continue successfully navigating the evolving operating environment, strategic initiatives and growth potential across the Company's business, our efforts in response to COVID-19, and the ability to deliver growth, value creation and long-term success contained in this press release may be considered forward-looking statements. The Company has based forward-looking statements on its current expectations, assumptions, estimates and projections. While the Company believes these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond its control, including current public health issues that may affect the Company's business. Forward-looking statements involve risks and uncertainties, including, but not limited to, those described in the "Risk Factors" section in the Company's most recent Annual Report on Form 10-K, and in its other periodic reports filed with the SEC. In addition, the statements in this release are made as of September 3, 2020. The Company undertakes no obligation to update any of the forward-looking statements made herein, whether as a result of new information, future events, changes in expectation or otherwise. These forward-looking statements should not be relied upon as representing the Company's views as of any date subsequent to September 3, 2020.

GMS Inc.

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except per share data)



Three Months Ended

July 31,

2020 2019

Net sales $ 802,573 $ 847,176

Cost of sales (exclusive of depreciation and 542,115 573,522 amortization shown separately below)

Gross profit 260,458 273,654

Operating expenses:

Selling, general and administrative 183,112 194,631

Depreciation and amortization 27,097 29,275

Total operating expenses 210,209 223,906

Operating income 50,249 49,748

Other (expense) income:

Interest expense (14,081 ) (18,277 )

Other income, net 655 939

Total other expense, net (13,426 ) (17,338 )

Income before taxes 36,823 32,410

Provision for income taxes 9,604 7,590

Net income $ 27,219 $ 24,820

Weighted average common shares outstanding:

Basic 42,624 41,001

Diluted 43,017 41,615

Net income per common share(1):

Basic $ 0.64 $ 0.60

Diluted $ 0.63 $ 0.59

(1) The following table sets forth the computation of basic and dilutedearnings per share of common stock for periods presented:



Three Months Ended

July 31,

2020 2019

(in thousands, except per share data)

Net income $ 27,219 $ 24,820

Less: Net income allocated to participating - 319securities

Net income attributable to common $ 27,219 $ 24,501stockholders

Basic earnings per common share:

Basic weighted average common shares 42,624 41,001outstanding

Basic earnings per common share $ 0.64 $ 0.60

Diluted earnings per common share:

Basic weighted average common shares 42,624 41,001outstanding

Add: Common Stock Equivalents 393 614

Diluted weighted average common shares 43,017 41,615outstanding

Diluted earnings per common share $ 0.63 $ 0.59

GMS Inc.

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except per share data)



July 31, April 30,

2020 2020

Assets

Current assets:

Cash and cash equivalents $ 139,709 $ 210,909

Trade accounts and notes receivable, net of 430,931 405,254 allowances of $5,289 and $5,141, respectively

Inventories, net 287,266 299,815

Prepaid expenses and other current assets 20,957 14,972

Total current assets 878,863 930,950

Property and equipment, net of accumulateddepreciation of $167,414 and $158,554, 299,661 305,467 respectively

Operating lease right-of-use assets 112,764 115,257

Goodwill 557,247 553,073

Intangible assets, net 354,542 361,884

Deferred income taxes 11,056 8,904

Other assets 11,697 13,247

Total assets $ 2,225,830 $ 2,288,782

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable $ 180,558 $ 213,230

Accrued compensation and employee benefits 31,655 67,590

Other accrued expenses and current liabilities 73,648 63,812

Current portion of long-term debt 49,133 50,201

Current portion of operating lease liabilities 32,781 33,040

Total current liabilities 367,775 427,873

Non-current liabilities:

Long-term debt, less current portion 995,390 1,047,279

Long-term operating lease liabilities 87,607 89,605

Deferred income taxes, net 9,373 12,018

Other liabilities 83,814 78,026

Total liabilities 1,543,959 1,654,801

Commitments and contingencies

Stockholders' equity:

Common stock, par value $0.01 per share,500,000 shares authorized; 42,673 and 42,554 427 426 shares issued and outstanding as of July 31,2020 and April 30, 2020, respectively

Preferred stock, par value $0.01 per share,50,000 shares authorized; 0 shares issued and - - outstanding as of July 31, 2020 and April 30,2020

Additional paid-in capital 533,092 529,662

Retained earnings 196,194 168,975

Accumulated other comprehensive loss (47,842 ) (65,082 )

Total stockholders' equity 681,871 633,981

Total liabilities and stockholders' equity $ 2,225,830 $ 2,288,782

GMS Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)



Three Months Ended

July 31,

2020 2019

Cash flows from operating activities:

Net income $ 27,219 $ 24,820

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

Depreciation and amortization 27,097 29,275

Amortization of debt discount and debt issuance 753 835 costs

Provision for losses on accounts and notes 138 657 receivable

Provision for obsolescence of inventory 109 119

Effects of fair value adjustments to inventory - 151

Increase in fair value of contingent consideration - 228

Equity-based compensation 2,619 2,071

Loss (gain) on disposal and impairment of assets 394 (156 )

Deferred income taxes (5,241 ) (1,440 )

Changes in assets and liabilities net of effects of acquisitions:

Trade accounts and notes receivable (23,013 ) (23,230 )

Inventories 14,008 18

Prepaid expenses and other assets (3,782 ) (1,359 )

Accounts payable (33,887 ) (9,526 )

Accrued compensation and employee benefits (36,062 ) (26,347 )

Other accrued expenses and liabilities 13,937 (8,556 )

Cash used in operating activities (15,711 ) (12,440 )

Cash flows from investing activities:

Purchases of property and equipment (4,745 ) (5,891 )

Proceeds from sale of assets 342 232

Acquisition of businesses, net of cash acquired (210 ) (10,633 )

Cash used in investing activities (4,613 ) (16,292 )

Cash flows from financing activities:

Repayments on revolving credit facilities (58,083 ) (262,107 )

Borrowings from revolving credit facilities 14,421 274,810

Payments of principal on long-term debt (2,492 ) (2,492 )

Payments of principal on finance lease obligations (7,521 ) (6,021 )

Proceeds from exercises of stock options 691 133

Payments for taxes related to net share settlement (105 ) - of equity awards

Other financing activities 1,270 1,022

Cash (used in) provided by financing activities (51,819 ) 5,345

Effect of exchange rates on cash and cash 943 172 equivalents

Decrease in cash and cash equivalents (71,200 ) (23,215 )

Cash and cash equivalents, beginning of period 210,909 47,338

Cash and cash equivalents, end of period $ 139,709 $ 24,123

Supplemental cash flow disclosures:

Cash paid for income taxes $ 3,478 $ 18,776

Cash paid for interest 13,115 17,011

GMS Inc.

Net Sales by Product Group (Unaudited)

(dollars in thousands)



Three Months Ended

July 31, % of July 31, % of

2020 Total 2019 Total



Wallboard $ 327,997 40.9 % $ 341,595 40.3 %

Ceilings 113,702 14.2 % 129,110 15.2 %

Steel framing 110,487 13.8 % 131,829 15.6 %

Other products 250,387 31.2 % 244,642 28.9 %

Total net sales $ 802,573 $ 847,176

GMS Inc.

Reconciliation of Net Income to Adjusted EBITDA (Unaudited)

(in thousands)



Three Months Ended

July 31,

2020 2019



Net income $ 27,219 $ 24,820

Interest expense 14,081 18,277

Interest income (37 ) (12 )

Provision for income taxes 9,604 7,590

Depreciation expense 12,827 12,422

Amortization expense 14,270 16,853

EBITDA $ 77,964 $ 79,950

Stock appreciation expense(a) 792 60

Redeemable noncontrolling interests(b) 252 662

Equity-based compensation(c) 1,605 1,395

Severance and other permitted costs(d) 1,947 554

Transaction costs (acquisitions and other)(e) 100 972

Loss (gain) on disposal and impairment of assets 394 (156 ) (f)

Effects of fair value adjustments to inventory(g) - 151

EBITDA add-backs 5,090 3,638

Adjusted EBITDA $ 83,054 $ 83,588



Net sales $ 802,573 $ 847,176

Adjusted EBITDA margin 10.3 % 9.9 %

_____________

(a) Represents non-cash expense related to stock appreciation rights agreements.

(b) Represents non-cash compensation expense related to changes in the values of noncontrolling interests.

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

Represents severance expenses and other costs permitted in calculations(d) under the ABL Facility and the Term Loan Facility, including certain unusual, nonrecurring costs due to COVID-19.

(e) Represents costs related to acquisitions paid to third parties.

(f) Includes impairment of assets resulting from restructuring plans to close certain facilities and gains from the sale of assets.

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

GMS Inc.

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

(in thousands)



Three Months Ended

July 31,

2020 2019



Cash used in operating activities $ (15,711 ) $ (12,440 )

Purchases of property and equipment (4,745 ) (5,891 )

Free cash flow(a) $ (20,456 ) $ (18,331 )

_____________

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

GMS Inc.

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

(in thousands)



Three Months Ended

July 31,

2020 2019



Selling, general and administrative expense $ 183,112 $ 194,631



Adjustments

Stock appreciation expense(a) (792 ) (60 )

Redeemable noncontrolling interests(b) (252 ) (662 )

Equity-based compensation(c) (1,605 ) (1,395 )

Severance and other permitted costs(d) (1,881 ) (554 )

Transaction costs (acquisitions and other)(e) (100 ) (972 )

(Loss) gain on disposal and impairment of assets (394 ) 156 (f)

Adjusted SG&A $ 178,088 $ 191,144



Net sales $ 802,573 $ 847,176

Adjusted SG&A margin 22.2 % 22.6 %

_____________

(a) Represents non-cash expense related to stock appreciation rights agreements.

(b) Represents non-cash compensation expense related to changes in the values of noncontrolling interests.

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

Represents severance expenses and other costs permitted in calculations(d) under the ABL Facility and the Term Loan Facility, including certain unusual, nonrecurring costs due to COVID-19.

(e) Represents costs related to acquisitions paid to third parties.

(f) Includes impairment of assets resulting from restructuring plans to close certain facilities and gains from the sale of assets.

GMS Inc.

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

(in thousands, except per share data)



Three Months Ended

July 31,

2020 2019

Income before taxes $ 36,823 $ 32,410

EBITDA add-backs 5,090 3,638

Purchase accounting depreciation and amortization (1) 10,135 12,385

Adjusted pre-tax income 52,048 48,433

Adjusted income tax expense 11,711 10,897

Adjusted net income $ 40,337 $ 37,536

Effective tax rate (2) 22.5 % 22.5 %



Weighted average shares outstanding:

Basic 42,624 41,001

Diluted (3) 43,017 42,148

Adjusted net income per share:

Basic $ 0.95 $ 0.92

Diluted $ 0.94 $ 0.89

_____________

Depreciation and amortization from the increase in value of certain(1) long-term assets associated with the April 1, 2014 acquisition of the predecessor company and the acquisition of Titan.

(2) Normalized cash tax rate determined based on our estimated taxes excluding the impact of purchase accounting and certain other deferred tax amounts.

Diluted shares outstanding for periods prior to June 13, 2019 have been adjusted to include the effect of 1.1 million shares of equity issued in(3) connection with the acquisition of Titan that were exchangeable for the Company's common stock. On June 13, 2019, the holders exchanged all of the exchangeable shares for 1.1 million shares of the Company's common stock.

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CONTACT: Investors: Leslie H. Kratcoski ir@gms.com 770-723-3306