GMS Inc. (GMS) SEC Filing 10-Q Quarterly report for the period ending Wednesday, October 31, 2018

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Exhibit 99.1

 

 

GMS REPORTS RESULTS FOR SECOND QUARTER 2019

— Second Quarter Net Sales Increased 28.7% to a Record $833.8 Million —

— Second Quarter Net Income Improved by 38.2% to $24.9 Million —

— Second Quarter Adjusted EBITDA Increased by 60.7% to a Record $87.1 Million —

— Announces Authorization of $75 Million Stock Repurchase Program —

 

Tucker, Georgia, December 4, 2018.

GMS Inc. (NYSE:GMS), a leading North American distributor of wallboard and suspended ceilings systems, today reported financial results for the second quarter of fiscal 2019 ended October 31, 2018.

 

Net sales for the fiscal second quarter ended October 31, 2018 increased 28.7% to a record $833.8 million from $648.0 million for the fiscal second quarter ended October 31, 2017. Reported net income increased to $24.9 million, or $0.58 per diluted share in the fiscal second quarter ended October 31, 2018, compared to $18.0 million, or $0.43 per diluted share in the fiscal second quarter ended October 31, 2017. Adjusted EBITDA for the fiscal second quarter increased to a record $87.1 million from Adjusted EBITDA of $54.2 million for the second quarter of fiscal 2018.

 

Mike Callahan, President and CEO of GMS, stated, “We delivered a strong fiscal second quarter highlighted by record net sales and adjusted EBITDA. Our organic sales increased 8.7%  year-over-year, reflecting broad-based sales growth across each of our product groups. Adjusted EBITDA increased more than 60%, reflecting contributions from the Titan acquisition, our continued focus on price discipline and our steadfast commitment to operational improvement. Driven by improved profitability, we generated strong free cash flow of $88 million during the second quarter, which allowed us to reduce our net leverage nearly a half turn from 4.2 times to 3.8 times.”

 

Mr. Callahan continued, “As we look toward the second half of the fiscal year, we remain confident in the health of our end markets and see continued growth opportunities across our product portfolio. We feel very good about our leading North American platform with significant scale advantages and a well-balanced portfolio built for growth and value creation. I am also pleased to announce that our Board of Directors has approved the repurchase of up to $75 million of the Company’s common stock. We plan to opportunistically purchase our common stock while at the same time continue with our stated strategy to use expected operating cash flows to reduce our net leverage to under 3.0 times by the end of fiscal 2020.”

 

Second Quarter 2019 Results

 

Net sales for the second quarter of fiscal 2019 ended October 31, 2018 were $833.8 million, compared to $648.0 million for the second quarter of fiscal 2018 ended October 31, 2017.

 

·                  Wallboard sales of $334.7 million increased 16.0% compared to the second quarter of fiscal 2018, with the positive impact of the June 1st acquisition of Titan and pricing improvement.

 

·                  Ceilings sales of $118.4 million rose 16.5% compared to the second quarter of fiscal 2018, mainly due to greater commercial activity, pricing improvement and the positive impact of acquisitions.

 

·                  Steel framing sales of $135.8 million grew 31.5% compared to the second quarter of fiscal 2018, mainly driven by greater commercial activity, pricing improvement and the positive impact of acquisitions.

 

·                  Other product sales of $245.0 million were up 58.4% compared to the second quarter of fiscal 2018, as a result of the positive impact of the acquisition of Titan and pricing improvement.

 

1


The following information was filed by GMS Inc. on Tuesday, December 4, 2018 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.

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  • 18420162_43
    Financial - Earnings
    See ??Non-GAAP Financial Measures?Adjusted EBITDA,? for how we define and calculate Adjusted EBITDA and Adjusted EBITDA margin, reconciliations thereof to net income and a description of why we believe these measures are important.
  • 18420162_94
    Financial - Earnings
    See ??Non-GAAP Financial Measures?Adjusted EBITDA,? for how we define and calculate Adjusted EBITDA and Adjusted EBITDA margin, reconciliations thereof to net income and a description of why we believe these measures are important.
  • 18420162_213
    Financial - Earnings
    We believe that Adjusted EBITDA and Adjusted EBITDA margin are frequently used by analysts, investors and other interested parties in their evaluation of companies, many of which present an Adjusted EBITDA or Adjusted EBITDA margin measure when reporting their results.
  • 18420162_90
    Financial - Earnings
    See ??Non-GAAP Financial Measures?Adjusted EBITDA,? for how we define and calculate Adjusted EBITDA, reconciliations thereof to net income and a description of why we believe these measures are important.
  • 18420162_147
    Financial - Earnings
    See ??Non-GAAP Financial Measures?Adjusted EBITDA,? for how we define and calculate Adjusted EBITDA, reconciliations thereof to net income and a description of why we believe these measures are important.
  • 18420162_144
    Financial - Earnings
    The increase in net income was due to an increase in depreciation and amortization expense resulting from property and equipment and definite-lived intangible assets obtained in the acquisition of Titan, an increase in interest expense resulting from the debt financing completed in connection with the acquisition of Titan and the operating lease amendments and a loss on the change in fair value of a foreign currency forward contract entered into to mitigate foreign currency exchange risk associated with the purchase price of Titan.
  • 18420162_50
    Revenue - Product
    The increase in ceilings sales was mainly due to strong organic growth driven by greater commercial activity and pricing improvement as well as the positive impact of acquisitions.
  • 18420162_52
    Revenue - Product
    The increase in steel framing sales was mainly due to strong organic growth driven by greater commercial activity and pricing improvement as well as the positive impact of acquisitions.
  • 18420162_101
    Revenue - Product
    The increase in ceilings sales was mainly due to strong organic growth driven by greater commercial activity and pricing improvement as well as the positive impact of acquisitions.
  • 18420162_103
    Revenue - Product
    The increase in steel framing sales was mainly due to strong organic growth driven by greater commercial activity and meaningful pricing improvement as well as the positive impact of acquisitions.
  • 18420162_208
    Financial - Earnings
    However, we present Adjusted EBITDA and Adjusted EBITDA margin, which are not recognized financial measures under GAAP, because we believe they assist 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.
  • 18420162_209
    Financial - Earnings
    Management believes Adjusted EBITDA and Adjusted EBITDA margin are 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.
  • 18420162_3
    Other - Other
    Factors that could cause or contribute to these differences include those factors discussed below and elsewhere in this Quarterly Report on Form 10 Q, particularly in ?Cautionary Note Regarding Forward-Looking Statements,? and discussed in the section entitled ?Risk Factors? included in our Annual Report on Form 10 K for the year ended April 30, 2018.
  • 18420162_186
    Financial - Debt
    Our adjusted working capital increased by $145.6 million from April 30, 2018 to October 31, 2018 as a result of an increase in working capital of $140.6 million and an increase of $21.4 million in current maturities of long term debt, offset partially by an increase in cash and cash equivalents of $16.4 million.
  • 18420162_220
    Financial - Earnings
    We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA and Adjusted EBITDA margin only as supplemental information.
  • 18420162_58
    Revenue - Product
    The overall increase in our base business net sales reflects the increase in demand for our products as a result of the improvement in new housing starts, R&R; activity and commercial construction.
  • 18420162_109
    Revenue - Product
    The overall increase in our base business net sales reflects the increase in demand for our products as a result of the improvement in new housing starts, R&R; activity and commercial construction.
  • 18420162_68
    MA - Other
    The increase was due to the acquisition of Titan, a $2.4 million increase in payroll and payroll related costs due to growth in our base business, $0.8 million of transaction costs related to the acquisition of Titan and $0.4 million of restructuring costs.
  • 18420162_122
    MA - Other
    The increase was due to the acquisition of Titan, a $13.3 million increase in payroll and payroll related costs due to growth in our base business, $5.5 million of transaction costs related to the acquisition of Titan and $5.0 million of restructuring costs related to the reduction in workforce implemented during the six months ended October 31, 2018.
  • 18420162_185
    Other - Other
    See ??Non-GAAP Financial Measures?Adjusted Working Capital,? for how we define and calculate Adjusted Working Capital, a reconciliation thereof to working capital and a description of why we believe this measure is important.
  • 18420162_182
    Other - Other
    Management of our adjusted working capital helps to ensure we can maximize our return and continue to invest in our operations for future growth.
  • 18420162_65
    Financial - Earnings
    Gross margin on net sales decreased to 32.2% for the three months ended October 31, 2018 compared to 32.8% for the three months ended October 31, 2017.
  • 18420162_116
    Financial - Earnings
    Gross margin on net sales decreased to 31.8% for the six months ended October 31, 2018 compared to 32.3% for the six months ended October 31, 2017.
  • 18420162_183
    Other - Other
    Comparing our adjusted working capital to that of other companies in our industry may be difficult, as other companies may calculate adjusted working capital differently than we do.
  • 18420162_130
    Financial - Expense
    The increase in depreciation expense compared to the prior year period was primarily attributable to expense resulting from property and equipment obtained in the acquisition of Titan and $6.5 million of expense resulting from amendments of certain operating leases for equipment that are now being accounted for as capital leases.
  • 18420162_168
    MA - Other
    Net cash used in investing activities consists primarily of acquisitions, investments in our facilities including purchases of land, buildings and leasehold improvements and purchases of fleet assets, IT and other equipment.
  • 18420162_177
    Other - Other
    A summary of working capital and adjusted working capital as of October 31, 2018 and April 30, 2018 is shown in the following table: Working capital increased as a result of an increase in trade accounts and notes receivable of $132.9 million, an increase of inventories, net of $61.5 million and an increase in other current assets of $20.7 million, partially offset by an increase in accounts payable of $41.0 million and an increase in other current liabilities of $33.4 million.
  • 18420162_174
    Revenue - Product
    Cash provided by, or used in, financing activities consists primarily of borrowings and related repayments under our credit agreements, as well as repayments of capital lease obligations and proceeds from the sales of equity.
  • 18420162_57
    MA - Other
    Excluding these acquired sites, for the three months ended October 31, 2018 and 2017, our base business net sales increased $55.9 million, or 8.7%, compared to the three months ended October 31, 2017.
  • 18420162_108
    MA - Other
    Excluding these acquired sites, for the six months ended October 31, 2018 and 2017, our base business net sales increased $95.0 million, or 7.4%, compared to the six months ended October 31, 2017.
  • 18420162_77
    Financial - Expense
    The increase in depreciation expense was primarily attributable to expense resulting from property and equipment obtained in the acquisition of Titan and $3.5 million of depreciation expense resulting from amendments of certain operating leases for equipment that are now being accounted for as capital leases.
  • 18420162_61
    MA - Other
    We have excluded the following acquisitions from the base business for the periods identified: (1) Our acquisition CGH on August 7, 2018 has been treated as a new greenfield branch and is included in base business net sales for purposes of calculating our base business results.
  • 18420162_112
    MA - Other
    We have excluded the following acquisitions from the base business for the periods identified: (1) Our acquisition CGH on August 7, 2018 has been treated as a new greenfield branch and is included in base business net sales for purposes of calculating our base business results.
  • 18420162_115
    MA - Other
    These increases were primarily due to the acquisition of Titan, as well as increased sales in our base business.
  • 18420162_19
    Financial - Shares / Equity
    As part of the consideration, certain members of Titan?s management converted a portion of their ownership position into 1.1 million shares of equity that are exchangeable for the Company?s common stock.
  • 18420162_36
    Other - Other
    On November 30, 2018, our Board of Directors authorized a common stock repurchase program to repurchase up to $75.0 million of our outstanding common stock.
  • 18420162_160
    Other - Other
    As previously discussed, in November 2018, our Board of Directors authorized a common stock repurchase program to repurchase up to $75.0 million of our outstanding common stock.
  • 18420162_64
    MA - Other
    These increases were primarily due to the acquisition of Titan, as well as increases in sales in our base business.
  • 18420162_232
    Financial - Cash Flow
    Management believes that adjusted working capital is useful in analyzing the cash flow and working capital needs of the Company.
  • 18420162_137
    Revenue - Geography
    The foreign currency forward contract was entered into to mitigate foreign currency exchange risk associated with the purchase price of Titan that was denominated in Canadian 36 dollars during the time between signing the agreement and closing the transaction.
  • 18420162_212
    Other - Other
    We may in the future reflect such permitted adjustments in our calculations of Adjusted EBITDA.
  • 18420162_82
    Financial - Expense
    Also contributing to the increase was a $3.1 million increase in interest expense resulting from amendments of certain operating leases for equipment that are now being accounted for as capital leases.
  • 18420162_134
    Financial - Expense
    Also contributing to the increase was a $5.9 million increase in interest expense resulting from amendments of certain operating leases for equipment that are now being accounted for as capital leases.
  • 18420162_149
    Financial - Debt
    We believe that these sources of funds will be adequate to fund debt service requirements and provide cash, as required, to support our growth strategies, ongoing operations, capital expenditures, lease obligations and working capital for at least the next 12 months.
  • 18420162_88
    Other - Other
    Adjusted EBITDA of $87.1 million for the three months ended October 31, 2018 increased $32.9 million, or 60.7%, from our Adjusted EBITDA of $54.2 million for the three months ended October 31, 2017.
  • 18420162_145
    Other - Other
    Adjusted EBITDA of $162.4 million for the six months ended October 31, 2018 increased $55.4 million, or 51.8%, from our Adjusted EBITDA of $107.0 million for the six months ended October 31, 2017.
  • 18420162_234
    Other - Other
    The following is a reconciliation from working capital, the most directly comparable financial measure under GAAP, to adjusted working capital as of the dates presented:
  • 18420162_129
    Financial - Expense
    The increase in amortization expense compared to the prior year period was primarily attributable to expense resulting from definite-lived intangible assets obtained in the acquisition of Titan.
  • 18420162_47
    Revenue - Product
    In the three months ended October 31, 2018, our wallboard sales, which are impacted by both commercial and residential construction activity, increased by $46.2 million, or 16.0%, compared to the three months ended October 31, 2017.
  • 18420162_98
    Revenue - Product
    In the six months ended October 31, 2018, our wallboard sales, which are impacted by both commercial and residential construction activity, increased by $79.3 million, or 13.8%, compared to the six months ended October 31, 2017.
  • 18420162_117
    Financial - Expense
    The decrease was primarily due to a $4.1 million, or 0.4%, non-cash cost of sales impact of purchase accounting adjustments to increase inventory to its estimated fair value.
  • 18420162_53
    Revenue - Product
    For the three months ended October 31, 2018, our other products sales category, which includes insulation, joint treatment, tools, lumber and various other specialty building products, increased $90.4 million, or 58.4%, compared to the three months ended October 31, 2017.
  • 18420162_104
    Revenue - Product
    For the six months ended October 31, 2018, our other products sales category, which includes insulation, joint treatment, tools, lumber and various other specialty building products, increased $152.7 million, or 49.6%, compared to the six months ended October 31, 2017.
  • 18420162_76
    Financial - Expense
    The increase in amortization expense was primarily attributable to expense resulting from definite-lived intangible assets obtained in the acquisition of Titan.
  • 18420162_15
    Financial - Earnings
    As a result of our scale, purchasing power and ability to improve operations through implementing best practices, we believe we can achieve substantial synergies and drive earnings accretion from our acquisition strategy.
  • 18420162_67
    Financial - Expense
    Selling, general and administrative expenses of $185.3 million for the three months ended October 31, 2018 increased $25.4 million, or 15.9%, from the three months ended October 31, 2017.
  • 18420162_121
    Financial - Expense
    Selling, general and administrative expenses of $370.7 million for the six months ended October 31, 2018 increased $54.7 million, or 17.3%, from the six months ended October 31, 2017.
  • 18420162_45
    Revenue - Product
    31 Net sales of $833.8 million increased $185.8 million, or 28.7%, from $648.0 million for the three months ended October 31, 2017.
  • 18420162_46
    Revenue - Product
    Net sales during the three months ended October 31, 2018 increased across all product categories.
  • 18420162_49
    Revenue - Product
    In the three months ended October 31, 2018, our ceilings sales increased $16.7 million, or 16.5%, from the three months ended October 31, 2017.
  • 18420162_51
    Revenue - Product
    In the three months ended October 31, 2018, steel framing sales increased $32.6 million, or 31.5%, from the three months ended October 31, 2017.
  • 18420162_96
    Revenue - Product
    Net sales of $1,612.0 million increased $321.8 million, or 24.9%, from $1,290.2 million for the six months ended October 31, 2017.
  • 18420162_97
    Revenue - Product
    Net sales during the six months ended October 31, 2018 increased across all product categories.
  • 18420162_100
    Revenue - Product
    In the six months ended October 31, 2018, our ceilings sales increased $32.9 million, or 16.3%, from the six months ended October 31, 2017.
  • 18420162_102
    Revenue - Product
    In the six months ended October 31, 2018, steel framing sales increased $57.0 million, or 27.4%, from the six months ended October 31, 2017.
  • 18420162_87
    Financial - Earnings
    The increase was primarily due to the inclusion of net income of Titan, partially offset by an increase in depreciation and amortization expense resulting from property and equipment and definite-lived intangible assets obtained in the acquisition of Titan and an increase in interest expense resulting from the debt financing completed in connection with the acquisition of Titan and our operating lease amendments.
  • 18420162_5
    Other - Other
    We purchase products from a large number of manufacturers and then distribute these goods to a customer base consisting of wallboard and ceilings contractors and homebuilders and, to a lesser extent, general contractors and individuals.
  • 18420162_37
    Financial - Shares / Equity
    We intend to conduct repurchases under the share repurchase program through open market transactions, under trading plans in accordance with 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, subject to a variety of factors, including, but not limited to, our liquidity, credit availability, general business and market conditions, our debt covenant restrictions and the availability of alternative investment opportunities.
  • 18420162_62
    Financial - Earnings
    32 Gross profit of $268.2 million for the three months ended October 31, 2018 increased $55.9 million, or 26.3%, from the three months ended October 31, 2017.
  • 18420162_113
    Financial - Earnings
    35 Gross profit of $513.0 million for the six months ended October 31, 2018 increased $95.6 million, or 22.9%, from the six months ended October 31, 2017.
  • 18420162_215
    Other - Other
    In addition, Adjusted EBITDA may not be comparable to similarly titled measures used by other companies in our industry or across different industries.
  • 18420162_214
    Other - Other
    Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non recurring items.
  • 18420162_54
    MA - Other
    The increase was due to the impact of the acquisition of Titan and pricing improvement.
  • 18420162_105
    MA - Other
    The increase was due to the impact of the acquisition of Titan and pricing improvement.
  • 18420162_157
    Other - Other
    As of October 31, 2018, no amounts were outstanding under the Titan Facility and we had available borrowing capacity of approximately C$105.0 million under the Titan Facility.
  • 18420162_84
    Other - Other
    Our effective tax rate was 24.4% and 35.6% for the three months ended October 31, 2018 and 2017, respectively.
  • 18420162_141
    Other - Other
    Our effective tax rate was 24.5% and 37.5% for the six months ended October 31, 2018 and 2017, respectively.
  • 18420162_31
    Financial - Expense
    During the six months ended October 31, 2018, the Company initiated a reduction in workforce as part of a strategic cost reduction plan to improve operational efficiency.
  • 18420162_211
    Revenue - Geography
    The ABL Facility and the First Lien Facility permit us to make certain additional adjustments in calculating Consolidated EBITDA, such as projected net cost savings, which are not reflected in the Adjusted EBITDA data presented in this Quarterly Report on Form 10 Q.
  • 18420162_221
    Financial - Earnings
    The following is a reconciliation of our net income to Adjusted EBITDA for the three and six months ended October 31, 2018 and 2017: (a) Represents non cash compensation expenses related to stock appreciation rights agreements.
  • 18420162_75
    Financial - Expense
    The increase was due to an $8.6 million increase in amortization of definite-lived intangible assets and a $5.5 million increase in depreciation expense.
  • 18420162_128
    Financial - Expense
    The increase was due to a $13.9 million increase in amortization of definite-lived intangible assets and a $10.1 million increase in depreciation expense.
  • 18420162_201
    Other - Other
    The contingent consideration arrangements are based on performance of Titan?s business and are payable in cash in fiscal 2019 and fiscal 2020.

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  • Form Type: Quarterly
  • Number of times amended: 0
  • Accession Number: 0001558370-18-009571
  • Submitted to the SEC: Tuesday, December 4, 2018 5:20:08 PM EST
  • Accepted by the SEC: Tuesday, December 4, 2018
  • Period ending: October 2018
  • Industry: Wholesale Lumber And Other Construction Materials