Gms reports second quarter fiscal 2023 results
Tucker, ga.--(business wire)--gms inc. (nyse: gms), a leading north american specialty building products distributor, today reported financial results for the fiscal second quarter ended october 31, 2022. second quarter fiscal 2023 highlights (comparisons are to the second quarter of fiscal 2022) net sales of $1.43 billion increased 24.4%; organic net sales increased 22.2%. 11.6% volume growth in wallboard, including the second consecutive quarterly year-over-year expansion in commercial wallboard volume. net income of $103.2 million, or $2.41 per diluted share, increased 38.7% compared to net income of $74.4 million, or $1.69 per diluted share; adjusted net income of $119.5 million, or $2.79 per diluted share, compared to $87.8 million, or $2.00 per diluted share. adjusted ebitda of $195.5 million increased $46.0 million, or 30.7%; adjusted ebitda margin improved 70 basis points to 13.7% from 13.0%. cash provided by operating activities increased $109.3 million to $107.3 million; free cash flow improved $107.8 to $96.5 million. net debt leverage was 1.6 times, down from 2.4 times a year ago. “a significant backlog of homes under construction, continued strength in multi-family, and improving levels of commercial activity helped drive exceptional results for our fiscal second quarter,” said john c. turner, jr., president and chief executive officer of gms. “as a result, with favorable pricing across our product categories, positive volume growth in wallboard, ceilings and complementary products and the benefit of our ames acquisition, our team achieved another quarter of record levels of net sales, net income and adjusted ebitda and generated significant levels of cash flow.” turner continued, “with significant scale, a balanced mix of commercial and residential customers and a wide breadth of product offerings, we are confident in our ability to adjust as needed to meet demand in all of our end markets and believe we are well-positioned ahead of the developing slowdown in residential single-family construction. we remain focused on the execution of our strategic priorities to expand share in our core products, grow complementary product offerings, expand our platform, and leverage our scale to achieve improved productivity and profitability through the use of technology and shared best practices.” second quarter fiscal 2023 results net sales for the second quarter of fiscal 2023 of $1.43 billion increased 24.4% as compared with the prior year quarter, primarily due to a favorable pricing environment along with active residential construction and an improving commercial landscape, both of which helped drive volume growth in wallboard, ceilings and complementary products. the company also benefited during the quarter from its acquisition of ames taping tools in december 2021 and one additional selling day during the three months ended october 31, 2022 compared to the prior year period. partially offsetting these increases was the negative impact of foreign currency translation on net sales during the three months ended october 31, 2022. organic net sales, which exclude the net sales of acquired businesses until the first anniversary of the acquisition date and the impact of foreign currency translation, increased 22.2%. excluding the impact from one additional selling day in the second quarter of fiscal 2023 compared to the same period a year ago, net sales and organic net sales were up 22.5% and 20.3%, respectively. year-over-year quarterly sales increases by product category were as follows: wallboard sales of $584.6 million increased 41.0% (up 41.4% on an organic basis). ceilings sales of $159.6 million increased 13.3% (up 13.6% on an organic basis). steel framing sales of $278.2 million increased 2.3% (up 2.5% on an organic basis). complementary product sales of $408.7 million increased 26.5% (up 17.8% on an organic basis). gross profit of $464.5 million increased 24.9% compared to the second quarter of fiscal 2022 primarily due to the successful pass through of product inflation, continued strength in residential market demand, improving commercial sales, and incremental gross profit from acquisitions. gross margin of 32.5% increased 20 basis points year-over-year with strong margins in complementary products and better-than-expected margins in steel framing on focused inventory management and project quoting as steel pricing declined during the quarter. selling, general and administrative (“sg&a”) expense as a percentage of net sales improved 50 basis points to 19.5% for the quarter compared to 20.0% in the second quarter of fiscal 2022. adjusted sg&a expense as a percentage of net sales of 18.9% improved 50 basis points from 19.4% in the prior year quarter as product inflation outpaced increases in operating costs. net income increased 38.7% to $103.2 million, or $2.41 per diluted share, compared to net income of $74.4 million, or $1.69 per diluted share, in the second quarter of fiscal 2022. adjusted net income was $119.5 million, or $2.79 per diluted share, compared to $87.8 million, or $2.00 per diluted share, in the second quarter of the prior fiscal year. adjusted ebitda increased $46.0 million, or 30.7%, to $195.5 million compared to the prior year quarter. adjusted ebitda margin of 13.7% improved 70 basis points from 13.0% for the second quarter of fiscal 2022. balance sheet, liquidity and cash flow as of october 31, 2022, the company had cash on hand of $124.2 million, total debt of $1.2 billion and $293.8 million of available liquidity under its revolving credit facilities. net debt leverage was 1.6 times as of the end of the quarter, down from 2.4 times at the end of the second quarter of fiscal 2022. the company recorded significantly improved levels of cash flow for the quarter. cash provided by operating activities and free cash flow were $107.3 million and $96.5 million, respectively, for the quarter ended october 31, 2022. for the quarter ended october 31, 2021, the company recorded cash used by operating activities and free cash flow of $2.0 million and $11.3 million, respectively. during the quarter, the company repurchased common stock of $25.8 million. as of october 31, 2022, the company had $161.2 million of repurchase authorization remaining. conference call and webcast gms will host a conference call and webcast to discuss its results for the second quarter of fiscal 2023 ended october 31, 2022 and other information related to its business at 8:30 a.m. eastern time on thursday, december 8, 2022. investors who wish to participate in the call should dial 877-407-3982 (domestic) or 201-493-6780 (international) at least 5 minutes prior to the start of the call. the live webcast will be available on the investors section of the company’s website at www.gms.com. there will be a slide presentation of the results available on that page of the website as well. replays of the call will be available through january 8, 2023 and can be accessed at 844-512-2921 (domestic) or 412-317-6671 (international) and entering the pass code 13733586. about gms inc. founded in 1971, gms operates a network of approximately 300 distribution centers with extensive product offerings of wallboard, ceilings, steel framing and complementary products. in addition, gms operates approximately 100 tool sales, rental and service centers, providing a comprehensive selection of building products and solutions for its residential and commercial contractor customer base across the united states and canada. the company’s unique operating model combines the benefits of a national platform and strategy with a local go-to-market focus, enabling gms to generate significant economies of scale while maintaining high levels of customer service. use of non-gaap financial measures gms reports its financial results in accordance with gaap. however, it presents adjusted net income, free cash flow, adjusted sg&a, adjusted ebitda, and adjusted ebitda margin, which are not recognized financial measures under gaap. gms believes that adjusted net income, free cash flow, adjusted sg&a, adjusted ebitda, and adjusted ebitda margin assist investors and analysts in comparing its operating performance across reporting periods on a consistent basis by excluding items that the company does not believe are indicative of its core operating performance. the company’s management believes adjusted net income, adjusted sg&a, free cash flow, adjusted ebitda and adjusted ebitda margin are helpful in highlighting trends in its operating results, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which the company operates and capital investments. in addition, the company utilizes adjusted ebitda in certain calculations in its debt agreements. you are encouraged to evaluate each adjustment and the reasons gms considers it appropriate for supplemental analysis. in addition, in evaluating adjusted net income, adjusted sg&a and adjusted ebitda, you should be aware that in the future, the company may incur expenses similar to the adjustments in the presentation of adjusted net income, adjusted sg&a and adjusted ebitda. the company’s presentation of adjusted net income, adjusted sg&a, adjusted sg&a margin, adjusted ebitda, and adjusted ebitda margin should not be construed as an inference that its future results will be unaffected by unusual or non-recurring items. in addition, adjusted net income, free cash flow, adjusted sg&a and adjusted ebitda may not be comparable to similarly titled measures used by other companies in gms’s industry or across different industries. please see the tables at the end of this release for a reconciliation of adjusted ebitda, free cash flow, adjusted sg&a and adjusted net income to the most directly comparable gaap financial measures. when calculating organic net sales growth, the company excludes from the calculation (i) net sales of acquired businesses until the first anniversary of the acquisition date, and (ii) the impact of foreign currency translation. forward-looking statements and information this press release includes “forward-looking statements” within the meaning of the private securities litigation reform act of 1995. you can generally identify forward-looking statements by the company’s use of forward-looking terminology such as “anticipate,” “believe,” “confident,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “seek,” or “should,” or the negative thereof or other variations thereon or comparable terminology. in particular, statements about the markets in which gms operates, including in particular residential and commercial construction, and the economy generally, pricing, the demand for the company’s products, the company’s strategic priorities and the results thereof, performance, service levels and the ability to drive value and results contained in this press release may be considered forward-looking statements. the company has based forward-looking statements on its current expectations, assumptions, estimates and projections. while the company believes these expectations, assumptions, estimates, and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond its control, including current and future public health issues that may affect the company’s business. forward-looking statements involve risks and uncertainties, including, but not limited to, those described in the “risk factors” section in the company’s most recent annual report on form 10-k, and in its other periodic reports filed with the sec. in addition, the statements in this release are made as of december 8, 2022. the company undertakes no obligation to update any of the forward-looking statements made herein, whether as a result of new information, future events, changes in expectation or otherwise. these forward-looking statements should not be relied upon as representing the company’s views as of any date subsequent to december 8, 2022. gms inc. condensed consolidated statements of operations (unaudited) (in thousands, except per share data) three months ended six months ended october 31, october 31, 2022 2021 2022 2021 net sales $ 1,430,979 $ 1,150,551 $ 2,790,532 $ 2,192,627 cost of sales (exclusive of depreciation and amortization shown separately below) 966,479 778,681 1,891,311 1,484,924 gross profit 464,500 371,870 899,221 707,703 operating expenses: selling, general and administrative 278,994 230,531 546,683 444,612 depreciation and amortization 32,226 29,403 64,666 57,117 total operating expenses 311,220 259,934 611,349 501,729 operating income 153,280 111,936 287,872 205,974 other (expense) income: interest expense (16,055 ) (14,744 ) (30,716 ) (28,401 ) other income, net 1,923 938 3,492 1,730 total other expense, net (14,132 ) (13,806 ) (27,224 ) (26,671 ) income before taxes 139,148 98,130 260,648 179,303 provision for income taxes 35,995 23,769 68,025 43,740 net income $ 103,153 $ 74,361 $ 192,623 $ 135,563 weighted average common shares outstanding: basic 42,232 43,135 42,390 43,112 diluted 42,887 43,894 43,102 43,933 net income per common share: basic $ 2.44 $ 1.72 $ 4.54 $ 3.14 diluted $ 2.41 $ 1.69 $ 4.47 $ 3.09 gms inc. condensed consolidated balance sheets (unaudited) (in thousands, except per share data) october 31, 2022 april 30, 2022 assets current assets: cash and cash equivalents $ 124,201 $ 101,916 trade accounts and notes receivable, net of allowances of $10,751 and $9,346, respectively 872,882 750,046 inventories, net 576,388 550,953 prepaid expenses and other current assets 23,191 20,212 total current assets 1,596,662 1,423,127 property and equipment, net of accumulated depreciation of $245,974 and $227,288, respectively 362,983 350,679 operating lease right-of-use assets 149,544 153,271 goodwill 690,288 695,897 intangible assets, net 411,200 454,747 deferred income taxes 21,168 17,883 other assets 14,100 8,795 total assets $ 3,245,945 $ 3,104,399 liabilities and stockholders’ equity current liabilities: accounts payable $ 366,143 $ 367,315 accrued compensation and employee benefits 90,253 107,925 other accrued expenses and current liabilities 137,404 127,938 current portion of long-term debt 47,618 47,605 current portion of operating lease liabilities 39,349 38,415 total current liabilities 680,767 689,198 non-current liabilities: long-term debt, less current portion 1,166,544 1,136,585 long-term operating lease liabilities 108,762 112,161 deferred income taxes, net 47,625 46,802 other liabilities 58,308 55,155 total liabilities 2,062,006 2,039,901 commitments and contingencies stockholders' equity: common stock, par value $0.01 per share, 500,000 shares authorized; 41,851 and 42,773 shares issued and outstanding as of october 31, 2022 and april 30, 2022, respectively 418 428 preferred stock, par value $0.01 per share, 50,000 shares authorized; 0 shares issued and outstanding as of october 31, 2022 and april 30, 2022 — — additional paid-in capital 477,558 522,136 retained earnings 740,600 547,977 accumulated other comprehensive loss (34,637 ) (6,043 ) total stockholders' equity 1,183,939 1,064,498 total liabilities and stockholders' equity $ 3,245,945 $ 3,104,399 gms inc. condensed consolidated statements of cash flows (unaudited) (in thousands) six months ended october 31, 2022 2021 cash flows from operating activities: net income $ 192,623 $ 135,563 adjustments to reconcile net income to net cash provided by (used in) operating activities: depreciation and amortization 64,666 57,117 amortization of debt discount and debt issuance costs 802 1,392 equity-based compensation 13,322 7,951 gain on disposal and impairment of assets (203 ) (222 ) deferred income taxes (2,925 ) (718 ) other items, net 4,662 1,682 changes in assets and liabilities net of effects of acquisitions: trade accounts and notes receivable (133,445 ) (147,359 ) inventories (32,270 ) (168,519 ) prepaid expenses and other assets (4,913 ) (216 ) accounts payable 3,821 16,608 accrued compensation and employee benefits (17,859 ) (3,561 ) other accrued expenses and liabilities 14,580 23,187 cash provided by (used in) operating activities 102,861 (77,095 ) cash flows from investing activities: purchases of property and equipment (21,670 ) (16,119 ) proceeds from sale of assets 896 466 acquisition of businesses, net of cash acquired (2,620 ) (124,976 ) cash used in investing activities (23,394 ) (140,629 ) cash flows from financing activities: repayments on revolving credit facilities (251,247 ) (442,442 ) borrowings from revolving credit facilities 280,113 583,233 payments of principal on long-term debt (2,555 ) (2,555 ) payments of principal on finance lease obligations (16,450 ) (15,154 ) repurchases of common stock (49,571 ) (13,124 ) payment of acquisition holdback liability (13,500 ) — proceeds from exercises of stock options 701 1,840 payments for taxes related to net share settlement of equity awards (3,960 ) (2,835 ) proceeds from issuance of stock pursuant to employee stock purchase plan 1,329 1,140 cash (used in) provided by financing activities (55,140 ) 110,103 effect of exchange rates on cash and cash equivalents (2,042 ) (81 ) increase (decrease) in cash and cash equivalents 22,285 (107,702 ) cash and cash equivalents, beginning of period 101,916 167,012 cash and cash equivalents, end of period $ 124,201 $ 59,310 supplemental cash flow disclosures: cash paid for income taxes $ 60,792 $ 37,784 cash paid for interest 29,268 17,596 gms inc. net sales by product group (unaudited) (dollars in thousands) three months ended six months ended october 31, 2022 % of total october 31, 2021 % of total october 31, 2022 % of total october 31, 2021 % of total wallboard $ 584,557 40.9 % $ 414,522 36.0 % $ 1,106,111 39.6 % $ 804,657 36.7 % ceilings 159,601 11.2 % 140,866 12.2 % 326,876 11.7 % 278,937 12.7 % steel framing 278,152 19.4 % 272,000 23.6 % 553,048 19.8 % 468,276 21.4 % complementary products 408,669 28.6 % 323,163 28.2 % 804,497 28.8 % 640,757 29.2 % total net sales $ 1,430,979 $ 1,150,551 $ 2,790,532 $ 2,192,627 gms inc. reconciliation of net income to adjusted ebitda (unaudited) (in thousands) three months ended six months ended october 31, october 31, 2022 2021 2022 2021 net income $ 103,153 $ 74,361 $ 192,623 $ 135,563 interest expense 16,055 14,744 30,716 28,401 interest income (154 ) (27 ) (210 ) (27 ) provision for income taxes 35,995 23,769 68,025 43,740 depreciation expense 15,058 13,703 30,051 26,628 amortization expense 17,168 15,700 34,615 30,489 ebitda $ 187,275 $ 142,250 $ 355,820 $ 264,794 stock appreciation expense(a) 3,230 983 5,574 1,875 redeemable noncontrolling interests and deferred compensation(b) 340 593 835 903 equity-based compensation(c) 3,781 3,215 6,913 5,173 severance and other permitted costs(d) 379 249 731 396 transaction costs (acquisitions and other)(e) 292 2,393 678 2,968 (gain) loss on disposal of assets(f) 81 (144 ) (203 ) (222 ) effects of fair value adjustments to inventory(g) 135 — 179 1,731 ebitda addbacks 8,238 7,289 14,707 12,824 adjusted ebitda $ 195,513 $ 149,539 $ 370,527 $ 277,618 net sales $ 1,430,979 $ 1,150,551 $ 2,790,532 $ 2,192,627 adjusted ebitda margin 13.7 % 13.0 % 13.3 % 12.7 % ___________________________________ (a) represents changes in the fair value of stock appreciation rights. (b) represents changes in the fair values of noncontrolling interests and deferred compensation agreements. (c) represents non-cash equity-based compensation expense related to the issuance of share-based awards. (d) represents severance expenses and other costs permitted in the calculation of adjusted ebitda under the abl facility and the term loan facility. (e) represents costs related to acquisitions paid to third parties. (f) includes gains and losses from the sale and disposal of assets. (g) represents the non-cash cost of sales impact of acquisition accounting adjustments to increase inventory to its estimated fair value. reconciliation of cash provided by (used in) operating activities to free cash flow (unaudited) (in thousands) three months ended six months ended october 31, october 31, 2022 2021 2022 2021 cash provided by (used in) operating activities $ 107,264 $ (2,018 ) $ 102,861 $ (77,095 ) purchases of property and equipment (10,727 ) (9,305 ) (21,670 ) (16,119 ) free cash flow (a) $ 96,537 $ (11,323 ) $ 81,191 $ (93,214 ) ________________________________________ (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 six months ended october 31, october 31, 2022 2021 2022 2021 selling, general and administrative expense $ 278,994 $ 230,531 $ 546,683 $ 444,612 adjustments stock appreciation expense(a) (3,230 ) (983 ) (5,574 ) (1,875 ) redeemable noncontrolling interests and deferred compensation(b) (340 ) (593 ) (835 ) (903 ) equity-based compensation(c) (3,781 ) (3,215 ) (6,913 ) (5,173 ) severance and other permitted costs(d) (411 ) (251 ) (748 ) (412 ) transaction costs (acquisitions and other)(e) (292 ) (2,393 ) (678 ) (2,968 ) gain (loss) on disposal of assets(f) (81 ) 144 203 222 adjusted sg&a $ 270,859 $ 223,240 $ 532,138 $ 433,503 net sales $ 1,430,979 $ 1,150,551 $ 2,790,532 $ 2,192,627 adjusted sg&a margin 18.9 % 19.4 % 19.1 % 19.8 % ___________________________________ (a) represents changes in the fair value of stock appreciation rights. (b) represents changes in the fair values of noncontrolling interests and deferred compensation agreements. (c) represents non-cash equity-based compensation expense related to the issuance of share-based awards. (d) represents severance expenses and other costs permitted in the calculation of adjusted ebitda under the abl facility and the term loan facility. (e) represents costs related to acquisitions paid to third parties. (f) includes gains and losses from the sale and disposal of assets. reconciliation of income before taxes to adjusted net income (unaudited) (in thousands, except per share data) three months ended six months ended october 31, october 31, 2022 2021 2022 2021 income before taxes $ 139,148 $ 98,130 $ 260,648 $ 179,303 ebitda add-backs 8,238 7,289 14,707 12,824 acquisition accounting depreciation and amortization (1) 13,057 10,811 26,335 21,129 adjusted pre-tax income 160,443 116,230 301,690 213,256 adjusted income tax expense 40,913 28,476 76,931 52,248 adjusted net income $ 119,530 $ 87,754 $ 224,759 $ 161,008 effective tax rate (2) 25.5 % 24.5 % 25.5 % 24.5 % weighted average shares outstanding: basic 42,232 43,135 42,390 43,112 diluted 42,887 43,894 43,102 43,933 adjusted net income per share: basic $ 2.83 $ 2.03 $ 5.30 $ 3.73 diluted $ 2.79 $ 2.00 $ 5.21 $ 3.66 ________________________________________ (1) depreciation and amortization from the increase in value of certain long-term assets associated with the april 1, 2014 acquisition of the predecessor company and amortization of intangible assets from the acquisitions of titan, westside building material and ames taping tools. (2) normalized cash tax rate excluding the impact of acquisition accounting and certain other deferred tax amounts.
