Gms reports second quarter fiscal 2020 results
Tucker, ga.--(business wire)--gms inc. (nyse:gms), a leading north american specialty distributor of interior building products, today reported financial results for the second quarter of fiscal 2020 ended october 31, 2019. second quarter fiscal 2020 highlights net sales of $861.9 million increased 3.4% from $833.8 million in the second quarter of the prior fiscal year. organic net sales increased 2.7% year over year. reported net income of $29.1 million, or $0.68 per diluted share, compared to $24.9 million, or $0.58 per diluted share, in the second quarter of the prior fiscal year. adjusted net income of $42.7 million, or $1.00 per diluted share, compared to $38.3 million, or $0.89 per diluted share, in the second quarter of the prior fiscal year. adjusted ebitda of $89.9 million, or 10.4% of net sales, compared to adjusted ebitda of $87.1 million, or 10.5% of net sales, in the second quarter of the prior fiscal year. the company completed one greenfield opening during the second quarter of fiscal 2020. net leverage was reduced to 3.5 times as of the end of the second quarter of fiscal 2020 from 3.7 times as of the end of the first quarter of fiscal 2020. cash provided by operating activities and free cash flow for the first six months of fiscal 2020 totaled $69.9 million and $55.3 million, respectively, representing increases of 53.2% and 51.5%, respectively, from the first six months of fiscal 2019. “the gms team continued to execute well in the second quarter, growing sales, expanding gross margin and achieving higher net income and adjusted ebitda,” said john c. turner, jr., president and chief executive officer. “we achieved strong volume performance in the united states, where demand conditions remain solid, while managing continued softness in canada. we also generated strong cash from operations and free cash flow, and continue to pursue our existing capital allocation priorities, including debt reduction and prudent geographic and market share expansion through acquisitions and greenfields. “moving forward, we remain focused on our strategic priorities which include increased emphasis on organic growth through expanding market share in core products and growing our complementary product lines. we will also continue to pursue strategic acquisitions and greenfield branch openings as we broaden our geographic platform. with a heightened focus on enhanced productivity and profitability across the organization, we are confident that we are well-positioned to capitalize on the growth opportunities ahead and drive value for our shareholders.” second quarter fiscal 2020 results net sales for the second quarter of fiscal 2020 of $861.9 million were up 3.4%, or 2.7% on an organic basis, compared to $833.8 million for the second quarter of the prior fiscal year. wallboard sales of $350.6 million increased 4.8% (4.0% on an organic basis) compared to the second quarter of fiscal 2019, driven primarily by higher organic volumes and acquisitions, partially offset by lower pricing/mix. ceilings sales of $122.8 million increased 3.7% (1.7% on an organic basis) compared to the second quarter of fiscal 2019, primarily due to higher organic volumes and acquisitions, as well as slightly higher pricing/mix. steel framing sales of $136.2 million increased 0.3% (down 0.6% on an organic basis) compared to the second quarter of fiscal 2019, driven by higher organic volumes and acquisitions, partially offset by lower pricing/mix. other product sales of $252.3 million increased 3.0% (3.1% on an organic basis) compared to the second quarter of fiscal 2019, due to higher organic growth and acquisitions. gross profit of $284.5 million increased 6.1% from $268.2 million in the second quarter of fiscal 2019, as a result of higher sales, both organically and including the positive impact of acquisitions. gross margin of 33.0% increased 80 basis points from 32.2% a year ago primarily due to net favorable price-cost dynamics, acquisition-related purchasing synergies and product mix. selling, general and administrative (sg&a) expense as a percentage of net sales was 23.3% for the quarter compared to 22.2% in the second quarter of fiscal 2019. adjusted sg&a expense as a percentage of net sales was 22.7% compared to 21.8% in the prior year quarter. the 90 basis point increase in adjusted sg&a as a percentage of sales resulted primarily from the year-over-year decline in the selling price of certain of our products and, to a lesser extent, continuing inflationary cost pressures. in addition, the company continued to make ongoing investments in greenfields and business initiatives intended to drive growth and productivity. net income of $29.1 million, or $0.68 per diluted share, compared to $24.9 million, or $0.58 per diluted share, in the second quarter of fiscal 2019. adjusted net income of $42.7 million, or $1.00 per diluted share, compared to $38.3 million, or $0.89 per diluted share, in the second quarter of fiscal 2019. adjusted ebitda of $89.9 million increased 3.2% year over year and represented an adjusted ebitda margin of 10.4%. balance sheet as of october 31, 2019, the company had cash of $36.3 million and total debt of $1.10 billion, compared to cash of $24.1 million and total debt of $1.16 billion, as of july 31, 2019. as previously disclosed, during the second fiscal quarter, the company amended its asset based revolving credit facility to increase commitments from $345.0 million to $445.0 million, extend the maturity date to september 30, 2024 and improve the rate structure. also during the second fiscal quarter, the company made a $50.0 million prepayment of outstanding principal of its senior secured first lien term loan facility. as of the end of the fiscal second quarter, the company had a total of $410.4 million available under its revolving credit facilities. during the second fiscal quarter, the company reduced its net debt by $73.1 million and net leverage was 3.5 times as of the end of the quarter compared to 3.7 times as of the end of the first quarter of fiscal 2020. platform expansion activity during the second quarter of fiscal 2020, the company opened a greenfield location in wilsonville, oregon. subsequent to the end of the second quarter, the company also completed the previously announced acquisition of rigney building supplies ltd in kingston, ontario. conference call and webcast gms will host a conference call and webcast to discuss its results for the second quarter ended october 31, 2019 and other information related to its business at 8:30 a.m. eastern time on thursday, december 5, 2019. 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 5, 2019 and can be accessed at 844-512-2921 (domestic) or 412-317-6671 (international) and entering the pass code 13697005. about gms inc. founded in 1971, gms operates a network of more than 250 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 and statements about growth potential across the company’s business and the ability to deliver growth and value creation contained in this press release are forward-looking statements. the company has based these 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. 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 5, 2019. 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 5, 2019. gms inc. condensed consolidated statements of operations (unaudited) (in thousands, except per share data) three months ended six months ended october 31, october 31, 2019 2018 2019 2018 net sales $ 861,929 $ 833,837 $ 1,709,105 $ 1,611,981 cost of sales (exclusive of depreciation and amortization shown separately below) 577,436 565,687 1,150,958 1,099,015 gross profit 284,493 268,150 558,147 512,966 operating expenses: selling, general and administrative 200,457 185,268 395,088 370,703 depreciation and amortization 29,518 30,787 58,793 57,109 total operating expenses 229,975 216,055 453,881 427,812 operating income 54,518 52,095 104,266 85,154 other (expense) income: interest expense (17,559 ) (19,182 ) (35,836 ) (35,370 ) change in fair value of financial instruments — (376 ) — (6,395 ) write-off of debt discount and deferred financing fees (707 ) — (707 ) — other income, net 813 434 1,752 1,068 total other expense, net (17,453 ) (19,124 ) (34,791 ) (40,697 ) income before taxes 37,065 32,971 69,475 44,457 provision for income taxes 7,927 8,059 15,517 10,895 net income $ 29,138 $ 24,912 $ 53,958 $ 33,562 weighted average common shares outstanding: basic 41,761 41,149 41,382 41,121 diluted 42,635 41,918 42,126 41,996 net income per common share(1): basic $ 0.70 $ 0.59 $ 1.30 $ 0.80 diluted $ 0.68 $ 0.58 $ 1.27 $ 0.78 (1) the following table sets forth the computation of basic and diluted earnings per share of common stock for periods presented: three months ended six months ended october 31, october 31, 2019 2018 2019 2018 (in thousands, except per share data) net income $ 29,138 $ 24,912 $ 53,958 $ 33,562 less: net income allocated to participating securities — 665 342 751 net income attributable to common stockholders $ 29,138 $ 24,247 $ 53,616 $ 32,811 basic earnings per common share: basic weighted average common shares outstanding 41,761 41,149 41,382 41,121 basic earnings per common share $ 0.70 $ 0.59 $ 1.30 $ 0.80 diluted earnings per common share: basic weighted average common shares outstanding 41,761 41,149 41,382 41,121 add: common stock equivalents 874 769 744 875 diluted weighted average common shares outstanding 42,635 41,918 42,126 41,996 diluted earnings per common share $ 0.68 $ 0.58 $ 1.27 $ 0.78 gms inc. condensed consolidated balance sheets (unaudited) (in thousands, except per share data) october 31, april 30, 2019 2019 assets current assets: cash and cash equivalents $ 36,269 $ 47,338 trade accounts and notes receivable, net of allowances of $6,414 and $6,432, respectively 480,321 445,771 inventories, net 293,465 290,829 prepaid expenses and other current assets 19,621 18,368 total current assets 829,676 802,306 property and equipment, net of accumulated depreciation of $140,608 and $123,583, respectively 292,136 282,349 operating lease right-of-use assets 107,624 — goodwill 621,916 617,327 intangible assets, net 401,909 429,313 deferred income taxes 10,199 4,676 other assets 17,890 13,583 total assets $ 2,281,350 $ 2,149,554 liabilities and stockholders’ equity current liabilities: accounts payable $ 168,768 $ 173,751 accrued compensation and employee benefits 49,981 62,858 other accrued expenses and current liabilities 80,034 79,848 current portion of long-term debt 45,963 42,118 current portion of operating lease liabilities 31,178 — total current liabilities 375,924 358,575 non-current liabilities: long-term debt, less current portion 1,054,085 1,099,077 long-term operating lease liabilities 81,896 — deferred income taxes, net 10,382 10,226 other liabilities 63,024 52,500 total liabilities 1,585,311 1,520,378 commitments and contingencies stockholders' equity: common stock, par value $0.01 per share, 500,000 shares authorized; 42,169 and 40,375 shares issued and outstanding as of october 31, 2019 and april 30, 2019, respectively 422 404 preferred stock, par value $0.01 per share, 50,000 shares authorized; 0 shares issued and outstanding as of october 31, 2019 and april 30, 2019 — — exchangeable shares — 29,639 additional paid-in capital 520,855 480,113 retained earnings 199,552 145,594 accumulated other comprehensive loss (24,790 ) (26,574 ) total stockholders' equity 696,039 629,176 total liabilities and stockholders' equity $ 2,281,350 $ 2,149,554 gms inc. condensed consolidated statements of cash flows (unaudited) (in thousands) six months ended october 31, 2019 2018 cash flows from operating activities: net income $ 53,958 $ 33,562 adjustments to reconcile net income to net cash provided by operating activities: depreciation and amortization 58,793 57,109 write-off and amortization of debt discount and debt issuance costs 2,368 1,665 provision for losses on accounts and notes receivable 375 81 provision for obsolescence of inventory 195 229 effects of fair value adjustments to inventory 151 4,129 increase in fair value of contingent consideration 380 460 equity-based compensation 5,591 3,204 gain on sale and disposal of assets (742 ) (294 ) change in fair value of financial instruments — 6,395 deferred income taxes (2,380 ) (5,145 ) changes in assets and liabilities net of effects of acquisitions: trade accounts and notes receivable (29,932 ) (45,355 ) inventories 1,800 (4,553 ) prepaid expenses and other assets 1,573 (343 ) accounts payable (5,486 ) 9,516 accrued compensation and employee benefits (12,974 ) (9,550 ) derivative liability — (10,778 ) other accrued expenses and liabilities (3,743 ) 5,325 cash provided by operating activities 69,927 45,657 cash flows from investing activities: purchases of property and equipment (14,637 ) (9,156 ) proceeds from sale of assets 1,056 638 acquisition of businesses, net of cash acquired (10,633 ) (578,917 ) cash used in investing activities (24,214 ) (587,435 ) cash flows from financing activities: repayments on the revolving credit facility (558,906 ) (469,647 ) borrowings from the revolving credit facility 562,698 623,117 payments of principal on long-term debt (54,984 ) (4,984 ) payments of principal on finance lease obligations (12,310 ) (8,820 ) borrowings from term loan amendment — 996,840 repayments from term loan amendment — (571,840 ) debt issuance costs (1,286 ) (7,933 ) proceeds from exercises of stock options 6,761 973 other financing activities 1,022 873 cash (used in) provided by financing activities (57,005 ) 558,579 effect of exchange rates on cash and cash equivalents 223 (360 ) (decrease) increase in cash and cash equivalents (11,069 ) 16,441 cash and cash equivalents, beginning of period 47,338 36,437 cash and cash equivalents, end of period $ 36,269 $ 52,878 supplemental cash flow disclosures: cash paid for income taxes $ 25,642 $ 10,469 cash paid for interest 33,654 30,966 gms inc. net sales by product group (unaudited) (dollars in thousands) three months ended six months ended october 31, % of october 31, % of october 31, % of october 31, % of 2019 total 2018 total 2019 total 2018 total (dollars in thousands) wallboard $ 350,618 40.7 % $ 334,688 40.1 % $ 692,213 40.5 % $ 652,423 40.5 % ceilings 122,807 14.2 % 118,376 14.2 % 251,917 14.7 % 234,231 14.5 % steel framing 136,159 15.8 % 135,760 16.3 % 267,988 15.7 % 264,872 16.4 % other products 252,345 29.3 % 245,013 29.4 % 496,987 29.1 % 460,455 28.6 % total net sales $ 861,929 $ 833,837 $ 1,709,105 $ 1,611,981 gms inc. reconciliation of net income to adjusted ebitda (unaudited) (in thousands) three months ended six months ended october 31, october 31, 2019 2018 2019 2018 net income $ 29,138 $ 24,912 $ 53,958 $ 33,562 interest expense 17,559 19,182 35,836 35,370 write-off of debt discount and deferred financing fees 707 — 707 — interest income (6 ) 203 (18 ) (33 ) provision for income taxes 7,927 8,059 15,517 10,895 depreciation expense 12,592 11,538 25,014 22,148 amortization expense 16,926 19,249 33,779 34,961 ebitda $ 84,843 $ 83,143 $ 164,793 $ 136,903 stock appreciation expense (a) 1,267 649 1,327 983 redeemable noncontrolling interests(b) (18 ) 282 644 813 equity-based compensation(c) 2,315 1,094 3,710 1,498 severance and other permitted costs(d) 1,394 882 1,948 5,718 transaction costs (acquisitions and other)(e) 327 841 1,299 5,594 gain on disposal of assets (586 ) (173 ) (742 ) (294 ) effects of fair value adjustments to inventory(f) — — 151 4,129 change in fair value of financial instruments(g) — 376 — 6,395 secondary public offering costs(h) 363 — 363 — debt transaction costs(i) — 51 — 678 ebitda add-backs 5,062 4,002 8,700 25,514 adjusted ebitda $ 89,905 $ 87,145 $ 173,493 $ 162,417 net sales $ 861,929 $ 833,837 1,709,105 1,611,981 adjusted ebitda margin 10.4 % 10.5 % 10.2 % 10.1 % ______________________________________ (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. (d) represents severance expenses and other costs permitted in calculations under the abl facility and the first lien facility. (e) represents costs related to acquisitions paid to third parties. (f) represents the non‑cash cost of sales impact of purchase accounting adjustments to increase inventory to its estimated fair value. (g) represents the mark‑to‑market adjustments for derivative financial instruments. (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. reconciliation of cash provided by operating activities to free cash flow (unaudited) (in thousands) three months ended six months ended october 31, october 31, 2019 2018 2019 2018 cash provided by operating activities $ 82,367 $ 93,481 $ 69,927 $ 45,657 purchases of property and equipment (8,746 ) (5,363 ) (14,637 ) (9,156 ) free cash flow(a) $ 73,621 $ 88,118 $ 55,290 $ 36,501 ______________________________________ (a) free cash flow is a non-gaap financial measure that we define as net cash provided by 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, 2019 2018 2019 2018 selling, general and administrative expense $ 200,457 $ 185,268 $ 395,088 $ 370,703 adjustments stock appreciation expense (a) (1,267 ) (649 ) (1,327 ) (983 ) redeemable noncontrolling interests(b) 18 (282 ) (644 ) (813 ) equity-based compensation(c) (2,315 ) (1,094 ) (3,710 ) (1,498 ) severance and other permitted costs(d) (1,394 ) (882 ) (1,948 ) (5,718 ) transaction costs (acquisitions and other)(e) (327 ) (841 ) (1,299 ) (5,594 ) gain on disposal of assets 586 173 742 294 secondary public offering costs(f) (363 ) — (363 ) — debt transaction costs(g) — (51 ) — (678 ) adjusted sg&a $ 195,395 $ 181,642 $ 386,539 $ 355,713 net sales $ 861,929 $ 833,837 $ 1,709,105 $ 1,611,981 adjusted sg&a margin 22.7 % 21.8 % 22.6 % 22.1 % ______________________________________ (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. (d) represents severance expenses and other costs permitted in calculations under the abl facility and the first lien facility. (e) represents costs related to acquisitions paid to third parties. (f) represents costs paid to third-party advisors related to secondary offerings of our common stock. (g) represents costs paid to third-party advisors related to debt refinancing activities. gms inc. 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, 2019 2018 2019 2018 income before taxes $ 37,065 $ 32,971 $ 69,475 $ 44,457 ebitda add-backs 5,062 4,002 8,700 25,514 write-off of discount and deferred financing fees 707 — 707 — purchase accounting depreciation and amortization (1) 12,276 12,399 24,661 24,854 adjusted pre-tax income 55,110 49,372 103,543 94,825 adjusted income tax expense 12,400 11,109 23,297 21,336 adjusted net income $ 42,710 $ 38,263 $ 80,246 $ 73,489 effective tax rate (2) 22.5 % 22.5 % 22.5 % 22.5 % weighted average shares outstanding: basic 41,761 41,149 41,382 41,121 diluted (3) 42,635 43,047 42,391 43,125 adjusted net income per share: basic $ 1.02 $ 0.93 $ 1.94 $ 1.79 diluted $ 1.00 $ 0.89 $ 1.89 $ 1.70 ______________________________________ (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 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. (3) 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 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.
