Gms reports first 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 first quarter of fiscal 2020 ended july 31, 2019. first quarter fiscal 2020 highlights net sales of $847.2 million increased 8.9% from $778.1 million in the first quarter of the prior fiscal year. organic net sales (as described below) increased 3.4% year over year. reported net income of $24.8 million, or $0.59 per diluted share, compared to $8.7 million, or $0.20 per diluted share, in the first quarter of the prior fiscal year. adjusted net income of $37.5 million, or $0.89 per diluted share, compared to $35.2 million, or $0.82 per diluted share, in the first quarter of the prior fiscal year. adjusted ebitda of $83.6 million, or 9.9% of net sales compared to adjusted ebitda of $75.3 million, or 9.7% of net sales, in the first quarter of the prior fiscal year. the company completed one business acquisition and two greenfield openings during the first quarter of fiscal 2020. “we are off to a strong start to fiscal 2020 as we remain focused on leveraging the foundation of our business and positioning gms for long-term growth and profitability,” said john c. turner, jr., president and chief executive officer. “our team achieved record net sales results in the quarter, with organic net sales growth driven by strong sales in the united states, where we continue to see healthy end markets with solid demand, partially offset by continued softness in the canadian single-family housing market. we also generated greater profitability with higher year-over-year net income and a 20 basis point improvement in adjusted ebitda margin.” mr. turner continued, “gms has a strong market position through our extensive north american network coupled with local expertise and teams focused on superior service delivery. moving forward, we are committed to advancing the company’s next phase of growth and success. we will seek to capitalize on the significant organic growth opportunities across our existing platform and continue to enhance and expand our geographic footprint through greenfield operations and accretive acquisitions balanced with our debt reduction priorities. at the same time, we will continue to leverage our scale and employ best practices to deliver further profit improvement.” first quarter fiscal 2020 results net sales for the first quarter of fiscal 2020 of $847.2 million were up 8.9%, or 3.4% on an organic basis, compared to $778.1 million for the first quarter of the prior fiscal year. wallboard sales of $341.6 million increased 7.5% (3.5% on an organic basis) compared to the first quarter of fiscal 2019, driven by higher organic volumes and benefits from acquisitions, partially offset by a slight decrease in price. ceilings sales of $129.1 million increased 11.4% (8.3% on an organic basis) compared to the first quarter of fiscal 2019, primarily due to higher organic volumes, the positive impact of acquisitions and higher pricing. steel framing sales of $131.8 million increased 2.1% (down 0.8% on an organic basis) compared to the first quarter of fiscal 2019, driven by higher organic volumes and the positive impact of acquisitions, partially offset by lower pricing and mix. other product sales of $244.6 million increased 13.6% (3.1% on an organic basis) compared to the first quarter of fiscal 2019, as a result of the positive impact of acquisitions, as well as higher organic growth. gross profit of $273.7 million increased 11.8% from $244.8 million in the first quarter of fiscal 2019, as a result of higher sales, both organically and including the positive impact of acquisitions, as well as $4.1 million of non-cash purchase accounting adjustments recorded in the prior year related to the titan acquisition. gross margin of 32.3% increased 80 basis points from 31.5% a year ago primarily due to net favorable price-cost dynamics, titan purchasing synergies, and the prior year non-cash purchase accounting adjustments. selling, general and administrative (sg&a) expense as a percentage of net sales was 23.0% for the quarter compared to 23.8% in the first quarter of fiscal 2019. adjusted sg&a expense as a percentage of net sales was 22.6% compared to 22.4% in the prior year quarter. the 20 basis point increase in adjusted sg&a was the result of investments in business initiatives, reduced operating leverage in canada and inflationary cost pressures including those resulting from adverse weather conditions. these impacts were partially offset by increased cost efficiencies resulting from the company’s cost reduction initiatives. net income of $24.8 million, or $0.59 per diluted share, compared to $8.7 million, or $0.20 per diluted share, in the first quarter of fiscal 2019. adjusted net income of $37.5 million, or $0.89 per diluted share, compared to $35.2 million, or $0.82 per diluted share, in the first quarter of fiscal 2019. adjusted ebitda of $83.6 million increased 11.0% year over year and represented an adjusted ebitda margin of 9.9%. balance sheet and expansion activity as of july 31, 2019, the company had cash of $24.1 million and total debt of $1.16 billion, compared to cash of $36.9 million and total debt of $1.30 billion, as of july 31, 2018. net leverage was 3.7 times at the end of the first quarter of fiscal 2020 compared to 4.2 times at the end of the first quarter of fiscal 2019. during the first quarter of fiscal 2020, the company completed the previously-announced acquisition of hart acoustical & drywall supply in south texas with two locations in san antonio, tx and one location in san feria, tx. the company also opened two greenfield locations in manchester, nh and wichita falls, tx. organic net sales growth calculation and adoption of lease standard at the beginning of fiscal 2020, the company modified its calculation of organic, or base business, net sales growth. when calculating organic net sales growth, the company now excludes net sales of acquired businesses until the first anniversary of the acquisition date. previously, the company excluded net sales of businesses acquired in the current fiscal year, the prior fiscal year and three months prior to the start of the prior fiscal year. in addition, the company excludes the impact of foreign currency translation in its calculation of organic net sales growth. further information, including a presentation of prior years’ results under the new methodology, can be found in the company’s earnings supplement furnished today on form 8-k and posted on the company’s website. at the beginning of fiscal 2020, the company also adopted new authoritative guidance issued by the fasb on accounting for leases. the adoption resulted in recording operating lease right-of-use assets and operating lease liabilities on the company’s consolidated balance sheet of $118.8 million. the company also reclassed deferred rent of $4.8 million from liabilities into its operating lease right-of-use assets. conference call and webcast gms will host a conference call and webcast to discuss its results for the first quarter ended july 31, 2019 and other information related to its business at 8:30 a.m. eastern time on august 29, 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 september 29, 2019 and can be accessed at 844-512-2921 (domestic) or 412-317-6671 (international) and entering the pass code 13693769. 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. 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 august 29, 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 august 29, 2019. gms inc. condensed consolidated statements of operations (unaudited) (in thousands, except per share data) three months ended july 31, 2019 2018 net sales $ 847,176 $ 778,144 cost of sales (exclusive of depreciation and amortization shown separately below) 573,522 533,328 gross profit 273,654 244,816 operating expenses: selling, general and administrative 194,631 185,435 depreciation and amortization 29,275 26,322 total operating expenses 223,906 211,757 operating income 49,748 33,059 other (expense) income: interest expense (18,277) (16,188) change in fair value of financial instruments — (6,019) other income, net 939 634 total other expense, net (17,338) (21,573) income before taxes 32,410 11,486 provision for income taxes 7,590 2,836 net income $ 24,820 $ 8,650 weighted average common shares outstanding: basic 41,001 41,094 diluted 41,615 42,074 net income per common share(1): basic $ 0.60 $ 0.21 diluted $ 0.59 $ 0.20 (1) the following table sets forth the computation of basic and diluted earnings per share of common stock for periods presented: three months ended july 31, 2019 2018 (in thousands, except per share data) net income $ 24,820 $ 8,650 less: net income allocated to participating securities 319 156 net income attributable to common stockholders $ 24,501 $ 8,494 basic earnings per common share: basic weighted average common shares outstanding 41,001 41,094 basic earnings per common share $ 0.60 $ 0.21 diluted earnings per common share: basic weighted average common shares outstanding 41,001 41,094 add: common stock equivalents 614 980 diluted weighted average common shares outstanding 41,615 42,074 diluted earnings per common share $ 0.59 $ 0.20 gms inc. condensed consolidated balance sheets (unaudited) (in thousands, except per share data) july 31, april 30, 2019 2019 assets current assets: cash and cash equivalents $ 24,123 $ 47,338 trade accounts and notes receivable, net of allowances of $6,683 and $6,432, respectively 473,411 445,771 inventories, net 295,553 290,829 prepaid expenses and other current assets 17,925 18,368 total current assets 811,012 802,306 property and equipment, net of accumulated depreciation of $132,815 and $123,583, respectively 287,535 282,349 operating lease right-of-use assets 111,213 — goodwill 622,032 617,327 intangible assets, net 419,250 429,313 deferred income taxes 7,410 4,676 other assets 15,942 13,583 total assets $ 2,274,394 $ 2,149,554 liabilities and stockholders’ equity current liabilities: accounts payable $ 164,794 $ 173,751 accrued compensation and employee benefits 36,606 62,858 other accrued expenses and current liabilities 70,669 79,848 current portion of long-term debt 49,308 42,118 current portion of operating lease liabilities 32,622 — total current liabilities 353,999 358,575 non-current liabilities: long-term debt, less current portion 1,111,697 1,099,077 long-term operating lease liabilities 83,384 — deferred income taxes, net 9,647 10,226 other liabilities 45,191 41,571 liabilities to noncontrolling interest holders, less current portion 8,181 10,929 total liabilities 1,612,099 1,520,378 commitments and contingencies stockholders' equity: common stock, par value $0.01 per share, 500,000 shares authorized; 41,589 and 40,375 shares issued and outstanding as of july 31, 2019 and april 30, 2019, respectively 416 404 preferred stock, par value $0.01 per share, 50,000 shares authorized; 0 shares issued and outstanding as of july 31, 2019 and april 30, 2019 — — exchangeable shares — 29,639 additional paid-in capital 512,244 480,113 retained earnings 170,414 145,594 accumulated other comprehensive loss (20,779) (26,574) total stockholders' equity 662,295 629,176 total liabilities and stockholders' equity $ 2,274,394 $ 2,149,554 gms inc. condensed consolidated statements of cash flows (unaudited) (in thousands) three months ended july 31, 2019 2018 cash flows from operating activities: net income $ 24,820 $ 8,650 adjustments to reconcile net income to net cash used in operating activities: depreciation and amortization 29,275 26,322 write-off and amortization of debt discount and debt issuance costs 835 825 provision for losses on accounts and notes receivable 657 148 provision for obsolescence of inventory 119 (22) effects of fair value adjustments to inventory 151 4,129 increase in fair value of contingent consideration 228 229 equity-based compensation 2,071 1,269 gain on sale and disposal of assets (156) (121) change in fair value of financial instruments — 6,019 deferred income taxes (1,440) (571) changes in assets and liabilities net of effects of acquisitions: trade accounts and notes receivable (23,230) (40,974) inventories 18 (20,943) prepaid expenses and other assets (1,359) 416 accounts payable (9,526) (1,696) accrued compensation and employee benefits (26,347) (22,945) derivative liability — (10,778) other accrued expenses and liabilities (8,556) 2,219 cash used in operating activities (12,440) (47,824) cash flows from investing activities: purchases of property and equipment (5,891) (3,793) proceeds from sale of assets 232 266 acquisition of businesses, net of cash acquired (10,633) (575,499) cash used in investing activities (16,292) (579,026) cash flows from financing activities: repayments on the revolving credit facility (262,107) (176,769) borrowings from the revolving credit facility 274,810 392,170 payments of principal on long-term debt (2,492) (2,492) payments of principal on finance lease obligations (6,021) (3,998) borrowings from term loan — 996,840 repayments from term loan — (571,840) debt issuance costs — (7,933) proceeds from exercises of stock options 133 431 other financing activities 1,022 873 cash provided by financing activities 5,345 627,282 effect of exchange rates on cash and cash equivalents 172 (4) (decrease) increase in cash and cash equivalents (23,215) 428 cash and cash equivalents, beginning of period 47,338 36,437 cash and cash equivalents, end of period $ 24,123 $ 36,865 supplemental cash flow disclosures: cash paid for income taxes $ 18,776 $ 958 cash paid for interest 17,011 10,980 gms inc. net sales by product group (unaudited) (dollars in thousands) three months ended july 31, % of july 31, % of 2019 total 2018 total wallboard $ 341,595 40.3 % $ 317,735 40.8 % ceilings 129,110 15.2 % 115,855 14.9 % steel framing 131,829 15.6 % 129,112 16.6 % other products 244,642 28.9 % 215,442 27.7 % total net sales $ 847,176 $ 778,144 gms inc. reconciliation of net income to adjusted ebitda (unaudited) (in thousands) three months ended july 31, 2019 2018 net income $ 24,820 $ 8,650 interest expense 18,277 16,188 interest income (12) (236) provision for income taxes 7,590 2,836 depreciation expense 12,422 10,610 amortization expense 16,853 15,712 ebitda $ 79,950 $ 53,760 stock appreciation expense (a) 60 334 redeemable noncontrolling interests(b) 662 531 equity-based compensation(c) 1,395 404 severance and other permitted costs(d) 554 4,836 transaction costs (acquisitions and other)(e) 972 4,753 gain on disposal of assets (156) (121) effects of fair value adjustments to inventory(f) 151 4,129 change in fair value of financial instruments(g) — 6,019 debt transaction costs(h) — 627 ebitda add-backs 3,638 21,512 adjusted ebitda $ 83,588 $ 75,272 net sales $ 847,176 $ 778,144 adjusted ebitda margin 9.9 % 9.7 % (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 expenses paid to third-party advisors related to debt refinancing activities. gms inc. reconciliation of cash used in operating activities to free cash flow (unaudited) (in thousands) three months ended july 31, 2019 2018 cash used in operating activities $ (12,440) $ (47,824) purchases of property and equipment (5,891) (3,793) free cash flow(a) $ (18,331) $ (51,617) (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, 2019 2018 selling, general and administrative expense $ 194,631 $ 185,435 adjustments stock appreciation expense (a) (60) (334) redeemable noncontrolling interests(b) (662) (531) equity-based compensation(c) (1,395) (404) severance and other permitted costs(d) (554) (4,836) transaction costs (acquisitions and other)(e) (972) (4,753) gain on disposal of assets 156 121 debt transaction costs(f) — (627) adjusted sg&a $ 191,144 $ 174,071 net sales $ 847,176 $ 778,144 adjusted sg&a margin 22.6 % 22.4 % (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 expenses 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 july 31, 2019 2018 income before taxes $ 32,410 $ 11,486 ebitda add-backs 3,638 21,512 purchase accounting depreciation and amortization (1) 12,385 12,455 adjusted pre-tax income 48,433 45,453 adjusted income tax expense 10,897 10,227 adjusted net income $ 37,536 $ 35,226 effective tax rate (2) 22.5 % 22.5 % weighted average shares outstanding: basic 41,001 41,094 diluted (3) 42,148 43,203 adjusted net income per share: basic $ 0.92 $ 0.86 diluted $ 0.89 $ 0.82 (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 for fiscal 2020 excluding the impact of purchase accounting and certain other deferred tax amounts. (3) includes 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 as of april 30, 2019.
