Gms reports fourth quarter and fiscal year 2019 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 fourth quarter and fiscal year ended april 30, 2019. fourth quarter fiscal 2019 highlights net sales of $780.1 million increased 22.7% from $635.8 million in the fourth quarter of the prior fiscal year. organic net sales increased 7.0% year over year as a result of higher volumes and pricing improvement across all product groups. reported net income of $16.6 million, or $0.39 per diluted share, compared to $9.9 million, or $0.24 per diluted share, in the fourth quarter of the prior fiscal year. adjusted net income of $28.7 million, or $0.68 per diluted share, compared to $23.5 million, or $0.56 per diluted share, in the fourth quarter of the prior fiscal year. adjusted ebitda of $73.5 million, or 9.4% of net sales compared to adjusted ebitda of $50.1 million, or 7.9% of net sales, in the fourth quarter of the prior fiscal year. cash provided by operating activities of $88.2 million and free cash flow of $82.8 million increased from $24.9 million and $14.6 million, respectively, in the fourth quarter of the prior fiscal year. net leverage decreased to 3.6 times at the end of the fourth quarter of fiscal 2019 from 3.8 times at the end of the third quarter of fiscal 2019. the company completed one business acquisition and four greenfield openings during the fourth quarter of fiscal 2019. the company repurchased $5.0 million of common stock during the fourth quarter of fiscal 2019. full year fiscal 2019 highlights net sales of $3.12 billion increased 24.1% from $2.51 billion in the prior fiscal year. organic net sales increased 7.1% year over year. reported net income of $56.0 million, or $1.31 per diluted share, compared to $63.0 million, or $1.49 per diluted share, in the prior fiscal year. adjusted net income of $119.5 million, or $2.80 per diluted share, compared to $84.7 million, or $2.01 per diluted share, in the prior fiscal year. adjusted ebitda of $295.7 million, or 9.5% of net sales, compared to adjusted ebitda of $199.3 million, or 7.9% of net sales, in the prior fiscal year. cash provided by operating activities of $193.6 million and free cash flow of $174.8 million increased from $91.3 million and $67.5 million, respectively, in the prior fiscal year. net leverage decreased to 3.6 times at the end of fiscal 2019 from 4.2 times at the end of the first quarter of fiscal 2019, following the acquisition of titan. the company completed three business acquisitions and eight greenfield openings during fiscal 2019. the company repurchased $16.5 million of common stock during fiscal 2019. “we were pleased to deliver a strong finish to fiscal 2019 with record net sales and earnings for our fourth fiscal quarter,” said mike callahan, chief executive officer. “strong organic sales growth of 7.0% reflects higher volumes and pricing across all our product groups. activity levels across our end markets in the united states remain solid and continue to exhibit healthy fundamentals. while long-term factors contributing to housing demand and overall economic growth for canada remain positive, we currently face some challenging conditions in the canadian single-family housing market. we generated significant cash from operations and free cash flow in the quarter, enabling us to execute on our capital allocation priorities, which include reducing our net leverage, expanding through accretive acquisitions and greenfield investments and repurchasing our common stock.” mr. callahan continued, “we made significant progress throughout fiscal 2019 on a number of fronts, surpassing $3.0 billion in net sales through both organic growth and acquisitions, including the strategic acquisition of wsb titan, which increased our scale and footprint in north america, provided entry into the highly attractive canadian market, and created a well-balanced platform for long-term growth. at the same time, we significantly improved our operating leverage in fiscal 2019. we believe our market-leading position, broad product portfolio and diversified exposure across attractive commercial and residential new and r&r construction markets will enable us to continue to take advantage of further growth opportunities.” fourth quarter fiscal 2019 results net sales for the fourth quarter of fiscal 2019 were $780.1 million, up 22.7%, or 7.0% on an organic basis, compared to $635.8 million for the fourth quarter of the prior fiscal year. wallboard sales of $322.3 million increased 15.1% (3.8% on an organic basis) compared to the fourth quarter of fiscal 2018, driven by acquisitions, higher organic volumes and pricing. ceilings sales of $112.2 million increased 17.4% (13.7% on an organic basis) compared to the fourth quarter of fiscal 2018, primarily due to higher organic volumes as a result of increased commercial business, the positive impact of acquisitions and pricing. steel framing sales of $124.5 million increased 16.3% (8.3% on an organic basis) compared to the fourth quarter of fiscal 2018, driven by the positive impact of acquisitions, higher organic volumes as a result of greater commercial activity and pricing. other product sales of $221.1 million increased 44.4% (7.8% on an organic basis) compared to the fourth quarter of fiscal 2018, as a result of the positive impact of acquisitions, as well as higher organic growth. gross profit of $256.9 million increased 24.8% compared to $205.8 million in the fourth quarter of fiscal 2018, as a result of higher sales, both organically and including the positive impact of acquisitions, as well as pricing improvement. gross margin of 32.9% improved 50 basis points from 32.4% a year ago due to contributions from the titan acquisition, favorable price-cost dynamics and mix. on a sequential basis, gross margin also improved 50 basis points from 32.4% in the third quarter of fiscal 2019. selling, general and administrative (sg&a) expense as a percentage of net sales was 24.4% for the quarter compared to 25.4% in the fourth quarter of fiscal 2018. adjusted sg&a expense as a percentage of net sales was 23.6% compared to 24.6% in the prior year quarter. of the 100 basis point improvement in adjusted sg&a, 20 basis points was the result of increased cost efficiencies which were partially offset by inflationary pressures, primarily in logistics, as well as unanticipated insurance costs and the timing of certain other expenses. the remaining 80 basis points was the result of the amendment of certain equipment operating leases that are now being accounted for as capital leases. net income of $16.6 million, or $0.39 per diluted share, compared to $9.9 million, or $0.24 per diluted share, in the fourth quarter of fiscal 2018. adjusted net income of $28.7 million, or $0.68 per diluted share, compared to $23.5 million, or $0.56 per diluted share, in the fourth quarter of fiscal 2018. adjusted ebitda of $73.5 million increased 46.9% year over year and represented an adjusted ebitda margin of 9.4%. capital allocation and expansion activity as of april 30, 2019, the company had cash of $47.3 million and total debt of $1.14 billion, compared to cash of $74.3 million and total debt of $1.23 billion, as of january 31, 2019. during the fourth fiscal quarter, the company reduced its net debt by $65.6 million and net leverage was 3.6 times as of the end of the quarter and fiscal year. under the previously announced $75.0 million stock repurchase program, the company repurchased $5.0 million, or approximately 287,000 shares, of common stock during the fourth quarter of fiscal 2019. as of april 30, 2019, approximately $58.5 million of availability remained under the program. during the fourth quarter of fiscal 2019, the company completed the previously-announced acquisition of commercial builders group, llc in southern louisiana and opened four greenfield locations in carrollton, tx, fredericksburg, va, harrisburg, pa and portland, me. for fiscal year 2019, the company completed a total of three business acquisitions and opened eight greenfield locations. conference call and webcast gms will host a conference call and webcast to discuss its results for the fourth quarter and full year ended april 30, 2019 and other information related to its business at 8:30 a.m. eastern time on june 27, 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 july 27, 2019 and can be accessed at 844-512-2921 (domestic) or 412-317-6671 (international) and entering the pass code 13691409. 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 and adjusted ebitda 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, economic, competitive, governmental and technological factors outside of the company’s control, that may cause its business, strategy or actual results to differ materially from the forward-looking statements. these risks and uncertainties may include, among other things: changes in the prices, supply, and/or demand for products which gms distributes; general economic and business conditions in the united states and canada; the activities of competitors; changes in significant operating expenses; changes in the availability of capital and interest rates; adverse weather patterns or conditions; cybersecurity breaches and other disruptions to our it systems; our recently announced leadership succession plan; variations in the performance of the financial markets, including the credit markets; the possibility that the expected synergies and cost savings and final impacts from the titan acquisition will not be realized, or will not be realized within the expected time period; the risk that the gms and titan businesses will not be integrated successfully; disruption from the transaction making it more difficult to maintain business and operational relationships and to accomplish other gms objectives; the risk of customer attrition; our ability to efficiently manage and control our costs and the success of our previously announced cost reduction plan; and other factors 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 june 27, 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 june 27, 2019. gms inc. condensed consolidated statements of operations (unaudited) (in thousands, except per share data) three months ended year ended april 30, april 30, 2019 2018 2019 2018 net sales $ 780,149 $ 635,800 $ 3,116,032 $ 2,511,469 cost of sales (exclusive of depreciation and amortization shown separately below) 523,222 430,008 2,111,913 1,692,893 gross profit 256,927 205,792 1,004,119 818,576 operating expenses: selling, general and administrative 190,577 161,645 739,460 633,877 depreciation and amortization 30,130 15,982 117,459 65,530 total operating expenses 220,707 177,627 856,919 699,407 operating income 36,220 28,165 147,200 119,169 other (expense) income: interest expense (18,781) (8,107) (73,677) (31,395) change in fair value of financial instruments — (5,415) (6,395) (6,125) write-off of debt discount and deferred financing fees — — — (74) other income, net 888 604 2,913 2,279 total other expense, net (17,893) (12,918) (77,159) (35,315) income before taxes 18,327 15,247 70,041 83,854 provision for income taxes 1,702 5,328 14,039 20,883 net income $ 16,625 $ 9,919 $ 56,002 $ 62,971 weighted average common shares outstanding: basic 40,487 41,048 40,914 41,015 diluted 40,976 42,151 41,589 42,163 net income per common share(1): basic $ 0.40 $ 0.24 $ 1.33 $ 1.54 diluted $ 0.39 $ 0.24 $ 1.31 $ 1.49 (1) the following table sets forth the computation of basic and diluted earnings per share of common stock for periods presented: three months ended year ended april 30, april 30, 2019 2018 2019 2018 (in thousands, except per share data) net income $ 16,625 $ 9,919 $ 56,002 $ 62,971 less: net income allocated to participating securities 451 — 1,382 — net income attributable to common stockholders $ 16,174 $ 9,919 $ 54,620 $ 62,971 basic earnings per common share: basic weighted average common shares outstanding 40,487 41,048 40,914 41,015 basic earnings per common share $ 0.40 $ 0.24 $ 1.33 $ 1.54 diluted earnings per common share: basic weighted average common shares outstanding 40,487 41,048 40,914 41,015 add: common stock equivalents 489 1,103 675 1,148 diluted weighted average common shares outstanding 40,976 42,151 41,589 42,163 diluted earnings per common share $ 0.39 $ 0.24 $ 1.31 $ 1.49 gms inc. condensed consolidated balance sheets (unaudited) (in thousands, except per share data) april 30, april 30, 2019 2018 assets current assets: cash and cash equivalents $ 47,338 $ 36,437 trade accounts and notes receivable, net of allowances of $6,432 and $9,633, respectively 445,771 346,450 inventories, net 290,829 239,223 prepaid expenses and other current assets 18,368 11,726 total current assets 802,306 633,836 property and equipment, net of accumulated depreciation of $123,583 and $85,761, respectively 282,349 163,582 goodwill 617,327 427,645 intangible assets, net 429,313 222,682 deferred income taxes 4,676 — other assets 13,583 6,766 total assets $ 2,149,554 $ 1,454,511 liabilities and stockholders’ equity current liabilities: accounts payable $ 173,751 $ 116,168 accrued compensation and employee benefits 62,858 56,323 other accrued expenses and current liabilities 79,848 45,146 current portion of long-term debt 42,118 16,284 total current liabilities 358,575 233,921 non-current liabilities: long-term debt, less current portion 1,099,077 579,602 deferred income taxes, net 10,226 10,742 other liabilities 41,571 35,088 liabilities to noncontrolling interest holders, less current portion 10,929 15,707 total liabilities 1,520,378 875,060 commitments and contingencies stockholders' equity: common stock, par value $0.01 per share, 500,000 shares authorized; 40,375 and 41,069 shares issued and outstanding as of april 30, 2019 and 2018, respectively 404 411 preferred stock, par value $0.01 per share, 50,000 shares authorized; 0 shares issued and outstanding as of april 30, 2019 and 2018 — — exchangeable shares 29,639 — additional paid-in capital 480,113 489,007 retained earnings 145,594 89,592 accumulated other comprehensive income (loss) (26,574) 441 total stockholders' equity 629,176 579,451 total liabilities and stockholders' equity $ 2,149,554 $ 1,454,511 gms inc. condensed consolidated statements of cash flows (unaudited) (in thousands) year ended april 30, 2019 2018 cash flows from operating activities: net income $ 56,002 $ 62,971 adjustments to reconcile net income to net cash provided by operating activities: depreciation and amortization 117,459 65,530 write-off and amortization of debt discount and debt issuance costs 3,332 2,851 provision for losses on accounts and notes receivable 617 (622) provision for obsolescence of inventory 432 106 effects of fair value adjustments to inventory 4,176 324 increase in fair value of contingent consideration 759 195 equity-based compensation 7,643 5,745 gain on sale and disposal of assets (525) (509) change in fair value of financial instruments 6,395 6,125 deferred income taxes (17,487) (16,224) changes in assets and liabilities net of effects of acquisitions: trade accounts and notes receivable (13,586) (11,752) inventories 5,137 (35,098) prepaid expenses and other assets (4,842) (3,109) accounts payable 26,816 11,365 accrued compensation and employee benefits 6,631 (236) derivative liability (10,778) — other accrued expenses and liabilities 5,434 3,601 cash provided by operating activities 193,615 91,263 cash flows from investing activities: purchases of property and equipment (18,770) (23,741) proceeds from sale of assets 1,170 2,865 acquisition of businesses, net of cash acquired (583,092) (28,333) cash used in investing activities (600,692) (49,209) cash flows from financing activities: repayments on the revolving credit facility (937,176) (617,230) borrowings from the revolving credit facility 981,148 513,878 payments of principal on long-term debt (9,968) (5,776) payments of principal on capital lease obligations (19,474) (6,132) borrowings from term loan 996,840 577,616 repayments from term loan (571,840) (477,616) repurchases of common stock (16,520) — debt issuance costs (7,933) (3,283) payments for taxes related to net share settlement of equity awards (50) (1,441) proceeds from exercises of stock options 2,538 477 other financing activities 1,405 (671) cash provided by (used in) financing activities 418,970 (20,178) effect of exchange rates on cash and cash equivalents (992) — increase in cash and cash equivalents 10,901 21,876 cash and cash equivalents, beginning of year 36,437 14,561 cash and cash equivalents, end of year $ 47,338 $ 36,437 supplemental cash flow disclosures: cash paid for income taxes $ 19,351 $ 38,954 cash paid for interest 66,435 28,613 supplemental schedule of noncash activities: assets acquired under capital lease $ 111,826 $ 9,086 issuance of installment notes associated with equity-based compensation liability awards 5,356 12,433 increase (decrease) in insurance claims payable and insurance recoverable 619 (2,362) gms inc. net sales by product group (unaudited) (dollars in thousands) three months ended year ended april 30, % of april 30, % of april 30, % of april 30, % of 2019 total 2018 total 2019 total 2018 total (dollars in thousands) wallboard $ 322,287 41.3 % $ 279,984 44.0 % $ 1,272,068 40.8 % $ 1,109,552 44.2 % ceilings 112,245 14.4 % 95,644 15.0 % 451,695 14.5 % 387,360 15.4 % steel framing 124,501 16.0 % 107,032 16.8 % 506,805 16.3 % 411,630 16.4 % other products 221,116 28.3 % 153,140 24.1 % 885,464 28.4 % 602,927 24.0 % total net sales $ 780,149 $ 635,800 $ 3,116,032 $ 2,511,469 gms inc. reconciliation of net income to adjusted ebitda (unaudited) (in thousands) three months ended year ended april 30, april 30, 2019 2018 2019 2018 net income $ 16,625 $ 9,919 $ 56,002 $ 62,971 interest expense 18,781 8,107 73,677 31,395 write-off of debt discount and deferred financing fees — — — 74 interest income (23) (84) (66) (177) provision for income taxes 1,702 5,328 14,039 20,883 depreciation expense 12,389 6,054 46,456 24,075 amortization expense 17,741 9,928 71,003 41,455 ebitda $ 67,215 $ 39,252 $ 261,111 $ 180,676 stock appreciation expense(a) 1,305 455 2,730 2,318 redeemable noncontrolling interests(b) 410 498 1,188 1,868 equity-based compensation(c) 1,268 418 3,906 1,695 severance and other permitted costs(d) 2,205 256 8,152 581 transaction costs (acquisitions and other)(e) 1,198 3,049 7,858 3,370 (gain) loss on disposal of assets (113) 139 (525) (509) effects of fair value adjustments to inventory(f) 47 48 4,176 324 change in fair value of financial instruments(g) — 5,415 6,395 6,125 secondary public offering costs(h) — — — 1,525 debt transaction costs(i) — 527 678 1,285 ebitda add-backs 6,320 10,805 34,558 18,582 adjusted ebitda $ 73,535 $ 50,057 $ 295,669 $ 199,258 adjusted ebitda margin 9.4 % 7.9 % 9.5 % 7.9 % (a) represents non cash expense related to stock appreciation rights agreements. (b) represents non cash compensation expense related to changes in the values of noncontrolling interests. (c) represents non cash equity based compensation expense related to the issuance of share-based awards. (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 related to our secondary offerings paid to third-party advisors. (i) represents expenses 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 year ended april 30, april 30, 2019 2018 2019 2018 cash provided by operating activities $ 88,178 $ 24,883 $ 193,615 $ 91,263 purchases of property and equipment (5,385) (10,333) (18,770) (23,741) free cash flow(a) $ 82,793 $ 14,550 $ 174,845 $ 67,522 (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 year ended april 30, april 30, 2019 2018 2019 2018 selling, general and administrative expense $ 190,577 $ 161,645 $ 739,460 $ 633,877 adjustments stock appreciation expense(a) (1,305) (455) (2,730) (2,318) redeemable noncontrolling interests(b) (410) (498) (1,188) (1,868) equity-based compensation(c) (1,268) (418) (3,906) (1,695) severance and other permitted costs(d) (2,205) (256) (8,152) (581) transaction costs (acquisitions and other)(e) (1,198) (3,049) (7,858) (3,370) gain on disposal of assets 113 (139) 525 509 secondary public offering costs(f) — — — (1,525) debt transaction costs(g) — (527) (678) (1,285) adjusted sg&a $ 184,304 $ 156,303 $ 715,473 $ 621,744 adjusted sg&a margin 23.6 % 24.6 % 23.0 % 24.8 % (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 related to our secondary offerings paid to third-party advisors. (g) 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 year ended april 30, april 30, 2019 2018 2019 2018 income before taxes $ 18,327 $ 15,247 $ 70,041 $ 83,854 ebitda add-backs 6,320 10,805 34,558 18,582 write-off of debt discount and deferred financing fees — — — 74 purchase accounting depreciation and amortization (1) 12,369 5,233 49,619 21,271 adjusted pre-tax income 37,016 31,285 154,218 123,781 adjusted income tax expense 8,329 7,790 34,699 39,077 adjusted net income $ 28,687 $ 23,495 $ 119,519 $ 84,704 effective tax rate (2) 22.5 % 24.9 % 22.5 % 31.6 % weighted average shares outstanding: basic 40,487 41,048 40,914 41,015 diluted (3) 42,105 42,151 42,718 42,163 adjusted net income per share: basic $ 0.71 $ 0.57 $ 2.92 $ 2.07 diluted $ 0.68 $ 0.56 $ 2.80 $ 2.01 (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 2019 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.
