TUCKER, Ga.–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.
Courtesy of -(BUSINESS WIRE)-