Core Insights - Home Depot has expanded its professional market reach through the acquisition of GMS, enhancing its multi-category distribution model and customer relationships [1][2] Group 1: Acquisition Impact - The acquisition of GMS, a distributor of specialty building products, allows Home Depot to leverage GMS' product categories and customer relationships, positioning the company as a one-stop shop for complex professional projects [2][3] - GMS contributed approximately $900 million in sales during the first eight weeks of the third quarter, with expectations of about $2 billion in incremental sales for fiscal 2025 [2][3][8] - The integration broadens Home Depot's total addressable market within the professional segment, focusing on specialized building products to better serve professional contractors [3][4] Group 2: Financial Performance - Home Depot's shares have declined by 10.1% over the past year, while the industry has seen a decline of 15.7% [5] - The company trades at a forward price-to-earnings ratio of 23.24, higher than the industry average of 21.14, and carries a Value Score of F [6] - The Zacks Consensus Estimate for Home Depot's current financial-year sales implies a year-over-year growth of 3.2%, while earnings per share are expected to decline by 4.8% [9]

Core Insights - The article provides a comprehensive market analysis of Home Depot Inc., focusing on its financial performance, market position, and potential investment opportunities [1] Financial Performance - Home Depot reported a revenue of $151.2 billion for the fiscal year, reflecting a year-over-year increase of 3.5% [1] - The company's net income reached $17.1 billion, which is a 5% increase compared to the previous year [1] - Earnings per share (EPS) rose to $15.53, marking a 6% growth year-over-year [1] Market Position - Home Depot maintains a strong market position as the leading home improvement retailer in North America, with a market share of approximately 25% [1] - The company operates over 2,300 stores across the United States, Canada, and Mexico, providing a robust distribution network [1] - Home Depot's online sales accounted for 20% of total sales, indicating a significant shift towards e-commerce [1] Investment Opportunities - Analysts suggest that Home Depot's focus on enhancing its supply chain and technology infrastructure could lead to improved operational efficiency and customer experience [1] - The company's commitment to share buybacks and dividend increases is viewed positively by investors, enhancing shareholder value [1] - Home Depot's strategic initiatives in expanding its product offerings and services are expected to drive future growth [1]

Core Insights - The Home Depot reported third-quarter sales of $41.4 billion for fiscal 2025, marking a 2.8% increase from the same period in fiscal 2024, with approximately $900 million attributed to the acquisition of GMS Inc. [1][2] - Net earnings for the quarter were $3.6 billion, or $3.62 per diluted share, a slight decrease from $3.67 per diluted share in the previous year [2][12]. - The company updated its fiscal 2025 guidance due to pressures from a lack of storm activity and ongoing consumer uncertainty affecting home improvement demand [3][8]. Financial Performance - Total sales for the third quarter increased by $1.1 billion, with comparable sales rising by 0.2% [1][12]. - Adjusted diluted earnings per share were $3.74, down from $3.78 in the same quarter of fiscal 2024 [2][20]. - Operating income for the quarter was $5.35 billion, reflecting a 1.2% decrease compared to the previous year [12][18]. Market Conditions - The CEO noted that the results fell short of expectations primarily due to the absence of storms, which typically drive demand in certain categories [3][8]. - Consumer uncertainty and pressures in the housing market are believed to be disproportionately impacting home improvement demand [3][8]. Store Operations - As of the end of the third quarter, The Home Depot operated 2,356 retail stores and over 1,200 SRS locations across various regions [5][12]. - The company employs over 470,000 associates [5]. Future Guidance - The company anticipates total sales growth of approximately 3.0% for fiscal 2025, with GMS expected to contribute around $2.0 billion in incremental sales [8][21]. - The guidance includes expectations for approximately 12 new store openings and a gross margin of about 33.2% [8][21].

Core Insights - StubHub Holdings, Inc. reported a Gross Merchandise Sales (GMS) of $2.4 billion for Q3 2025, reflecting an 11% year-over-year increase [1] - Excluding the impact of the Taylor Swift "Eras Tour," GMS grew by 24% year-over-year [1] - The company's revenue reached $468 million, which is an 8% year-over-year increase and represents 19% of GMS [1] - StubHub experienced a net loss of $1 million during the quarter [1]

Group 1 - Home Depot has launched a Project Planning tool aimed at enhancing the experience for professional customers, allowing them to manage complex projects more efficiently [2][3][7] - The tool enables users to reorder items, track transactions, choose delivery preferences, and monitor invoicing, thereby simplifying the procurement process for professionals who typically work with multiple suppliers [2][3][7] - Home Depot's strategy includes hiring pro customer managers and updating employee apps to better serve professional contractors, indicating a strong focus on this customer segment to drive sales growth [3][4] Group 2 - Home Depot has made significant acquisitions to attract professional customers, including the planned acquisition of SRS Distribution for approximately $18.25 billion and the purchase of GMS Inc. for about $5.5 billion [4] - In its latest earnings report, Home Depot reported a nearly 5% increase in net sales year-over-year, reaching $45.3 billion, with comparable sales rising 1% and U.S. comparable sales increasing by 1.4% [5] - Competitor Lowe's has also intensified its focus on professional customers, launching MVP Business Tools and updating its MyLowe's Pro Rewards program to enhance the experience for small- and mid-sized contractors [6]

Core Viewpoint - The Ademi Firm is investigating GMS Inc. for potential breaches of fiduciary duty and other legal violations related to its transaction with Home Depot, focusing on whether shareholders are receiving a fair price for their shares [1][3]. Group 1: Transaction Details - In the tender offer transaction, GMS shareholders will receive $110 per share, which reflects a total equity value of approximately $4.3 billion and implies a total enterprise value of around $5.5 billion [2]. - GMS insiders are set to receive substantial benefits as part of the change of control arrangements [2]. Group 2: Investigation Focus - The transaction agreement imposes significant penalties on GMS if it accepts competing bids, which raises concerns about the board's fulfillment of fiduciary duties to all shareholders [3]. - The Ademi Firm specializes in shareholder litigation involving buyouts, mergers, and individual shareholder rights, indicating a focus on protecting shareholder interests [3].

Core Insights - Home Depot's acquisition of GMS is a strategic move to enhance its Pro distribution ecosystem, following the previous acquisition of SRS Distribution [1][4] - The integration of GMS expands Home Depot's reach into new verticals such as drywall, ceilings, and steel framing, positioning the company as a more comprehensive partner for Pro contractors [1][3] Financial Performance - Home Depot shares have increased by 12.1% over the past year, outperforming the industry growth of 11% and key competitors like Lowe's (8.8% increase) and Floor & Decor (18.5% decrease) [5] - The Zacks Consensus Estimate for Home Depot's current fiscal year sales indicates a year-over-year growth of 2.9%, while earnings per share are expected to decline by 1.4% [10] Acquisition Details - The $5.5 billion acquisition of GMS aims to capture a larger share of complex Pro projects, which are currently underpenetrated [4][8] - GMS enhances Home Depot's distribution capabilities with strong customer relationships and complementary product lines, facilitating a more robust service offering [8] Distribution and Integration - The integration of GMS and SRS is expected to streamline operations due to their shared ERP systems, enhancing branch-level execution and cross-selling opportunities [3] - The combined distribution network now exceeds 1,200 locations, supported by over 3,500 associates and approximately 8,000 trucks, enabling extensive jobsite deliveries [2]

FORM 10-Q Filing Information [Registrant Details](index=1&type=section&id=Registrant%20Details) GMS Inc. filed its Form 10-Q for Q1 2025, incorporated in Delaware, with common stock traded on the NYSE - GMS Inc. is a **large accelerated filer**, indicating it meets specific market capitalization and reporting requirements[4](index=4&type=chunk) Title of each class | Title of each class | Trading Symbol(s) | Name of each exchange on which registered | | :------------------ | :---------------- | :---------------------------------------- | | Common Stock, par value $0.01 per share | GMS | New York Stock Exchange | - The registrant had **38.2 million shares of common stock outstanding** as of August 25, 2025[4](index=4&type=chunk) Cautionary Note Regarding Forward-Looking Statements [Nature of Forward-Looking Statements](index=4&type=section&id=Nature%20of%20Forward-Looking%20Statements) Forward-looking statements are based on current expectations and projections, subject to risks and uncertainties - Forward-looking statements are identified by terms such as 'anticipate,' 'believe,' 'continue,' 'could,' 'estimate,' 'expect,' 'intend,' 'may,' 'might,' 'plan,' 'potential,' 'predict,' 'seek,' or 'should,' or their negatives[10](index=10&type=chunk) - Statements about future financial performance, growth, economic conditions, markets, and the construction industries are considered forward-looking[10](index=10&type=chunk) [Key Risk Factors](index=4&type=section&id=Key%20Risk%20Factors) Key risk factors include the pending merger, economic conditions, cyclical markets, competition, supply chain, and cybersecurity risks - Potential impact of the proposed merger on relationships with suppliers, customers, and employees, and the inability to pursue alternative business opportunities[11](index=11&type=chunk)[12](index=12&type=chunk) - Uncertainties regarding the timing and completion of the merger, including potential termination fees[11](index=11&type=chunk)[12](index=12&type=chunk) - General business, financial market, and economic conditions, such as inflation, interest rates, geopolitical conflicts, and economic downturns[11](index=11&type=chunk)[12](index=12&type=chunk) - Dependency on cyclical commercial and residential construction markets, including R&R, and impacts from declines or delays in activity[11](index=11&type=chunk)[12](index=12&type=chunk) - Competition, industry consolidation, and general labor shortages[11](index=11&type=chunk)[12](index=12&type=chunk) - Fluctuations in product prices and mix, and the ability to manage price increases, inventories, and margins[11](index=11&type=chunk)[12](index=12&type=chunk) - Ability to successfully implement growth strategy, including acquisitions and new branch openings[11](index=11&type=chunk)[12](index=12&type=chunk) - Product shortages, supply chain disruptions, and potential loss of key supplier relationships[11](index=11&type=chunk)[12](index=12&type=chunk) - Ability to manage operating costs and achieve benefits from cost reduction initiatives[11](index=11&type=chunk)[12](index=12&type=chunk) - Potential loss of significant customers or reduction in purchase volumes[11](index=11&type=chunk)[12](index=12&type=chunk) - Ability to identify and maintain attractive locations and renew leases on favorable terms[11](index=11&type=chunk)[12](index=12&type=chunk) - Significant fluctuations in fuel costs or supply shortages[11](index=11&type=chunk)[12](index=12&type=chunk) - Natural or man-made disruptions to facilities or equipment[11](index=11&type=chunk)[12](index=12&type=chunk) - Risks of Canadian operations, including currency rate fluctuations[11](index=11&type=chunk)[12](index=12&type=chunk) - Exposure to product liability, various claims, and litigation[11](index=11&type=chunk)[12](index=12&type=chunk) - Impact of political, legal, and regulatory environments, including tariffs[11](index=11&type=chunk)[12](index=12&type=chunk) - Restrictions in debt agreements limiting certain activities[11](index=11&type=chunk)[12](index=12&type=chunk) - Current level of indebtedness and ability to incur additional debt[11](index=11&type=chunk)[12](index=12&type=chunk) - Ability to attract and retain key employees[11](index=11&type=chunk)[12](index=12&type=chunk) - Cybersecurity breaches and IT system disruptions[11](index=11&type=chunk)[12](index=12&type=chunk) - Imposition of new tariffs and other trade barriers[11](index=11&type=chunk)[12](index=12&type=chunk) PART I – Financial Information [Item 1. Financial Statements](index=7&type=section&id=Item%201.%20Financial%20Statements) This section presents GMS Inc.'s unaudited condensed consolidated financial statements, including Balance Sheets, Statements of Operations, Stockholders' Equity, and Cash Flows [Condensed Consolidated Balance Sheets (Unaudited)](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20(Unaudited)) Condensed Consolidated Balance Sheets (in thousands) | Metric | July 31, 2025 | April 30, 2025 | | :----------------------------------- | :------------ | :------------- | | Cash and cash equivalents | $39,931 | $55,599 | | Total current assets | $1,539,129 | $1,520,116 | | Total assets | $3,845,082 | $3,831,267 | | Total current liabilities | $728,514 | $797,558 | | Total liabilities | $2,393,260 | $2,411,087 | | Total stockholders' equity | $1,451,822 | $1,420,180 | - **Total assets increased by $13.8 million** (0.36%) from April 30, 2025, to July 31, 2025[17](index=17&type=chunk) - **Total liabilities decreased by $17.8 million** (0.74%) over the same period[17](index=17&type=chunk) - **Total stockholders' equity increased by $31.6 million** (2.22%) from April 30, 2025, to July 31, 2025[17](index=17&type=chunk) [Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20(Unaudited)) Condensed Consolidated Statements of Operations and Comprehensive Income (in thousands, except per share data) | Metric | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | | Net sales | $1,414,332 | $1,448,456 | | Gross profit | $436,525 | $451,563 | | Operating income | $81,227 | $98,379 | | Net income | $43,560 | $57,248 | | Basic net income per common share | $1.14 | $1.45 | | Diluted net income per common share | $1.13 | $1.42 | | Comprehensive income | $36,146 | $48,951 | - **Net sales decreased by $34.1 million** (2.4%) YoY[18](index=18&type=chunk) - **Gross profit decreased by $15.0 million** (3.3%) YoY[18](index=18&type=chunk) - **Operating income decreased by $17.1 million** (17.4%) YoY[18](index=18&type=chunk) - **Net income decreased by $13.7 million** (23.9%) YoY[18](index=18&type=chunk) - **Diluted EPS decreased from $1.42 to $1.13** (20.4%) YoY[18](index=18&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity (Unaudited)](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity%20(Unaudited)) Changes in Stockholders' Equity (in thousands) | Metric | As of April 30, 2025 | As of July 31, 2025 | | :----------------------------------- | :------------------- | :------------------ | | Total Stockholders' Equity | $1,420,180 | $1,451,822 | | Net income | — | $43,560 | | Other comprehensive loss, net of tax | — | $(7,414) | | Repurchase and retirement of common stock | — | $(12,852) | | Equity-based compensation | — | $3,744 | | Exercise of stock options | — | $809 | | Issuance of common stock (ESPP) | — | $3,795 | - **Total stockholders' equity increased by $31.6 million** from April 30, 2025, to July 31, 2025[21](index=21&type=chunk) - The increase was **primarily driven by net income** (**$43.6 million**) and **equity-based compensation/ESPP** (**$7.5 million**), partially offset by **share repurchases** (**$12.9 million**) and **other comprehensive loss** (**$7.4 million**)[21](index=21&type=chunk) [Condensed Consolidated Statements of Cash Flows (Unaudited)](index=10&type=section&id=Condensed%20Consolidated%20Statements%2

Company Performance - GMS reported quarterly earnings of $1.76 per share, missing the Zacks Consensus Estimate of $1.77 per share, and down from $1.93 per share a year ago, representing an earnings surprise of -0.56% [1] - The company posted revenues of $1.41 billion for the quarter ended July 2025, slightly missing the Zacks Consensus Estimate by 0.03%, and down from $1.45 billion year-over-year [2] - Over the last four quarters, GMS has surpassed consensus EPS estimates just once and topped consensus revenue estimates two times [2] Stock Performance - GMS shares have increased approximately 29.5% since the beginning of the year, outperforming the S&P 500's gain of 10.2% [3] - The current Zacks Rank for GMS is 3 (Hold), indicating that shares are expected to perform in line with the market in the near future [6] Future Outlook - The current consensus EPS estimate for the coming quarter is $1.91 on revenues of $1.45 billion, and for the current fiscal year, it is $6.33 on revenues of $5.52 billion [7] - The outlook for the Building Products - Retail industry, where GMS operates, is currently in the bottom 9% of over 250 Zacks industries, which may impact stock performance [8]

[Q1 Fiscal 2026 Highlights](index=1&type=section&id=Q1_Fiscal_2026_Highlights) GMS Inc. reported fiscal first quarter 2026 financial results, with net sales and Adjusted EBITDA aligning with expectations [GMS Reports First Quarter Fiscal 2026 Results](index=1&type=section&id=GMS_Reports_First_Quarter_Fiscal_2026_Results) GMS Inc. announced its financial results for the fiscal first quarter ended July 31, 2025, reporting net sales and Adjusted EBITDA that were consistent with expectations - Net Sales and Adjusted EBITDA results for the fiscal first quarter ended July 31, 2025, were consistent with expectations[1](index=1&type=chunk)[2](index=2&type=chunk) [Condensed Consolidated Financial Statements](index=1&type=section&id=Condensed_Consolidated_Financial_Statements) This section presents the company's condensed consolidated statements of operations, balance sheets, and cash flows [Condensed Consolidated Statements of Operations](index=1&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the three months ended July 31, 2025, GMS Inc. experienced a decline in net sales, gross profit, operating income, and net income compared to the prior year, leading to a decrease in diluted earnings per share | Metric | Three Months Ended July 31, 2025 (in thousands) | Three Months Ended July 31, 2024 (in thousands) | Change (YoY) | | :------------------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | :----------- | | Net sales | $1,414,332 | $1,448,456 | (2.4%) | | Gross profit | $436,525 | $451,563 | (3.3%) | | Operating income | $81,227 | $98,379 | (17.4%) | | Net income | $43,560 | $57,248 | (23.9%) | | Diluted Net income per common share | $1.13 | $1.42 | (20.4%) | [Condensed Consolidated Balance Sheets](index=2&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of July 31, 2025, GMS Inc. reported a slight increase in total assets and stockholders' equity, while total liabilities decreased compared to April 30, 2025. Cash and cash equivalents saw a notable decrease | Metric | July 31, 2025 (in thousands) | April 30, 2025 (in thousands) | Change (QoQ) | | :-------------------------------- | :----------------------------- | :----------------------------- | :----------- | | Total assets | $3,845,082 | $3,831,267 | 0.4% | | Total liabilities | $2,393,260 | $2,411,087 | (0.7%) | | Total stockholders' equity | $1,451,822 | $1,420,180 | 2.2% | | Cash and cash equivalents | $39,931 | $55,599 | (28.2%) | | Trade accounts and notes receivable, net | $879,287 | $835,888 | 5.2% | | Inventories, net | $583,801 | $586,191 | (0.4%) | | Total current liabilities | $728,514 | $797,558 | (8.7%) | [Condensed Consolidated Statements of Cash Flows](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the three months ended July 31, 2025, cash used in operating activities increased, while cash used in investing activities significantly decreased due to lower acquisition spending. Cash provided by financing activities also saw a decline | Metric | Three Months Ended July 31, 2025 (in thousands) | Three Months Ended July 31, 2024 (in thousands) | Change (YoY) | | :-------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :----------- | | Cash used in operating activities | $(30,944) | $(22,939) | (35.0%) | | Cash used in investing activities | $(8,623) | $(126,219) | 93.2% (less outflow) | | Cash provided by financing activities | $23,907 | $35,290 | (32.3%) | | Decrease in cash and cash equivalents | $(15,668) | $(112,976) | 86.1% (less decrease) | | Cash and cash equivalents, end of period | $39,931 | $53,172 | (24.9%) | - Acquisition of businesses, net of cash acquired, decreased substantially from **$118,461 thousand** in 2024 to **$1,444 thousand** in 2025[8](index=8&type=chunk) [Net Sales Analysis by Product Group](index=4&type=section&id=Net_Sales_Analysis_by_Product_Group) This section analyzes net sales performance by product group, including organic sales growth and per-day sales trends [Net Sales by Product Group Overview](index=4&type=section&id=Net%20Sales%20by%20Product%20Group%20Overview) Wallboard remained the largest product category by net sales in Q1 Fiscal 2026, though its proportion of total sales decreased. Ceilings increased its share of total net sales | Product Group | Net Sales (Three Months Ended July 31, 2025, in thousands) | % of Total (2025) | % of Total (2024) | | :-------------------- | :------------------------------------------------------- | :---------------- | :---------------- | | Wallboard | $556,393 | 39.3% | 40.6% | | Ceilings | $220,929 | 15.6% | 14.3% | | Steel framing | $196,553 | 13.9% | 14.5% | | Complementary products | $440,457 | 31.1% | 30.6% | | Total net sales | $1,414,332 | | | [Net Sales and Organic Sales Growth](index=4&type=section&id=Net%20Sales%20and%20Organic%20Sales%20Growth) Total net sales decreased by 2.4% and total organic sales decreased by 4.9% year-over-year. Ceilings was the only product group to achieve positive net sales and organic sales growth | Product Group | Net Sales Change (YoY) | Organic Sales Change (YoY) | | :-------------------- | :--------------------- | :------------------------- | | Wallboard | (5.4)% | (6.8)% | | Ceilings | 6.6% | 6.1% | | Steel framing | (6.3)% | (8.2)% | | Complementary products | (0.7)% | (5.8)% | | Total net sales | (2.4)% | (4.9)% | - Organic net sales growth excludes net sales of acquired businesses until their first anniversary and the impact of foreign currency translation[34](index=34&type=chunk) [Per Day Net Sales and Organic Sales Growth](index=4&type=section&id=Per%20Day%20Net%20Sales%20and%20Organic%20Sales%20Growth) Per day net sales and organic sales trends mirrored overall sales, with volume declines being a primary factor for most product groups. Ceilings benefited significantly from positive price/mix/Fx contributions | Product Group | Per Day Net Sales Change (YoY) | Per Day Organic Sales Change (YoY) | | :-------------------- | :---------------------------- | :-------------------------------- | | Wallboard | (5.4)% | (6.8)% | | Ceilings | 6.6% | 6.1% | | Steel framing | (6.3)% | (8.2)% | | Complementary products | (0.7)% | (5.8)% | | Total net sales | (2.4)% | (4.9)% | | Product Group | Volume (Net Sales) | Price/Mix/Fx (Net Sales) | Volume (Organic Sales) | Price/Mix/Fx (Organic Sales) | | :-------------------- | :----------------- | :----------------------- | :--------------------- | :--------------------------- | | Wallboard | (5.7)% | 0.3% | (7.0)% | 0.2% | | Ceilings | (4.2)% | 10.8% | (5.0)% | 11.1% | | Steel framing | (5.4)% | (0.9)% | (8.8)% | 0.6% | - Detailed price vs volume reporting is not available for Complementary Products at a consolidated level due to the wide breadth of offerings and units of measure[14](index=14&type=chunk) [Non-GAAP Financial Measures Reconciliations](index=5&type=section&id=Non-GAAP_Financial_Measures_Reconciliations) This section provides reconciliations of various non-GAAP financial measures to their most directly comparable GAAP counterparts [Reconciliation of Net Income to Adjusted EBITDA](index=5&type=section&id=Reconciliation%20of%20Net%20Income%20to%20Adjusted%20EBITDA) Adjusted EBITDA for Q1 Fiscal 2026 decreased to **$135.5 million** from **$145.9 million** in the prior year, resulting in a lower Adjusted EBITDA Margin of **9.6%**. Transaction costs related to acquisitions, including the pending merger with The Home Depot, significantly increased | Metric | Three Months Ended July 31, 2025 (in thousands) | Three Months Ended July 31, 2024 (in thousands) | Change (YoY) | | :-------------------- | :---------------------------------------------- | :---------------------------------------------- | :----------- | | Net income | $43,560 | $57,248 | (23.9%) | | EBITDA | $122,968 | $138,069 | (10.9%) | | Adjusted EBITDA | $135,489 | $145,881 | (7.2%) | | Adjusted EBITDA Margin | 9.6% | 10.1% | (0.5 pp) | - Transaction costs (acquisitions and other) increased to **$6,150 thousand** in 2025 from **$1,280 thousand** in 2024, including costs for the pending merger with The Home Depot[16](index=16&type=chunk)[17](index=17&type=chunk) [Reconciliation of Cash Used In Operating Activities to Free Cash Flow](index=6&type=section&id=Reconciliation%20of%20Cash%20Used%20In%20Operating%20Activities%20to%20Free%20Cash%20Flow) Free cash flow for Q1 Fiscal 2026 was negative **$39.4 million**, representing an increased cash outflow compared to the prior year, primarily driven by higher cash used in operating activities | Metric | Three Months Ended July 31, 2025 (in thousands) | Three Months Ended July 31, 2024 (in thousands) | Change (YoY) | | :-------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :----------- | | Cash used in operating activities | $(30,944) | $(22,939) | (35.0%) | | Purchases of property and equipment | $(8,446) | $(8,976) | 5.9% (less outflow) | | Free cash flow | $(39,390) | $(31,915) | (23.4%) | - Free cash flow is defined as net cash provided by (used in) operations less capital expenditures[20](index=20&type=chunk) [Reconciliation of Selling, General and Administrative Expense to Adjusted SG&A](index=6&type=section&id=Reconciliation%20of%20Selling%2C%20General%20and%20Administrative%20Expense%20to%20Adjusted%20SG%26A) Adjusted SG&A decreased slightly to **$302.3 million** in Q1 Fiscal 2026, but the Adjusted SG&A margin increased to **21.4%** due to lower net sales. Transaction costs were a significant adjustment, increasing year-over-year | Metric | Three Months Ended July 31, 2025 (in thousands) | Three Months Ended July 31, 2024 (in thousands) | Change (YoY) | | :-------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :----------- | | Selling, general and administrative expense | $314,379 | $315,152 | (0.2%) | | Adjusted SG&A | $302,343 | $307,715 | (1.7%) | | Adjusted SG&A margin | 21.4% | 21.2% | 0.2 pp | - Transaction costs (acquisitions and other) increased from **$1,280 thousand** in 2024 to **$6,150 thousand** in 2025, including costs for the pending merger with The Home Depot[21](index=21&type=chunk)[22](index=22&type=chunk) [Reconciliation of Income Before Taxes to Adjusted Net Income](index=7&type=section&id=Reconciliation%20of%20Income%20Before%20Taxes%20to%20Adjusted%20Net%20Income) Adjusted net income for Q1 Fiscal 2026 was **$68.0 million**, a decrease from **$77.6 million** in the prior year, with diluted adjusted net income per share falling to **$1.76**. The effective tax rate increased to **27.0%** | Metric | Three Months Ended July 31, 2025 (in thousands) | Three Months Ended July 31, 2024 (in thousands) | Change (YoY) | | :-------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :----------- | | Income before taxes | $61,065 | $78,194 | (21.9%) | | Adjusted pre-tax income | $93,215 | $104,810 | (11.1%) | | Adjusted net income | $68,047 | $77,559 | (12.3%) | | Diluted Adjusted net income per share | $1.76 | $1.93 | (8.7%) | | Effective tax rate | 27.0% | 26.0% | 1.0 pp | [Reconciliation of Net Income to Pro Forma Adjusted EBITDA (Last Twelve Months)](index=8&type=section&id=Reconciliation%20of%20Net%20Income%20to%20Pro%20Forma%20Adjusted%20EBITDA%20%28Last%20Twelve%20Months%29) For the last twelve months ended July 31, 2025, Pro Forma Adjusted EBITDA decreased to **$491.6 million** from **$623.2 million** in the prior year. The net debt to Pro Forma Adjusted EBITDA ratio increased to **2.6x**, and a significant goodwill impairment was recorded in 2025 | Metric | Last Twelve Months Ended July 31, 2025 (in thousands) | Last Twelve Months Ended July 31, 2024 (in thousands) | Change (YoY) | | :-------------------------------- | :---------------------------------------------------- | :---------------------------------------------------- | :----------- | | Net income | $101,781 | $246,497 | (58.7%) | | EBITDA | $411,503 | $555,956 | (26.0%) | | Adjusted EBITDA | $490,530 | $588,037 | (16.6%) | | Pro Forma Adjusted EBITDA | $491,641 | $623,248 | (21.1%) | | Net debt | $1,273,709 | $1,327,266 | (4.0%) | | Net debt / Pro Forma Adjusted EBITDA | 2.6x | 2.1x | 0.5x | - A goodwill impairment of **$42,454 thousand** was recognized in the last twelve months ended July 31, 2025, compared to none in the prior year[28](index=28&type=chunk) - Contributions from acquisitions were significantly lower in 2025 (**$1,111 thousand**) compared to 2024 (**$35,211 thousand**)[28](index=28&type=chunk) [Company Information and Non-GAAP Disclosure](index=9&type=section&id=Company_Information_and_Non-GAAP_Disclosure) This section provides an overview of GMS Inc. and explains the company's use of non-GAAP financial measures [About GMS Inc.](index=9&type=section&id=About%20GMS%20Inc.) GMS Inc., established in 1971, is a leading North American distributor of specialty building products, operating over 320 distribution centers and nearly 100 tool sales, rental, and service centers. The company serves residential and commercial contractors across the US and Canada with a broad product offering and a hybrid national-local operating model - Founded in 1971, GMS operates a network of more than **320 distribution centers** and nearly **100 tool sales, rental, and service centers**[31](index=31&type=chunk) - Product offerings include Wallboard, Ceilings, Steel Framing, and Complementary Products, serving residential and commercial contractors across the United States and Canada[31](index=31&type=chunk) - The company utilizes a unique operating model combining a national platform and strategy with a local go-to-market focus[31](index=31&type=chunk) [Use of Non-GAAP Financial Measures](index=9&type=section&id=Use%20of%20Non-GAAP%20Financial%20Measures) GMS Inc. utilizes non-GAAP financial measures such as Adjusted net income, free cash flow, Adjusted SG&A, Adjusted EBITDA, and Adjusted EBITDA margin to provide a consistent view of operating performance, excluding items not indicative of core operations. These metrics are also integral to the company's debt agreements - GMS presents non-GAAP financial measures including Adjusted net income, free cash flow, Adjusted SG&A, Adjusted EBITDA, and Adjusted EBITDA margin[32](index=32&type=chunk) - These non-GAAP measures assist investors and analysts in comparing operating performance across reporting periods by excluding items not indicative of core operating performance[32](index=32&type=chunk) - Adjusted EBITDA is used in certain calculations within the Company's debt agreements[32](index=32&type=chunk)