Q4 2023 Earnings Call June 22, 2023 Safe Harbor and Basis of Presentation Forward-Looking Statement Safe Harbor — This presentation 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," "confident," "continue," "could," "estimate," "expect," "intend," "may," "might," "plan," "potential," "predict," "seek," or "s ...

[Cautionary Note Regarding Forward-Looking Statements](index=3&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) This section outlines the inherent risks and uncertainties associated with forward-looking statements, which may cause actual results to differ materially - This report contains forward-looking statements based on current expectations, assumptions, and projections, involving known and unknown risks and uncertainties that could cause actual results to differ materially[10](index=10&type=chunk)[11](index=11&type=chunk) - Key risk factors affecting future performance include general economic conditions, dependency on cyclical construction markets, intense industry competition, ability to manage pricing and inventory, successful implementation of growth strategies, and fluctuations in fuel costs and product shortages[12](index=12&type=chunk)[15](index=15&type=chunk) [PART I - Financial Information](index=5&type=section&id=PART%20I%20Financial%20Information) [Item 1. Financial Statements](index=5&type=section&id=Item%201%20Financial%20Statements) Unaudited financial statements for January 31, 2023, reflect increased assets, equity, and strong growth in net sales and net income [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased to **$3.23 billion** and stockholders' equity grew to **$1.23 billion** as of January 31, 2023, driven by retained earnings Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | Jan 31, 2023 (in thousands) | Apr 30, 2022 (in thousands) | | :--- | :--- | :--- | | **Total current assets** | $1,567,647 | $1,423,127 | | **Total assets** | $3,233,457 | $3,104,399 | | **Total current liabilities** | $619,550 | $689,198 | | **Total liabilities** | $2,002,761 | $2,039,901 | | **Retained earnings** | $805,375 | $547,977 | | **Total stockholders' equity** | $1,230,696 | $1,064,498 | [Condensed Consolidated Statements of Operations and Comprehensive Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) Net sales for the nine months ended January 31, 2023, rose **20.3%** to **$4.03 billion**, with net income increasing **30.7%** to **$257.4 million** Key Operating Results (Unaudited) | Metric | Three Months Ended Jan 31, 2023 (in thousands) | Three Months Ended Jan 31, 2022 (in thousands) | Nine Months Ended Jan 31, 2023 (in thousands) | Nine Months Ended Jan 31, 2022 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | **Net sales** | $1,234,618 | $1,153,595 | $4,025,150 | $3,346,222 | | **Gross profit** | $402,248 | $367,772 | $1,301,469 | $1,075,475 | | **Operating income** | $103,449 | $96,982 | $391,321 | $302,956 | | **Net income** | $64,775 | $61,383 | $257,398 | $196,946 | | **Diluted EPS** | $1.53 | $1.40 | $6.01 | $4.48 | [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Stockholders' equity increased to **$1.23 billion** by January 31, 2023, driven by net income, partially offset by stock repurchases - Key changes in stockholders' equity for the nine months ended January 31, 2023, include **net income of $257.4 million**, repurchase and retirement of common stock for **$82.8 million**, and negative foreign currency translation adjustments of **$21.7 million**[22](index=22&type=chunk)[79](index=79&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operations significantly improved to **$236.9 million** for the nine months ended January 31, 2023, with reduced investing and increased financing cash usage Cash Flow Summary (Unaudited) | Activity | Nine Months Ended Jan 31, 2023 (in thousands) | Nine Months Ended Jan 31, 2022 (in thousands) | | :--- | :--- | :--- | | **Cash provided by (used in) operating activities** | $236,927 | $(19,887) | | **Cash used in investing activities** | $(52,004) | $(377,413) | | **Cash (used in) provided by financing activities** | $(98,929) | $317,853 | | **Increase (decrease) in cash** | $84,747 | $(80,037) | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail accounting policies, business combinations, debt, leases, and segment performance, highlighting two acquisitions and an expanded ABL facility - The company acquired Construction Supply of Southwest Florida, Inc. (CSSWF) on June 1, 2022, and Tanner Bolt and Nut, Inc. (Tanner) on December 30, 2022, with total consideration for these fiscal 2023 acquisitions approximately **$20.3 million**[49](index=49&type=chunk)[50](index=50&type=chunk)[52](index=52&type=chunk) - On December 22, 2022, the company amended its Asset Based Lending (ABL) Facility, increasing total commitments by **$405.0 million** to **$950.0 million** and extending the maturity date to December 22, 2027[65](index=65&type=chunk)[66](index=66&type=chunk) - The Board of Directors approved an expanded share repurchase program on June 20, 2022, authorizing up to **$200.0 million** in repurchases, with **1.8 million shares** repurchased for **$82.8 million** during the nine months ended January 31, 2023[78](index=78&type=chunk)[79](index=79&type=chunk) Net Sales by Product (Nine Months Ended Jan 31) | Product Line | 2023 (in thousands) | 2022 (in thousands) | | :--- | :--- | :--- | | Wallboard | $1,606,821 | $1,219,789 | | Ceilings | $473,686 | $418,831 | | Steel framing | $787,499 | $751,040 | | Complementary products | $1,157,144 | $956,562 | | **Total net sales** | **$4,025,150** | **$3,346,222** | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses strong net sales and income growth, driven by price inflation and multi-family construction, with robust liquidity and strategic expansion - For the nine months ended January 31, 2023, net sales increased **20.3%** to **$4.0 billion**, and net income grew **30.7%** to **$257.4 million**, primarily driven by price inflation and volume growth in wallboard and complementary products[116](index=116&type=chunk) - The company is experiencing an early-stage slowdown in single-family construction demand due to rising interest rates and inflation, but multi-family residential construction demand is expected to remain strong through mid-calendar year 2023 due to a large project backlog[105](index=105&type=chunk) - Key business strategies include expanding market share in core products (wallboard, ceilings, steel), growing complementary product lines, and expanding the platform through greenfield openings and strategic acquisitions[112](index=112&type=chunk) - As of January 31, 2023, the company had available borrowing capacity of approximately **$574.4 million** under its ABL Facility, which was recently upsized to **$950.0 million**[141](index=141&type=chunk)[142](index=142&type=chunk) [Results of Operations](index=30&type=section&id=Results%20of%20Operations) Net sales increased **20.3%** to **$4.03 billion** for the nine months ended January 31, 2023, with improved gross margin and operating leverage Net Sales Breakdown (Nine Months Ended Jan 31) | Product | 2023 (in thousands) | 2022 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Wallboard | $1,606,821 | $1,219,789 | 31.7% | | Ceilings | $473,686 | $418,831 | 13.1% | | Steel framing | $787,499 | $751,040 | 4.9% | | Complementary products | $1,157,144 | $956,562 | 21.0% | | **Total net sales** | **$4,025,150** | **$3,346,222** | **20.3%** | - Organic (base business) net sales for the nine months ended January 31, 2023, increased by **17.4%** year-over-year, driven by inflationary pricing and volume growth in wallboard and complementary products[133](index=133&type=chunk)[134](index=134&type=chunk) - Gross margin for the nine-month period increased to **32.3%** from **32.1%** year-over-year, primarily due to higher margins for complementary products and steel framing, and a shift in end market mix[135](index=135&type=chunk) - Selling, general and administrative (SG&A) expenses as a percentage of net sales decreased to **20.2%** from **20.5%** in the prior-year nine-month period, demonstrating operating leverage from higher sales[136](index=136&type=chunk) [Liquidity and Capital Resources](index=35&type=section&id=Liquidity%20and%20Capital%20Resources) Strong liquidity is maintained through cash from operations and an expanded ABL facility, with **$574.4 million** available as of January 31, 2023 - The company depends on cash flow from operations, cash on hand, and its ABL Facility for liquidity, with available borrowing capacity under the ABL Facility approximately **$574.4 million** as of January 31, 2023[140](index=140&type=chunk)[141](index=141&type=chunk) - On June 20, 2022, the Board approved an expanded share repurchase program authorizing up to **$200.0 million**, with **1.8 million shares** repurchased for **$82.8 million** for the nine months ended January 31, 2023[144](index=144&type=chunk) - The change in cash from financing activities was primarily due to net borrowings of **$28.9 million** in the current nine-month period compared to net borrowings of **$359.2 million** in the prior year period, which was used to fund the Westside acquisition[150](index=150&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=39&type=section&id=Item%203%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No material changes to market risk exposure have occurred since the fiscal year ended April 30, 2022 - There have been no material changes to the company's market risk exposure since the fiscal year ended April 30, 2022[163](index=163&type=chunk) [Item 4. Controls and Procedures](index=39&type=section&id=Item%204%20Controls%20and%20Procedures) Disclosure controls and procedures were effective as of January 31, 2023, with no material changes in internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that as of January 31, 2023, the company's disclosure controls and procedures were effective[165](index=165&type=chunk) - No changes in internal control over financial reporting occurred during the three months ended January 31, 2023, that have materially affected, or are reasonably likely to materially affect, internal controls[166](index=166&type=chunk) [PART II - Other Information](index=40&type=section&id=PART%20II%20Other%20Information) [Item 1. Legal Proceedings](index=40&type=section&id=Item%201%20Legal%20Proceedings) The company is involved in routine legal proceedings, including asbestos claims, none of which are expected to have a material adverse effect - The company is not currently a party to any legal proceedings that are expected to have a material adverse effect on its business or financial condition[168](index=168&type=chunk) - Regarding asbestos-related claims, since 2002, approximately **1,048 lawsuits** have been filed, with **996 dismissed without payment**, **40 pending**, and **12 settled without material financial impact**[169](index=169&type=chunk) [Item 1A. Risk Factors](index=40&type=section&id=Item%201A%20Risk%20Factors) No material changes to the company's risk factors have occurred since the fiscal year ended April 30, 2022 - No material changes have occurred in the company's risk factors since the filing of the Annual Report on Form 10-K for the fiscal year ended April 30, 2022[170](index=170&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=40&type=section&id=Item%202%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased **656,670** shares during the quarter, with **$128.0 million** remaining under its **$200.0 million** repurchase authorization Share Repurchases (Three Months Ended Jan 31, 2023) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | November 2022 | 267,281 | $48.16 | | December 2022 | 221,165 | $51.60 | | January 2023 | 168,224 | $52.98 | | **Total** | **656,670** | - | - As of January 31, 2023, the company had approximately **$128.0 million** remaining under its **$200.0 million** share repurchase authorization[171](index=171&type=chunk) [Item 3. Defaults Upon Senior Securities](index=41&type=section&id=Item%203%20Defaults%20Upon%20Senior%20Securities) The company reports no defaults upon senior securities - The company reports no defaults upon senior securities[172](index=172&type=chunk) [Item 4. Mine Safety Disclosures](index=41&type=section&id=Item%204%20Mine%20Safety%20Disclosures) This item is not applicable to the company's operations - This item is not applicable to the company[173](index=173&type=chunk) [Item 5. Other Information](index=41&type=section&id=Item%205%20Other%20Information) The company reports no other information for this item - The company reports no other information for this item[174](index=174&type=chunk) [Item 6. Exhibits](index=42&type=section&id=Item%206%20Exhibits) This section lists exhibits filed, including CEO and CFO certifications and XBRL data files - The exhibits filed with this report include CEO and CFO certifications pursuant to Rule 13a-14(a) and Section 906 of the Sarbanes-Oxley Act, as well as Inline XBRL documents[176](index=176&type=chunk) [Signatures](index=43&type=section&id=Signatures) The Quarterly Report on Form 10-Q was duly signed by the Chief Financial Officer on March 2, 2023 - The Quarterly Report on Form 10-Q was duly signed on March 2, 2023, by Scott M. Deakin, the Chief Financial Officer[178](index=178&type=chunk)[180](index=180&type=chunk)

GMS Inc. (NYSE:GMS) Q3 2023 Earnings Conference Call March 2, 2023 8:30 AM ET Company Participants Carey Phelps - VP of IR John Turner - President and CEO Scott Deakin - VP and CFO Conference Call Participants Trey Grooms - Stephens Inc. Keith Hughes - Truist Securities Steven Ramsey - Thompson Research Group Jeffrey Stevenson - Loop Capital Markets Ryan Frank - RBC Capital Markets Elizabeth Langan - Barclays Quinn Fredrickson - Baird Operator Greetings, and welcome to the GMS Third Quarter 2023 Earnings Ca ...

Cautionary Note Regarding Forward-Looking Statements [Forward-Looking Statements Disclosure](index=3&type=section&id=Forward-Looking%20Statements%20Disclosure) This section highlights that the report contains forward-looking statements, based on current expectations and involving known and unknown risks and uncertainties, cautioning against undue reliance due to various factors like economic conditions, market cycles, and supply chain disruptions - Forward-looking statements are identified by terms like "anticipate," "believe," "estimate," "expect," and involve known and unknown risks and uncertainties beyond the company's control[10](index=10&type=chunk)[11](index=11&type=chunk) - Key risk factors include the ongoing effects of the COVID-19 pandemic, general business and financial market conditions (inflation, interest rates, supply chain, labor shortages), dependency on cyclical construction markets, competition, product price fluctuations, and the ability to implement growth strategies and manage operating costs[11](index=11&type=chunk)[12](index=12&type=chunk)[15](index=15&type=chunk) - The company does not undertake any obligation to update or revise forward-looking statements, except as required by law[14](index=14&type=chunk) PART I – Financial Information [Item 1. Financial Statements](index=5&type=section&id=Item%201%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, stockholders' equity, and cash flows, with detailed notes on business, accounting policies, and other financial details for the periods ended October 31, 2022 [Condensed Consolidated Balance Sheets (Unaudited)](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20%28Unaudited%29) The balance sheets show the company's financial position, with total assets increasing by 4.56% and total stockholders' equity by 11.22% from April 30, 2022, to October 31, 2022 | Metric | October 31, 2022 (in thousands) | April 30, 2022 (in thousands) | Change (in thousands) | % Change | | :----------------------------------- | :------------------------------ | :---------------------------- | :-------------------- | :------- | | Total assets | $3,245,945 | $3,104,399 | $141,546 | 4.56% | | Total liabilities | $2,062,006 | $2,039,901 | $22,105 | 1.08% | | Total stockholders' equity | $1,183,939 | $1,064,498 | $119,441 | 11.22% | [Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20%28Unaudited%29) The statements of operations show significant year-over-year growth in net sales, gross profit, and net income for the three and six months ended October 31, 2022, driven by inflationary pricing and increased construction activity | Metric | 3 Months Ended Oct 31, 2022 (in thousands) | 3 Months Ended Oct 31, 2021 (in thousands) | YoY Change (in thousands) | YoY % Change | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------ | :----------- | | Net sales | $1,430,979 | $1,150,551 | $280,428 | 24.37% | | Gross profit | $464,500 | $371,870 | $92,630 | 24.91% | | Operating income | $153,280 | $111,936 | $41,344 | 36.94% | | Net income | $103,153 | $74,361 | $28,792 | 38.72% | | Basic EPS | $2.44 | $1.72 | $0.72 | 41.86% | | Diluted EPS | $2.41 | $1.69 | $0.72 | 42.60% | | Metric | 6 Months Ended Oct 31, 2022 (in thousands) | 6 Months Ended Oct 31, 2021 (in thousands) | YoY Change (in thousands) | YoY % Change | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------ | :----------- | | Net sales | $2,790,532 | $2,192,627 | $597,905 | 27.27% | | Gross profit | $899,221 | $707,703 | $191,518 | 27.06% | | Operating income | $287,872 | $205,974 | $81,898 | 39.76% | | Net income | $192,623 | $135,563 | $57,060 | 42.09% | | Basic EPS | $4.54 | $3.14 | $1.40 | 44.59% | | Diluted EPS | $4.47 | $3.09 | $1.38 | 44.66% | [Condensed Consolidated Statements of Stockholders' Equity (Unaudited)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity%20%28Unaudited%29) The statements of stockholders' equity show an increase in total stockholders' equity from April 30, 2022, to October 31, 2022, primarily driven by net income, partially offset by share repurchases and foreign currency translation adjustments | Metric | As of Oct 31, 2022 (in thousands) | As of April 30, 2022 (in thousands) | Change (in thousands) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | :-------------------- | | Common Stock | $418 | $428 | $(10) | | Additional Paid-in Capital | $477,558 | $522,136 | $(44,578) | | Retained Earnings | $740,600 | $547,977 | $192,623 | | Accumulated Other Comprehensive Loss | $(34,637) | $(6,043) | $(28,594) | | Total Stockholders' Equity | $1,183,939 | $1,064,498 | $119,441 | - Net income contributed **$192.6 million** to retained earnings during the six months ended October 31, 2022[22](index=22&type=chunk) - Repurchase and retirement of common stock reduced additional paid-in capital by **$49.6 million** during the six months ended October 31, 2022[22](index=22&type=chunk) [Condensed Consolidated Statements of Cash Flows (Unaudited)](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20%28Unaudited%29) The cash flow statements indicate a significant shift from cash used in operating activities in the prior year to cash provided by operating activities in the current year, with decreased cash used in investing activities and increased cash used in financing activities due to share repurchases and an acquisition holdback payment | Activity | 6 Months Ended Oct 31, 2022 (in thousands) | 6 Months Ended Oct 31, 2021 (in thousands) | Change (in thousands) | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | :-------------------- | | Cash provided by (used in) operating activities | $102,861 | $(77,095) | $179,956 | | Cash used in investing activities | $(23,394) | $(140,629) | $117,235 | | Cash (used in) provided by financing activities | $(55,140) | $110,103 | $(165,243) | | Increase (decrease) in cash and cash equivalents | $22,285 | $(107,702) | $129,987 | | Cash and cash equivalents, end of period | $124,201 | $59,310 | $64,891 | - Operating cash flow improved significantly, turning from a net use of **$77.1 million** in 2021 to a net provision of **$102.9 million** in 2022, primarily due to better inventory management compared to the prior year[24](index=24&type=chunk)[143](index=143&type=chunk) - Cash used in investing activities decreased by **$117.2 million**, mainly due to a **$122.4 million** decrease in cash used for acquisitions, partially offset by a **$5.6 million** increase in capital expenditures[24](index=24&type=chunk)[144](index=144&type=chunk) - Cash used in financing activities increased by **$165.2 million**, driven by a **$36.4 million** increase in common stock repurchases and a **$13.5 million** acquisition holdback payment related to the Westside acquisition[24](index=24&type=chunk)[146](index=146&type=chunk) [Notes to Condensed Consolidated Financial Statements (Unaudited)](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20%28Unaudited%29) These notes provide detailed explanations and disclosures for the condensed consolidated financial statements, covering significant accounting policies, business combinations, accounts receivable, goodwill, debt, leases, income taxes, equity, compensation, fair value, commitments, segments, and earnings per share [1. Business, Basis of Presentation and Summary of Significant Accounting Policies](index=9&type=section&id=1.%20Business%2C%20Basis%20of%20Presentation%20and%20Summary%20of%20Significant%20Accounting%20Policies) GMS Inc. operates a network of approximately 300 distribution centers and 100 tool sales/rental centers across the U.S. and Canada, offering various construction products, with financial statements prepared using GAAP and management estimates, and no material impact expected from new accounting guidance adoption - GMS Inc. operates approximately **300 distribution centers** and **100 tool sales, rental and service centers**, providing wallboard, ceilings, steel framing, and complementary construction products to residential and commercial contractors in the U.S. and Canada[26](index=26&type=chunk)[102](index=102&type=chunk) | Insurance Liability Type | October 31, 2022 (in thousands) | April 30, 2022 (in thousands) | | :--------------------------------------- | :------------------------------ | :---------------------------- | | Medical self-insurance | $4,128 | $3,371 | | General liability, automobile and workers' compensation | $28,197 | $21,707 | | Expected recoveries for insurance liabilities | $(9,099) | $(4,973) | - The company is adopting new accounting guidance for reference rate reform and business combinations, but does not expect a material impact on its consolidated financial statements[41](index=41&type=chunk)[42](index=42&type=chunk) [2. Business Combinations](index=11&type=section&id=2.%20Business%20Combinations) The company accounts for business combinations by recognizing acquired assets and liabilities at fair value, settling a **$13.5 million** holdback liability for Westside and acquiring CSSWF, which had an immaterial impact, while pro forma net sales for the six months ended October 31, 2021, were **$2,269.7 million** - Settled a **$13.5 million** holdback liability related to the Westside Building Material acquisition during the six months ended October 31, 2022[44](index=44&type=chunk)[146](index=146&type=chunk) - Acquired Construction Supply of Southwest Florida, Inc. (CSSWF) on June 1, 2022, a distributor of stucco, building, and waterproofing supplies, with an immaterial impact on consolidated financial statements[45](index=45&type=chunk)[110](index=110&type=chunk) | Metric | 3 Months Ended Oct 31, 2021 (in thousands) | 6 Months Ended Oct 31, 2021 (in thousands) | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | | Pro Forma Net sales | $1,170,557 | $2,269,667 | | Pro Forma Net income | $75,369 | $142,425 | [3. Accounts Receivable](index=12&type=section&id=3.%20Accounts%20Receivable) Trade accounts and notes receivable, net of allowances, increased to **$872.9 million** as of October 31, 2022, from **$750.0 million** as of April 30, 2022, with the allowance for expected credit losses increasing by **$0.7 million** | Metric | October 31, 2022 (in thousands) | April 30, 2022 (in thousands) | | :----------------------------------- | :------------------------------ | :---------------------------- | | Trade receivables | $743,227 | $675,724 | | Other receivables | $140,406 | $83,668 | | Allowance for expected credit losses | $(5,750) | $(5,087) | | Other allowances | $(5,001) | $(4,259) | | Total Trade accounts and notes receivable | $872,882 | $750,046 | - The allowance for expected credit losses increased by **$0.7 million**, from **$5.087 million** as of April 30, 2022, to **$5.750 million** as of October 31, 2022[47](index=47&type=chunk) [4. Goodwill and Intangible Assets](index=13&type=section&id=4.%20Goodwill%20and%20Intangible%20Assets) Goodwill decreased slightly to **$690.3 million** as of October 31, 2022, primarily due to translation adjustments, while total intangible assets, net, decreased to **$411.2 million**, with amortization expense of **$34.6 million** for definite-lived assets | Metric | October 31, 2022 (in thousands) | April 30, 2022 (in thousands) | | :----------------------------------- | :------------------------------ | :---------------------------- | | Net Carrying Amount of Goodwill | $690,288 | $695,897 | | Total Intangible Assets, net | $411,200 | $454,747 | - Goodwill decreased by **$5.6 million**, primarily due to a negative translation adjustment of **$7.0 million**, partially offset by **$0.7 million** from new acquisitions and **$0.7 million** from prior period acquisition accounting adjustments[48](index=48&type=chunk) - Amortization expense for definite-lived intangible assets was **$34.6 million** for the six months ended October 31, 2022, an increase from **$30.5 million** in the prior year period[50](index=50&type=chunk) [5. Long-Term Debt](index=15&type=section&id=5.%20Long-Term%20Debt) The company's total carrying value of debt increased to **$1,214.2 million** as of October 31, 2022, including Term Loan Facility, Senior Notes, and ABL Facility, with significant available borrowing capacity and full compliance with all debt covenants | Debt Component | October 31, 2022 (in thousands) | April 30, 2022 (in thousands) | | :----------------------------------- | :------------------------------ | :---------------------------- | | Term Loan Facility | $502,058 | $504,613 | | Senior Notes | $350,000 | $350,000 | | ABL Facility | $240,000 | $211,134 | | Finance lease obligations | $126,480 | $120,138 | | Installment notes | $3,347 | $7,086 | | Carrying value of debt | $1,214,162 | $1,184,190 | | Long-term debt, less current portion | $1,166,544 | $1,136,585 | - As of October 31, 2022, the company had **$271.8 million** available borrowing capacity under its ABL Facility and **$22.0 million** under its Canadian Revolving Credit Facility[58](index=58&type=chunk)[61](index=61&type=chunk) - The company was in compliance with all covenants contained in the Term Loan Facility, Senior Notes indenture, and ABL Facility as of October 31, 2022[59](index=59&type=chunk)[60](index=60&type=chunk) [6. Leases](index=16&type=section&id=6.%20Leases) Total lease cost for the six months ended October 31, 2022, was **$52.9 million**, an increase from the prior year, with cash paid for operating leases at **$29.9 million** and finance leases at **$16.5 million**, and weighted-average remaining lease terms of 4.6 and 3.5 years respectively | Lease Cost Component | 6 Months Ended Oct 31, 2022 (in thousands) | 6 Months Ended Oct 31, 2021 (in thousands) | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | | Amortization of right-of-use assets | $11,797 | $11,156 | | Interest on lease liabilities | $3,561 | $4,424 | | Operating lease cost | $25,979 | $22,327 | | Variable lease cost | $11,580 | $8,552 | | Total lease cost | $52,917 | $46,459 | | Cash Flow from Leases | 6 Months Ended Oct 31, 2022 (in thousands) | 6 Months Ended Oct 31, 2021 (in thousands) | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | | Operating cash flows from operating leases | $29,905 | $22,727 | | Operating cash flows from finance leases | $3,561 | $4,424 | | Financing cash flows from finance leases | $16,450 | $15,154 | - Weighted-average remaining lease terms are **4.6 years** for operating leases and **3.5 years** for finance leases as of October 31, 2022[64](index=64&type=chunk) [7. Income Taxes](index=18&type=section&id=7.%20Income%20Taxes) The effective income tax rate for the six months ended October 31, 2022, was **26.1%**, up from **24.4%** in the prior year, primarily due to foreign and state taxes and anticipated changes in Canadian tax regulations, with a **$11.5 million** valuation allowance against deferred tax assets | Metric | 6 Months Ended Oct 31, 2022 | 6 Months Ended Oct 31, 2021 | | :----------------------------------- | :-------------------------- | :-------------------------- | | Effective income tax rate | 26.1% | 24.4% | - The increase in the effective tax rate was primarily due to the impact of foreign and state taxes and actions taken in anticipation of expected changes in Canadian tax regulations[66](index=66&type=chunk)[136](index=136&type=chunk) - A valuation allowance of **$11.5 million** was held against deferred tax assets as of October 31, 2022[67](index=67&type=chunk) [8. Stockholders' Equity](index=18&type=section&id=8.%20Stockholders%27%20Equity) The Board approved an expanded **$200.0 million** share repurchase program, under which the company repurchased **1.1 million shares** for **$49.6 million**, leaving **$161.2 million** authorized, while accumulated other comprehensive loss significantly increased to **$(34.6) million** due to foreign currency translation adjustments - An expanded share repurchase program of up to **$200.0 million** was approved on June 20, 2022, replacing the previous **$75.0 million** authorization[69](index=69&type=chunk)[140](index=140&type=chunk) - Repurchased approximately **1.1 million shares** of common stock for **$49.6 million** during the six months ended October 31, 2022[70](index=70&type=chunk)[140](index=140&type=chunk) - As of October 31, 2022, **$161.2 million** remained authorized under the share repurchase program[70](index=70&type=chunk)[140](index=140&type=chunk) | Component of Accumulated Other Comprehensive Loss | October 31, 2022 (in thousands) | April 30, 2022 (in thousands) | | :------------------------------------------------ | :------------------------------ | :---------------------------- | | Foreign Currency Translation | $(36,984) | $(5,041) | | Derivative Financial Instruments | $2,347 | $(1,002) | | Total Accumulated Other Comprehensive Loss | $(34,637) | $(6,043) | [9. Equity-Based Compensation](index=19&type=section&id=9.%20Equity-Based%20Compensation) Equity-based compensation expense was **$6.5 million** for the six months ended October 31, 2022, with stock option activity including **184,000 options** granted and **91,000 exercised**, restricted stock unit activity seeing **201,000 units** granted and **164,000 vested**, and **33,000 shares** purchased through the ESPP - Equity-based compensation expense totaled **$6.5 million** for the six months ended October 31, 2022, an increase from **$4.8 million** in the prior year[72](index=72&type=chunk) | Stock Option Activity (6 Months Ended Oct 31, 2022) | Number of Options (in thousands) | Weighted Average Exercise Price | | :-------------------------------------------------- | :------------------------------- | :------------------------------ | | Outstanding as of April 30, 2022 | 1,245 | $25.65 | | Options granted | 184 | $53.60 | | Options exercised | (91) | $15.92 | | Outstanding as of October 31, 2022 | 1,336 | $30.16 | | Exercisable as of October 31, 2022 | 913 | $23.08 | - As of October 31, 2022, there was **$7.1 million** of unrecognized compensation cost for stock options, expected to be recognized over **2.2 years**[73](index=73&type=chunk) - As of October 31, 2022, there was **$10.4 million** of unrecognized compensation cost for nonvested restricted stock units, expected to be recognized over **2.1 years**[75](index=75&type=chunk) | ESPP Activity | 6 Months Ended Oct 31, 2022 (in thousands) | 6 Months Ended Oct 31, 2021 (in thousands) | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | | Number of shares purchased | 33 | 43 | | Average purchase price | $40.05 | $26.36 | [10. Stock Appreciation Rights, Deferred Compensation and Redeemable Noncontrolling Interests](index=21&type=section&id=10.%20Stock%20Appreciation%20Rights%2C%20Deferred%20Compensation%20and%20Redeemable%20Noncontrolling%20Interests) Liabilities for stock appreciation rights, deferred compensation, and redeemable noncontrolling interests increased from **$44.1 million** to **$50.2 million** as of October 31, 2022, primarily due to fair value changes, with total related expense at **$6.4 million** for the six-month period | Metric | October 31, 2022 (in thousands) | April 30, 2022 (in thousands) | | :----------------------------------- | :------------------------------ | :---------------------------- | | Stock Appreciation Rights | $36,155 | $30,878 | | Deferred Compensation | $2,327 | $2,205 | | Redeemable Noncontrolling Interests | $11,739 | $11,026 | | Total | $50,221 | $44,109 | - Total expense related to these instruments was **$6.4 million** for the six months ended October 31, 2022, compared to **$2.8 million** in the prior year period[79](index=79&type=chunk) [11. Fair Value Measurements](index=21&type=section&id=11.%20Fair%20Value%20Measurements) The company's interest rate swaps, hedging a **$500.0 million** notional amount of its Term Loan Facility, had a fair value asset of **$3.3 million** as of October 31, 2022, while the fair value of Senior Notes was **$274.8 million**, below their carrying amount | Metric | October 31, 2022 (in thousands) | April 30, 2022 (in thousands) | | :----------------------------------- | :------------------------------ | :---------------------------- | | Interest rate swaps (Level 2) | $3,300 | $(1,136) | - The company has interest rate swap agreements with a notional amount of **$500.0 million** to convert the variable interest rate on a portion of its Term Loan Facility to a fixed 1-month LIBOR interest rate of **2.46%**[80](index=80&type=chunk) | Debt Instrument | Carrying Amount (in thousands) | Fair Value (in thousands) | | :----------------------------------- | :----------------------------- | :------------------------ | | Senior Notes (Oct 31, 2022) | $350,000 | $274,750 | | Senior Notes (Apr 30, 2022) | $350,000 | $310,625 | [12. Commitments and Contingencies](index=22&type=section&id=12.%20Commitments%20and%20Contingencies) The company is involved in various lawsuits and administrative actions, including product liability and asbestos-related claims, with **1,046 asbestos-related lawsuits** filed since 2002, **992 dismissed**, **42 pending**, and **12 settled** without material financial impact - The company faces inherent risk of product liability claims, including those related to alleged exposure to asbestos-containing products distributed prior to 1979[165](index=165&type=chunk) - Since 2002, approximately **1,046 asbestos-related personal injury lawsuits** have been filed; **992** have been dismissed, **42** are pending, and **12** have been settled without material financial impact[165](index=165&type=chunk) [13. Segments](index=23&type=section&id=13.%20Segments) The company's segment results show strong performance in geographic divisions, with net sales of **$2,727.0 million** and Adjusted EBITDA of **$353.2 million** for the six months ended October 31, 2022, with net sales increasing across all product categories, led by wallboard, and the United States accounting for the majority of sales and assets | Segment | 6 Months Ended Oct 31, 2022 (in thousands) | 6 Months Ended Oct 31, 2021 (in thousands) | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | | Geographic divisions Net Sales | $2,726,988 | $2,173,040 | | Geographic divisions Gross Profit | $860,006 | $700,605 | | Geographic divisions Adjusted EBITDA | $353,176 | $274,940 | | Total Net Sales | $2,790,532 | $2,192,627 | | Total Gross Profit | $899,221 | $707,703 | | Total Adjusted EBITDA | $370,527 | $277,618 | | Product Line | 6 Months Ended Oct 31, 2022 (in thousands) | 6 Months Ended Oct 31, 2021 (in thousands) | YoY Change (in thousands) | YoY % Change | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------ | :----------- | | Wallboard | $1,106,111 | $804,657 | $301,454 | 37.46% | | Ceilings | $326,876 | $278,937 | $47,939 | 17.20% | | Steel framing | $553,048 | $468,276 | $84,772 | 18.10% | | Complementary products | $804,497 | $640,757 | $163,740 | 25.55% | | Total net sales | $2,790,532 | $2,192,627 | $597,905 | 27.27% | | Geographic Area | 6 Months Ended Oct 31, 2022 (in thousands) | 6 Months Ended Oct 31, 2021 (in thousands) | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | | United States Net Sales | $2,440,195 | $1,850,893 | | Canada Net Sales | $350,337 | $341,734 | | Total Net Sales | $2,790,532 | $2,192,627 | | United States Property and Equipment, net (Oct 31, 2022) | $326,930 | N/A | | Canada Property and Equipment, net (Oct 31, 2022) | $36,053 | N/A | [14. Earnings Per Common Share](index=26&type=section&id=14.%20Earnings%20Per%20Common%20Share) Basic earnings per common share increased to **$4.54** for the six months ended October 31, 2022, from **$3.14** in the prior year, while diluted EPS rose to **$4.47** from **$3.09**, with weighted average common shares outstanding decreasing slightly due to share repurchases | Metric | 3 Months Ended Oct 31, 2022 | 3 Months Ended Oct 31, 2021 | | :----------------------------------- | :-------------------------- | :-------------------------- | | Basic EPS | $2.44 | $1.72 | | Diluted EPS | $2.41 | $1.69 | | Basic weighted average common shares outstanding (in thousands) | 42,232 | 43,135 | | Diluted weighted average common shares outstanding (in thousands) | 42,887 | 43,894 | | Metric | 6 Months Ended Oct 31, 2022 | 6 Months Ended Oct 31, 2021 | | :----------------------------------- | :-------------------------- | :-------------------------- | | Basic EPS | $4.54 | $3.14 | | Diluted EPS | $4.47 | $3.09 | | Basic weighted average common shares outstanding (in thousands) | 42,390 | 43,112 | | Diluted weighted average common shares outstanding (in thousands) | 43,102 | 43,933 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations, highlighting strong performance driven by inflationary pricing, active residential construction, and an improving commercial landscape, detailing market conditions, business strategy, key financial highlights, and a comprehensive analysis of financial results for the three and six months ended October 31, 2022 [Overview](index=27&type=section&id=Overview) GMS Inc. is a leading distributor of building products, operating a vast network of distribution and tool centers across the U.S. and Canada, leveraging a business model that combines national scale with a local market focus for economies of scale and high customer service - GMS Inc. operates approximately **300 distribution centers** and **100 tool sales, rental and service centers**, offering wallboard, ceilings, steel framing, and complementary construction products[102](index=102&type=chunk) - The company serves residential and commercial contractor customers across the United States and Canada, leveraging a unique operating model that combines national platform benefits with a local go-to-market focus[102](index=102&type=chunk) [Market Conditions and Outlook](index=27&type=section&id=Market%20Conditions%20and%20Outlook) The residential market, despite a slowdown in single-family starts due to affordability concerns, is supported by strong demand and backlog, with multi-family construction expected to remain strong, while the commercial market shows improvement in medical, hospitality, and governmental projects amidst inflationary pressures - Residential single-family starts are slowing down due to affordability concerns (inflation, higher mortgage rates), but a backlog of work remains, and long-term demand fundamentals are solid[103](index=103&type=chunk)[104](index=104&type=chunk) - Multi-family residential construction is expected to remain strong through the fiscal year due to increasing starts and a large backlog[103](index=103&type=chunk) - Commercial demand is improving, with stronger year-over-year wallboard sales and volumes, particularly in medical, hospitality, and governmental projects, though larger office projects remain tempered[105](index=105&type=chunk) - Both residential and commercial contractors face inflationary pressures and availability constraints for fuel, labor, and building products[106](index=106&type=chunk) [Business Strategy](index=28&type=section&id=Business%20Strategy) The company's business strategy focuses on expanding market share in core products, growing complementary product lines for diversification and higher margins, and platform expansion through greenfield openings and strategic acquisitions, while emphasizing improved productivity and profitability by leveraging scale, technology, and best practices - Strategic pillars include expanding market share in core products (wallboard, ceilings, steel framing) and growing complementary product lines (insulation, lumber, tools) to diversify offerings and drive higher sales and margins[109](index=109&type=chunk) - Platform expansion involves greenfield openings in adjacent markets and strategic acquisitions in new and contiguous markets, supported by a rigorous targeting process and experienced integration team[109](index=109&type=chunk) - The company aims to drive improved productivity and profitability by leveraging its scale, technology, and best practices to achieve margin expansion and earnings growth[109](index=109&type=chunk) [Highlights](index=29&type=section&id=Highlights) For the six months ended October 31, 2022, GMS Inc. achieved significant financial growth, with net sales increasing by **27.3%** to **$2,790.5 million**, net income rising by **42.1%** to **$192.6 million**, and Adjusted EBITDA growing by **33.5%** to **$370.5 million**, while expanding its footprint through one acquisition and multiple greenfield openings | Metric | 6 Months Ended Oct 31, 2022 (in millions) | 6 Months Ended Oct 31, 2021 (in millions) | YoY Change (in millions) | YoY % Change | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | :----------------------- | :----------- | | Net sales | $2,790.5 | $2,192.6 | $597.9 | 27.3% | | Net income | $192.6 | $135.6 | $57.0 | 42.1% | | Adjusted EBITDA | $370.5 | $277.6 | $92.9 | 33.5% | | Adjusted EBITDA margin | 13.3% | 12.7% | 0.6 pp | N/A | - Growth in net sales was primarily due to inflationary pricing, active residential construction, improving commercial landscape, volume growth in wallboard, ceilings, and complementary products, and contributions from acquisitions[112](index=112&type=chunk) - Completed one acquisition (CSSWF) and opened three greenfield locations (Wildwood, FL; Cleveland, OH; Greenville, NC), along with six new Ames Taping Tools stores[110](index=110&type=chunk)[111](index=111&type=chunk)[112](index=112&type=chunk) [Results of Operations](index=30&type=section&id=Results%20of%20Operations) This section provides a detailed analysis of the company's financial performance for the three and six months ended October 31, 2022, covering net sales, gross profit, operating expenses, interest expense, and income taxes, highlighting the impact of inflationary pricing, acquisitions, and market conditions [Three Months Ended October 31, 2022 and 2021](index=30&type=section&id=Three%20Months%20Ended%20October%2031%2C%202022%20and%202021) For the three months ended October 31, 2022, net sales increased by **24.4%** to **$1,431.0 million**, gross profit rose by **24.9%** to **$464.5 million**, and net income increased by **38.7%** to **$103.2 million**, driven by inflationary pricing, volume growth, and rising interest rates [Net Sales](index=30&type=section&id=Net%20Sales) Net sales for the three months ended October 31, 2022, increased by **24.4%** to **$1,431.0 million**, primarily due to inflationary pricing, active residential construction, improving commercial landscape, and the Ames acquisition, with organic net sales growing by **22.2%** | Product Line | 3 Months Ended Oct 31, 2022 (in thousands) | 3 Months Ended Oct 31, 2021 (in thousands) | YoY Change (in thousands) | YoY % Change | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------ | :----------- | | Wallboard | $584,557 | $414,522 | $170,035 | 41.0% | | Ceilings | $159,601 | $140,866 | $18,735 | 13.3% | | Steel framing | $278,152 | $272,000 | $6,152 | 2.3% | | Complementary products | $408,669 | $323,163 | $85,506 | 26.5% | | Total net sales | $1,430,979 | $1,150,551 | $280,428 | 24.4% | - Organic (base business) net sales increased by **22.2%** to **$1,405.8 million**, driven by inflationary pricing, active residential construction, and volume growth in wallboard, ceilings, and complementary products[117](index=117&type=chunk)[118](index=118&type=chunk) - Recently acquired net sales contributed **$35.7 million**, primarily from the Ames, Kimco Supply Company, and CSSWF acquisitions[117](index=117&type=chunk) [Gross Profit and Gross Margin](index=31&type=section&id=Gross%20Profit%20and%20Gross%20Margin) Gross profit increased by **24.9%** to **$464.5 million**, and gross margin improved slightly to **32.5%** for the three months ended October 31, 2022, primarily due to successful pass-through of product inflation, strong residential construction, improving commercial sales, and incremental profit from acquisitions | Metric | 3 Months Ended Oct 31, 2022 (in thousands) | 3 Months Ended Oct 31, 2021 (in thousands) | YoY Change (in thousands) | YoY % Change | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------ | :----------- | | Gross profit | $464,500 | $371,870 | $92,630 | 24.9% | | Gross margin | 32.5% | 32.3% | 0.2 pp | N/A | - The increase in gross profit and margin was driven by successful pass-through of product inflation, continued strength in residential construction, improving commercial sales, and incremental gross profit from acquisitions[119](index=119&type=chunk) [Selling, General and Administrative Expenses](index=32&type=section&id=Selling%2C%20General%20and%20Administrative%20Expenses) Selling, general and administrative (SG&A) expenses increased by **21.0%** to **$279.0 million** for the three months ended October 31, 2022, primarily due to higher payroll, fuel, travel, and facilities costs driven by increased sales volume, inflationary pressures, and acquisitions, while decreasing as a percentage of net sales to **19.5%** | Metric | 3 Months Ended Oct 31, 2022 (in thousands) | 3 Months Ended Oct 31, 2021 (in thousands) | YoY Change (in thousands) | YoY % Change | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------ | :----------- | | SG&A expenses | $278,994 | $230,531 | $48,463 | 21.0% | | % of net sales | 19.5% | 20.0% | (0.5 pp) | N/A | - The increase in SG&A was primarily due to higher payroll, fuel, travel, and facilities costs, driven by increased sales volume, inflationary pressures, and incremental expenses from acquisitions[122](index=122&type=chunk) [Depreciation and Amortization Expense](index=32&type=section&id=Depreciation%20and%20Amortization%20Expense) Depreciation and amortization expense increased by **9.6%** to **$32.2 million** for the three months ended October 31, 2022, with depreciation rising due to property and equipment from the Ames acquisition and capital expenditures, and amortization increasing due to definite-lived intangible assets from the Ames acquisition | Metric | 3 Months Ended Oct 31, 2022 (in thousands) | 3 Months Ended Oct 31, 2021 (in thousands) | YoY Change (in thousands) | YoY % Change | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------ | :----------- | | Depreciation | $15,058 | $13,703 | $1,355 | 9.9% | | Amortization | $17,168 | $15,700 | $1,468 | 9.4% | | Total Depreciation and amortization | $32,226 | $29,403 | $2,823 | 9.6% | - Depreciation increased due to property and equipment obtained in the Ames acquisition and capital expenditures. Amortization increased due to definite-lived intangible assets from the Ames acquisition[123](index=123&type=chunk) [Interest Expense](index=32&type=section&id=Interest%20Expense) Interest expense increased by **8.9%** to **$16.1 million** for the three months ended October 31, 2022, primarily due to increases in interest rates and average debt outstanding | Metric | 3 Months Ended Oct 31, 2022 (in thousands) | 3 Months Ended Oct 31, 2021 (in thousands) | YoY Change (in thousands) | YoY % Change | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------ | :----------- | | Interest expense | $16,055 | $14,744 | $1,311 | 8.9% | - The increase in interest expense was primarily driven by higher interest rates and an increase in average debt outstanding[124](index=124&type=chunk) [Income Taxes](index=33&type=section&id=Income%20Taxes) The provision for income taxes increased by **51.4%** to **$36.0 million**, with the effective tax rate rising to **25.9%** for the three months ended October 31, 2022, mainly due to anticipated changes in Canadian tax regulations and stock-based compensation | Metric | 3 Months Ended Oct 31, 2022 (in thousands) | 3 Months Ended Oct 31, 2021 (in thousands) | YoY Change (in thousands) | YoY % Change | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------ | :----------- | | Provision for income taxes | $35,995 | $23,769 | $12,226 | 51.4% | | Effective tax rate | 25.9% | 24.2% | 1.7 pp | N/A | - The change in the effective income tax rate was primarily due to actions taken in anticipation of expected changes in Canadian tax regulations and stock-based compensation[126](index=126&type=chunk) [Six Months Ended October 31, 2022 and 2021](index=33&type=section&id=Six%20Months%20Ended%20October%2031%2C%202022%20and%202021) For the six months ended October 31, 2022, net sales increased by **27.3%** to **$2,790.5 million**, gross profit rose by **27.1%** to **$899.2 million**, and net income increased by **42.1%** to **$192.6 million**, driven by inflationary pricing, acquisitions, and higher sales volume [Net Sales](index=33&type=section&id=Net%20Sales) Net sales for the six months ended October 31, 2022, increased by **27.3%** to **$2,790.5 million**, primarily due to inflationary pricing, active residential construction, improving commercial landscape, and acquisitions, with organic net sales growing by **23.1%** | Product Line | 6 Months Ended Oct 31, 2022 (in thousands) | 6 Months Ended Oct 31, 2021 (in thousands) | YoY Change (in thousands) | YoY % Change | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------ | :----------- | | Wallboard | $1,106,111 | $804,657 | $301,454 | 37.5% | | Ceilings | $326,876 | $278,937 | $47,939 | 17.2% | | Steel framing | $553,048 | $468,276 | $84,772 | 18.1% | | Complementary products | $804,497 | $640,757 | $163,740 | 25.6% | | Total net sales | $2,790,532 | $2,192,627 | $597,905 | 27.3% | - Organic (base business) net sales increased by **23.1%** to **$2,699.5 million**, driven by inflationary pricing, active residential construction, volume growth in wallboard, ceilings, and complementary products, and an improving commercial landscape[130](index=130&type=chunk)[131](index=131&type=chunk) - Recently acquired net sales contributed **$109.6 million**, primarily from the Westside, Ames, Kimco Supply Company, and CSSWF acquisitions[130](index=130&type=chunk) [Gross Profit and Gross Margin](index=34&type=section&id=Gross%20Profit%20and%20Gross%20Margin) Gross profit increased by **27.1%** to **$899.2 million** for the six months ended October 31, 2022, primarily due to successful pass-through of product inflation and active residential construction, with gross margin remaining flat at **32.2%** due to mixed product line impacts | Metric | 6 Months Ended Oct 31, 2022 (in thousands) | 6 Months Ended Oct 31, 2021 (in thousands) | YoY Change (in thousands) | YoY % Change | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------ | :----------- | | Gross profit | $899,221 | $707,703 | $191,518 | 27.1% | | Gross margin | 32.2% | 32.3% | (0.1 pp) | N/A | - The increase in gross profit was primarily due to the successful pass-through of product inflation, active residential construction, and incremental gross profit from acquisitions[132](index=132&type=chunk) - Gross margin remained flat, with wallboard and steel margins unfavorably impacted by price-cost dynamics, while complementary products and ceilings benefited[132](index=132&type=chunk) [Selling, General and Administrative Expenses](index=34&type=section&id=Selling%2C%20General%20and%20Administrative%20Expenses) SG&A expenses increased by **23.0%** to **$546.7 million** for the six months ended October 31, 2022, driven by higher payroll, fuel, travel, and facilities costs due to increased sales volume, inflationary pressures, and acquisitions, while decreasing as a percentage of net sales to **19.6%** | Metric | 6 Months Ended Oct 31, 2022 (in thousands) | 6 Months Ended Oct 31, 2021 (in thousands) | YoY Change (in thousands) | YoY % Change | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------ | :----------- | | SG&A expenses | $546,683 | $444,612 | $102,071 | 23.0% | | % of net sales | 19.6% | 20.3% | (0.7 pp) | N/A | - The increase in SG&A was primarily due to higher payroll, fuel, travel, and facilities costs, driven by increased sales volume, inflationary pressures, and incremental expenses from acquisitions[133](index=133&type=chunk) [Depreciation and Amortization Expense](index=35&type=section&id=Depreciation%20and%20Amortization%20Expense) Depreciation and amortization expense increased by **13.2%** to **$64.7 million** for the six months ended October 31, 2022, with depreciation rising due to property and equipment from Westside and Ames acquisitions, and amortization increasing due to definite-lived intangible assets from these acquisitions | Metric | 6 Months Ended Oct 31, 2022 (in thousands) | 6 Months Ended Oct 31, 2021 (in thousands) | YoY Change (in thousands) | YoY % Change | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------ | :----------- | | Depreciation | $30,051 | $26,628 | $3,423 | 12.9% | | Amortization | $34,615 | $30,489 | $4,126 | 13.5% | | Total Depreciation and amortization | $64,666 | $57,117 | $7,549 | 13.2% | - Depreciation increased due to property and equipment obtained in the Westside and Ames acquisitions. Amortization increased due to definite-lived intangible assets from these acquisitions[134](index=134&type=chunk) [Interest Expense](index=35&type=section&id=Interest%20Expense) Interest expense increased by **8.2%** to **$30.7 million** for the six months ended October 31, 2022, primarily due to increases in interest rates and average debt outstanding | Metric | 6 Months Ended Oct 31, 2022 (in thousands) | 6 Months Ended Oct 31, 2021 (in thousands) | YoY Change (in thousands) | YoY % Change | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------ | :----------- | | Interest expense | $30,716 | $28,401 | $2,315 | 8.2% | - The increase in interest expense was primarily driven by higher interest rates and an increase in average debt outstanding[135](index=135&type=chunk) [Income Taxes](index=35&type=section&id=Income%20Taxes) The provision for income taxes increased by **55.5%** to **$68.0 million**, with the effective tax rate rising to **26.1%** for the six months ended October 31, 2022, mainly due to anticipated changes in Canadian tax regulations and stock-based compensation | Metric | 6 Months Ended Oct 31, 2022 (in thousands) | 6 Months Ended Oct 31, 2021 (in thousands) | YoY Change (in thousands) | YoY % Change | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------ | :----------- | | Provision for income taxes | $68,025 | $43,740 | $24,285 | 55.5% | | Effective tax rate | 26.1% | 24.4% | 1.7 pp | N/A | - The change in the effective income tax rate was primarily due to actions taken in anticipation of expected changes in Canadian tax regulations and stock-based compensation[136](index=136&type=chunk) [Liquidity and Capital Resources](index=35&type=section&id=Liquidity%20and%20Capital%20Resources) The company relies on cash flow from operations, cash on hand, and available funds from its ABL and Canadian Facilities to finance working capital, capital expenditures, and acquisitions, with improved operating cash flow, decreased investing cash flow, and increased financing cash flow, while remaining in compliance with all debt covenants [Summary](index=35&type=section&id=Summary) GMS Inc. relies on cash flow from operations, cash on hand, and its ABL Facility (**$271.8 million** available) and Canadian Facility (**$22.0 million** available) to fund operations and growth, with an expanded **$200.0 million** share repurchase program approved, and **$161.2 million** remaining authorized as of October 31, 2022 - The company's primary liquidity sources are cash flow from operations, cash on hand, and funds available under its ABL Facility and Canadian Facility[137](index=137&type=chunk) - As of October 31, 2022, the company had **$271.8 million** available under its ABL Facility and **$22.0 million** under its Canadian Facility[138](index=138&type=chunk) - An expanded share repurchase program of **$200.0 million** was approved, with **$161.2 million** remaining authorization as of October 31, 2022[140](index=140&type=chunk) [Cash Flows](index=36&type=section&id=Cash%20Flows) Cash provided by operating activities significantly increased to **$102.9 million** for the six months ended October 31, 2022, from a use of **$77.1 million** in the prior year due to improved inventory management, while cash used in investing activities decreased by **$117.2 million** and cash used in financing activities increased by **$165.2 million** | Activity | 6 Months Ended Oct 31, 2022 (in thousands) | 6 Months Ended Oct 31, 2021 (in thousands) | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | | Cash provided by (used in) operating activities | $102,861 | $(77,095) | | Cash used in investing activities | $(23,394) | $(140,629) | | Cash (used in) provided by financing activities | $(55,140) | $110,103 | | Increase (decrease) in cash and cash equivalents | $22,285 | $(107,702) | - The change in operating cash flow was primarily due to an increase in inventory in the prior year period related to ensuring product availability and managing price inflation[143](index=143&type=chunk) - The decrease in cash used in investing activities was primarily due to a **$122.4 million** decrease in cash used for acquisitions, partially offset by a **$5.6 million** increase in capital expenditures[144](index=144&type=chunk) - The change in financing cash flows was primarily due to net borrowings of **$28.9 million** from revolving credit facilities (compared to **$140.8 million** in prior year), a **$36.4 million** increase in common stock repurchases, and a **$13.5 million** acquisition holdback payment[146](index=146&type=chunk) [Debt Covenants](index=37&type=section&id=Debt%20Covenants) The company was in compliance with all covenants under its Term Loan Facility, Senior Notes indenture, and ABL Facility as of October 31, 2022 - The company was in compliance with all covenants contained in the Term Loan Facility, the indenture governing the Senior Notes, and the ABL Facility as of October 31, 2022[147](index=147&type=chunk)[148](index=148&type=chunk) [Contractual Obligations](index=37&type=section&id=Contractual%20Obligations) No material changes to the company's contractual obligations have occurred since the Annual Report on Form 10-K for the fiscal year ended April 30, 2022, beyond those in the ordinary course of business - No material changes to contractual obligations since the Annual Report on Form 10-K for the fiscal year ended April 30, 2022[149](index=149&type=chunk) [Off-Balance Sheet Arrangements](index=37&type=section&id=Off-Balance%20Sheet%20Arrangements) No material changes to the company's off-balance sheet arrangements have occurred since the Annual Report on Form 10-K for the fiscal year ended April 30, 2022 - No material changes to off-balance sheet arrangements since the Annual Report on Form 10-K for the fiscal year ended April 30, 2022[150](index=150&type=chunk) [Non-GAAP Financial Measures](index=37&type=section&id=Non-GAAP%20Financial%20Measures) This section defines Adjusted EBITDA and Adjusted EBITDA margin as non-GAAP measures used by management and investors to compare operating performance consistently across periods, excluding items not indicative of core operations, and provides a reconciliation of net income to Adjusted EBITDA - Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures used to compare operating performance consistently by excluding items not indicative of core operations[151](index=151&type=chunk) - Adjusted EBITDA is utilized in certain calculations under the company's debt agreements[152](index=152&type=chunk) | Metric | 3 Months Ended Oct 31, 2022 (in thousands) | 3 Months Ended Oct 31, 2021 (in thousands) | 6 Months Ended Oct 31, 2022 (in thousands) | 6 Months Ended Oct 31, 2021 (in thousands) | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net income | $103,153 | $74,361 | $192,623 | $135,563 | | Interest expense | $16,055 | $14,744 | $30,716 | $28,401 | | Provision for income taxes | $35,995 | $23,769 | $68,025 | $43,740 | | Depreciation expense | $15,058 | $13,703 | $30,051 | $26,628 | | Amortization expense | $17,168 | $15,700 | $34,615 | $30,489 | | Adjusted EBITDA | $195,513 | $149,539 | $370,527 | $277,618 | | Adjusted EBITDA Margin | 13.7% | 13.0% | 13.3% | 12.7% | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=39&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No material changes to the company's exposure to market risks have occurred since its Annual Report on Form 10-K for the fiscal year ended April 30, 2022 - No material changes to market risk exposure since the Annual Report on Form 10-K for the fiscal year ended April 30, 2022[159](index=159&type=chunk) [Item 4. Controls and Procedures](index=39&type=section&id=Item%204.%20Controls%20and%20Procedures) As of October 31, 2022, management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective, with no material changes in internal control over financial reporting during the three months ended October 31, 2022 - The CEO and CFO concluded that disclosure controls and procedures were effective as of October 31, 2022[161](index=161&type=chunk) - No material changes in internal control over financial reporting occurred during the three months ended October 31, 2022[162](index=162&type=chunk) PART II – Other Information [Item 1. Legal Proceedings](index=40&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various lawsuits and administrative actions, including product liability and asbestos-related claims, with no current legal proceedings expected to have a material adverse effect on the business or financial condition - The company is a defendant in various lawsuits and administrative actions, including product liability claims and asbestos-related personal injury lawsuits[165](index=165&type=chunk) - No current legal proceedings are expected to have a material adverse effect on the company's business or financial condition[165](index=165&type=chunk) [Item 1A. Risk Factors](index=40&type=section&id=Item%201A.%20Risk%20Factors) No material changes in the risks facing the company have occurred since the Annual Report on Form 10-K for the fiscal year ended April 30, 2022 - No material changes in the risks facing the company since the Annual Report on Form 10-K for the fiscal year ended April 30, 2022[166](index=166&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=40&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the three months ended October 31, 2022, the company repurchased **600,871 shares** of common stock at an average price of **$42.90** per share under its publicly announced program, with approximately **$161.2 million** remaining authorized for repurchase as of October 31, 2022 | Month | Total Number of Shares Purchased | Average Price Paid per Share | | :----------------------------------- | :------------------------------- | :--------------------------- | | August 1 through August 31 | — | $— | | September 1 through September 30 | 330,892 | $42.82 | | October 1 through October 31 | 269,979 | $42.99 | | Total | 600,871 | $42.90 | - As of October 31, 2022, **$161.2 million** of shares may yet be purchased under the expanded share repurchase program[167](index=167&type=chunk) [Item 3. Defaults Upon Senior Securities](index=41&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities - No defaults upon senior securities[168](index=168&type=chunk) [Item 4. Mine Safety Disclosures](index=41&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not Applicable[169](index=169&type=chunk) [Item 5. Other Information](index=41&type=section&id=Item%205.%20Other%20Information) No other information is reported under this item - None[170](index=170&type=chunk) [Item 6. Exhibits](index=42&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of the Form 10-Q report, including certifications, corporate documents, and XBRL interactive data files - Includes certifications of the Chief Executive Officer and Chief Financial Officer (Exhibits 31.1, 31.2, 32.1, 32.2)[172](index=172&type=chunk) - Includes Inline XBRL Instance Document and Taxonomy Extension Documents (Exhibits 101 INS, SCH, CAL, DEF, LAB, PRE)[172](index=172&type=chunk) [Signatures](index=43&type=section&id=Signatures) The report is duly signed on behalf of GMS Inc. by Scott M. Deakin, Chief Financial Officer, on December 8, 2022 - The Quarterly Report was signed by Scott M. Deakin, Chief Financial Officer, on December 8, 2022[176](index=176&type=chunk)

Financial Data and Key Metrics Changes - Net sales increased by 24.4% year-over-year to $1.4 billion, with organic sales rising 22.2% after adjusting for acquisitions and foreign exchange impacts [17][18] - Net income improved by 38.7% to $103.2 million, and adjusted EBITDA grew by 30.7% to $195.5 million, with adjusted EBITDA margin increasing by 70 basis points to 13.7% [10][34] - Gross profit rose by 24.9% to $464.5 million, with a gross margin of 32.5%, up 20 basis points year-over-year [31][32] Business Line Data and Key Metrics Changes - Wallboard sales reached $584.6 million, up 41% year-over-year, driven by a 28.9% increase in price and mix and a 9.9% increase in volume [18][21] - Ceiling tile and grid sales increased by 13.3% to $159.6 million, with a 9.6% benefit from price and mix and a 2% increase in volume [23] - Steel framing sales rose by 2.3% to $278.2 million, primarily due to a 7.5% price increase, offset by a 6.8% decline in volume [24][26] - Complementary product sales increased by 26.5% to $408.7 million, with organic sales rising 17.8% [29][30] Market Data and Key Metrics Changes - Residential market sales increased by over 34%, with multi-family sales growing more than 50% and single-family sales up 29% year-over-year [18] - Commercial sales improved by 17% year-over-year, indicating a recovery in the commercial market [18] Company Strategy and Development Direction - The company aims to expand its share in core products, grow complementary products, and pursue accretive acquisitions while improving productivity and profitability [11][14][15] - The focus remains on enhancing customer service and product availability, with a commitment to leveraging scale and technology [15][16] Management's Comments on Operating Environment and Future Outlook - Management expects continued strength in multi-family and some recovery in the commercial market, but anticipates a decline in single-family demand [40][41] - The company is well-positioned to weather the expected slowdown due to a balanced revenue split between commercial and residential segments [42] - Inflation is moderating, and while Wallboard price increases are expected to slow, year-over-year pricing favorability is anticipated [44][45] Other Important Information - Cash on hand was $124.2 million, with net adjusted EBITDA debt leverage improving to 1.6 times [35][36] - The company repurchased approximately 601,000 shares for $25.8 million during the quarter [38] Q&A Session Summary Question: What percentage of U.S. MSAs does the company have a presence in today? - The company is present in all top MSAs in the U.S. except New York City and Utah, with multi-family mix at about 15% of Wallboard sales and 10% of overall sales [50] Question: Can you discuss the commercial landscape and visibility? - The commercial market is expected to remain flat to up low single digits, with office space being a significant drag on performance [62] Question: How is the company approaching M&A in the current environment? - The company remains cautious about M&A due to inflated seller expectations and market risks, but continues to have strong relationships with potential sellers [66] Question: What is the outlook for the residential business and its impact on the company? - The company expects a slight growth in Wallboard volume but strong pricing, while steel prices are anticipated to decline year-over-year [80] Question: How is the company managing SG&A costs in light of changing volumes? - The company has a flexible cost structure and can adjust variable expenses based on business performance, maintaining focus on strategic investments [102]

Financial Performance - Net sales reached $1.4 billion, a 24.4% increase compared to Q2 FY22[3, 4] - Organic sales grew by 22.2%, driven by product inflation and volume growth in Wallboard, Ceilings, and Complementary Products[3, 7] - Gross profit increased by 24.9%[3, 10] reaching $464.5 million[4] - Net income increased by 38.7%[4] to $103.2 million[4] - Adjusted EBITDA increased by 30.7%, or $46.0 million, year-over-year[4] to $195.5 million[5] - Adjusted EBITDA margin improved by 70 basis points[4] to 13.7%[13] Volume and Pricing - Wallboard volumes increased by low double-digits year-over-year[3], with organic volume growth of 11.4%[5] - Ceilings experienced organic volume growth of 2.9% year-over-year[5] - Wallboard organic growth was 41.4%, Ceilings organic growth was 13.6%, and Steel Framing organic growth was 2.5%[5] - Total Wallboard growth was +39.2% which includes +9.2% volume and +30.0% price/mix[6] Strategic Growth and Capital Structure - Net debt leverage decreased to 1.6 times as of October 31, 2022, down from 2.4 times a year ago[5, 18] - The company generated $96.5 million in Free Cash Flow, compared to a use of $11.3 million in Q2 FY22[14] - Cash from Operating Activities was $107.3 million, compared to a use of $2.0 million in Q2 FY22[14]

[Cautionary Note Regarding Forward-Looking Statements](index=3&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) This report contains forward-looking statements based on current expectations, which are subject to various known and unknown risks and uncertainties that could cause actual results to differ materially from projections - This report contains forward-looking statements based on current expectations, which are subject to various known and unknown risks and uncertainties. These factors could cause actual results to differ materially from projections[10](index=10&type=chunk)[11](index=11&type=chunk) - Key risk factors that could impact future performance include, but are not limited to: - General economic conditions such as inflation, rising interest rates, and supply chain disruptions - Dependency on commercial and residential construction markets - Competition within the highly fragmented industry - Ability to pass on price increases and manage inventory - Successful implementation of growth strategies, including acquisitions - Disruptions in the supply chain or relationships with key suppliers - Cybersecurity breaches and IT system disruptions[12](index=12&type=chunk)[13](index=13&type=chunk)[14](index=14&type=chunk)[15](index=15&type=chunk) [PART I: Financial Information](index=5&type=section&id=PART%20I%20Financial%20Information) [Item 1. Financial Statements](index=5&type=section&id=Item%201%20Financial%20Statements) Unaudited Q1 FY2023 financials show strong year-over-year revenue and net income growth, increased assets, and improved operating cash flow [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20(Unaudited)) The balance sheet highlights an increase in total assets and stockholders' equity, with a slight decrease in current liabilities Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | July 31, 2022 | April 30, 2022 | | :--- | :--- | :--- | | **Total current assets** | $1,529,996 | $1,423,127 | | **Total assets** | $3,212,425 | $3,104,399 | | **Total current liabilities** | $666,627 | $689,198 | | **Long-term debt, less current portion** | $1,192,101 | $1,136,585 | | **Total liabilities** | $2,073,201 | $2,039,901 | | **Total stockholders' equity** | $1,139,224 | $1,064,498 | [Condensed Consolidated Statements of Operations and Comprehensive Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20(Unaudited)) The statement of operations shows robust year-over-year growth across net sales, gross profit, operating income, net income, and diluted EPS Statement of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended July 31, 2022 | Three Months Ended July 31, 2021 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $1,359,553 | $1,042,076 | 30.5% | | Gross profit | $434,721 | $335,833 | 29.4% | | Operating income | $134,592 | $94,038 | 43.1% | | Net income | $89,470 | $61,202 | 46.2% | | Diluted EPS | $2.07 | $1.39 | 48.9% | [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity%20(Unaudited)) Stockholders' equity increased, primarily driven by net income, partially offset by common stock repurchases - Total stockholders' equity increased from **$1.06 billion** at April 30, 2022, to **$1.14 billion** at July 31, 2022. The increase was primarily driven by **$89.5 million** in net income, partially offset by **$23.8 million** in common stock repurchases[22](index=22&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)) Cash flow from operations significantly improved, while investing activities decreased due to lower acquisition spending Cash Flow Summary (in thousands) | Activity | Three Months Ended July 31, 2022 | Three Months Ended July 31, 2021 | | :--- | :--- | :--- | | Cash used in operating activities | $(4,403) | $(75,077) | | Cash used in investing activities | $(13,277) | $(129,576) | | Cash provided by financing activities | $22,212 | $81,394 | - The significant decrease in cash used in operating activities was mainly due to smaller increases in inventory compared to the prior year. Cash used in investing activities decreased substantially due to lower acquisition spending (**$2.6 million** in Q1'23 vs. **$123.0 million** in Q1'22)[25](index=25&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) Notes detail operations, a recent acquisition, share repurchase program expansion, and net sales breakdown by product and geography - The company operates approximately **300 distribution centers** and **100 tool sales, rental, and service centers** across the United States and Canada, serving residential and commercial contractors[27](index=27&type=chunk) - On June 1, 2022, the Company acquired certain assets of Construction Supply of Southwest Florida, Inc. ("CSSWF"), a distributor of stucco, building, and waterproofing supplies[45](index=45&type=chunk) - On June 20, 2022, the Board of Directors expanded the share repurchase program authorization to **$200.0 million**. During the quarter, the company repurchased approximately **516,000 shares** for **$23.8 million**[68](index=68&type=chunk)[69](index=69&type=chunk) Net Sales by Product (in thousands) | Product Line | Three Months Ended July 31, 2022 | Three Months Ended July 31, 2021 | | :--- | :--- | :--- | | Wallboard | $521,554 | $390,135 | | Ceilings | $167,275 | $138,071 | | Steel framing | $274,896 | $196,276 | | Complementary products | $395,828 | $317,594 | | **Total net sales** | **$1,359,553** | **$1,042,076** | Net Sales by Geography (in thousands) | Geography | Three Months Ended July 31, 2022 | Three Months Ended July 31, 2021 | | :--- | :--- | :--- | | United States | $1,187,871 | $862,790 | | Canada | $171,682 | $179,286 | | **Total net sales** | **$1,359,553** | **$1,042,076** | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes strong net sales growth to pricing and market demand, with improved operating leverage, adequate liquidity, and continued strategic expansion [Market Conditions and Outlook](index=25&type=section&id=Market%20Conditions%20and%20Outlook) The residential market is expected to remain strong, while the commercial market shows signs of continued improvement - **Residential Market:** Strong demand is expected to continue through the remainder of calendar year 2022, supported by favorable demographics and low housing supply, despite medium-term uncertainty from rising mortgage rates and affordability concerns[95](index=95&type=chunk) - **Commercial Market:** Demand is showing signs of improvement, particularly in medical, educational, and governmental projects. However, larger office projects remain tempered. Management is optimistic that the recovery will continue[97](index=97&type=chunk) [Business Strategy](index=26&type=section&id=Business%20Strategy) The company's strategy focuses on market share expansion, product line growth, platform expansion, and improved productivity - The company's key business strategies include: - Expanding market share in core products (wallboard, ceilings, steel framing) - Growing complementary product lines to diversify offerings and increase margins - Pursuing platform expansion through greenfield openings and strategic acquisitions - Driving improved productivity and profitability by leveraging scale and technology[101](index=101&type=chunk) [Results of Operations](index=28&type=section&id=Results%20of%20Operations) Net sales grew significantly, driven by organic growth and acquisitions, with increased gross profit and improved SG&A leverage Net Sales by Product (in thousands) | Product | Q1 FY2023 | Q1 FY2022 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Wallboard | $521,554 | $390,135 | $131,419 | 33.7% | | Ceilings | $167,275 | $138,071 | $29,204 | 21.2% | | Steel framing | $274,896 | $196,276 | $78,620 | 40.1% | | Complementary products | $395,828 | $317,594 | $78,234 | 24.6% | | **Total net sales** | **$1,359,553** | **$1,042,076** | **$317,477** | **30.5%** | - Organic (base business) net sales grew by **24.1%** year-over-year, driven by inflationary pricing and volume growth. Recently acquired businesses contributed **$73.9 million** to net sales in the quarter[109](index=109&type=chunk)[110](index=110&type=chunk)[111](index=111&type=chunk) - Gross profit increased by **29.4%** to **$434.7 million**, while gross margin slightly decreased to **32.0%** from **32.2%** in the prior year, attributed to the timing and elasticity of inflationary price-cost dynamics[112](index=112&type=chunk) - Selling, general and administrative (SG&A) expenses increased by **25.0%** to **$267.7 million** due to higher sales volume, inflation, and acquisitions. However, SG&A as a percentage of net sales improved from **20.5%** to **19.7%**, indicating better operating leverage[115](index=115&type=chunk) [Liquidity and Capital Resources](index=31&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains adequate liquidity via cash flow and its ABL facility, with substantial borrowing capacity and ongoing share repurchases - The company depends on cash flow from operations, cash on hand, and its ABL Facility for liquidity. Management believes these sources are adequate to fund operations and growth strategies for at least the next twelve months[120](index=120&type=chunk) - As of July 31, 2022, the company had available borrowing capacity of approximately **$246.8 million** under its ABL Facility and **$23.4 million** under its Canadian Facility[121](index=121&type=chunk) - Under its expanded share repurchase program, the company repurchased **$23.8 million** of its common stock during the quarter. As of July 31, 2022, **$187.0 million** remained authorized for future repurchases[123](index=123&type=chunk) [Non-GAAP Financial Measures](index=33&type=section&id=Non-GAAP%20Financial%20Measures) Adjusted EBITDA significantly increased, and the Adjusted EBITDA margin expanded due to improved operating leverage Reconciliation of Net Income to Adjusted EBITDA (in thousands) | Line Item | Three Months Ended July 31, 2022 | Three Months Ended July 31, 2021 | | :--- | :--- | :--- | | Net income | $89,470 | $61,202 | | Interest expense | $14,661 | $13,657 | | Provision for income taxes | $32,030 | $19,971 | | Depreciation and amortization | $32,440 | $27,714 | | Other adjustments | $6,429 | $5,635 | | **Adjusted EBITDA** | **$175,014** | **$128,079** | | **Adjusted EBITDA Margin** | **12.9%** | **12.3%** | - Adjusted EBITDA increased **36.6%** to **$175.0 million** for the quarter, and Adjusted EBITDA margin expanded to **12.9%** from **12.3%** in the prior year, primarily due to better operating leverage as product price inflation outpaced operating cost inflation[105](index=105&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=35&type=section&id=Item%203%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company reports no material changes to its exposure to market risks since its last Annual Report on Form 10-K for the fiscal year ended April 30, 2022 - There have been no material changes to the company's exposure to market risks from those reported in the Annual Report on Form 10-K for the fiscal year ended April 30, 2022[142](index=142&type=chunk) [Item 4. Controls and Procedures](index=35&type=section&id=Item%204%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of July 31, 2022. No material changes were made to the internal control over financial reporting during the quarter - Based on an evaluation as of July 31, 2022, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[144](index=144&type=chunk) - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[145](index=145&type=chunk) [PART II: Other Information](index=36&type=section&id=PART%20II%20Other%20Information) [Item 1. Legal Proceedings](index=36&type=section&id=Item%201%20Legal%20Proceedings) The company is involved in various lawsuits in the normal course of business, none of which are expected to have a material adverse effect. It continues to manage asbestos-related personal injury lawsuits, with 988 of 1,037 cases filed since 2002 having been dismissed without payment - The company is not currently a party to any legal proceedings that management believes would have a material adverse effect on its business or financial condition[148](index=148&type=chunk) - Regarding historical asbestos-related claims, of the **1,037 lawsuits** filed since 2002, **988** have been dismissed without payment, **38** are pending, and **11** have been settled without material financial impact[148](index=148&type=chunk) [Item 1A. Risk Factors](index=36&type=section&id=Item%201A%20Risk%20Factors) There have been no material changes in the risks facing the company as described in its Annual Report on Form 10-K for the fiscal year ended April 30, 2022 - There have been no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 2022[149](index=149&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=36&type=section&id=Item%202%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the three months ended July 31, 2022, the company repurchased a total of 516,285 shares of its common stock. This was executed under a publicly announced program, which was expanded on June 20, 2022, to authorize up to $200.0 million in repurchases Share Repurchases for the Three Months Ended July 31, 2022 | Period | Total Shares Purchased | Average Price Paid per Share | Remaining Authorization (in thousands) | | :--- | :--- | :--- | :--- | | May 2022 | 134,623 | $47.43 | $12,446 | | June 2022 | 177,509 | $45.86 | $196,285 | | July 2022 | 204,153 | $45.40 | $187,016 | | **Total** | **516,285** | | | - On June 20, 2022, the Board of Directors approved an expanded share repurchase program authorizing up to **$200.0 million** of its outstanding common stock, replacing a previous **$75.0 million** authorization[150](index=150&type=chunk) [Item 3. Defaults Upon Senior Securities](index=37&type=section&id=Item%203%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon its senior securities during the period - None[151](index=151&type=chunk) [Item 4. Mine Safety Disclosures](index=37&type=section&id=Item%204%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not Applicable[152](index=152&type=chunk) [Item 5. Other Information](index=37&type=section&id=Item%205%20Other%20Information) The company reported no other information for the period - None[153](index=153&type=chunk) [Item 6. Exhibits](index=38&type=section&id=Item%206%20Exhibits) This section lists the exhibits filed as part of the quarterly report, including certifications from the CEO and CFO, and XBRL data files - The exhibits filed with this report include the CEO and CFO certifications pursuant to the Sarbanes-Oxley Act of 2002 and Inline XBRL documents[155](index=155&type=chunk) [Signatures](index=39&type=section&id=Signatures) The Quarterly Report on Form 10-Q was signed on September 1, 2022, by the Chief Financial Officer - The Quarterly Report on Form 10-Q was signed on September 1, 2022, by Scott M. Deakin, the Chief Financial Officer[157](index=157&type=chunk)[159](index=159&type=chunk)

Financial Data and Key Metrics Changes - The company reported a 30.5% increase in net sales year-over-year, reaching $1.4 billion for the quarter, with organic sales rising 24.1% [16][9] - Net income improved by 46.2%, while adjusted EBITDA grew by 36.6%, resulting in an adjusted EBITDA margin of 12.9%, up 60 basis points compared to the previous year [10][26] - Gross profit increased by 29.4% to $434.7 million, with a gross margin percentage of 32%, consistent with both the prior year and prior quarter [24][10] Business Line Data and Key Metrics Changes - Wallboard sales increased by 33.7% to $521.6 million, driven by a 24.8% increase in price and mix and an 8.8% increase in volume [16][17] - Ceiling tile and grid sales rose by 21.2% to $167.3 million, with an 18.1% benefit from price and mix and a 3.1% increase in volume [20] - Steel framing sales increased by 40.1% to $274.9 million, primarily due to a 47.3% benefit from price and mix, despite a 7.2% decline in volumes [21] Market Data and Key Metrics Changes - Both residential and commercial sales in the U.S. were up more than 27% organically year-over-year [16] - Multi-family volume gains of nearly 30% outpaced mid-single digit single-family volume growth [18] - The average realized wallboard price was $438 per 1,000 square feet, up more than 5% sequentially and almost 23% compared to the previous year [19] Company Strategy and Development Direction - The company is focused on four primary strategic priorities: expanding share in core products, growing complementary products, expanding through acquisitions, and driving improved productivity and profitability [11][12][13][14] - The company has acquired Construction Supply of Southwest Florida and opened new locations to enhance its service territory and product offerings [13] - The company plans to complete the upgrade of its ERP system by the end of the calendar year to improve inventory management and operational efficiency [14] Management's Comments on Operating Environment and Future Outlook - Management noted a significant contrast between current solid activity levels and potential slowdowns in the single-family market due to declining housing starts [34] - The company expects total net sales growth of roughly 20% for the fiscal second quarter, with gross margin percentage remaining consistent with Q1 [38] - Management remains confident in the company's position, citing a balanced split between commercial and residential revenues and a broadened geographic footprint [36] Other Important Information - The company had cash on hand of $106.6 million and $270.2 million of available liquidity under revolving credit facilities at quarter-end [28] - The effective tax rate increased to 26.4% from 24.6% in the previous year due to anticipated Canadian tax law changes [27] - The company repurchased approximately 516,000 shares for $23.8 million during the quarter, compared to 85,000 shares for $3.9 million in the prior year [31] Q&A Session Summary Question: What part of commercial is the strongest right now? - Management indicated that education, hospitality, and healthcare segments are improving, while large office high-rise projects are not accelerating [43] Question: How should we think about wallboard organic volume growth moving forward? - Management suggested that mid-single digit growth is appropriate for wallboard volume due to current industry conditions [52] Question: Can you discuss the current bidding environment? - Management noted that bidding levels remain moderately strong, with ongoing high levels of under-construction activity in residential markets [53] Question: How does the company view inventory replenishment given the current market dynamics? - Management expressed confidence in wallboard sales, which operate on a just-in-time basis, while being cautious with steel inventory purchases [57] Question: What are the drivers of higher free cash flow conversion this year? - Management attributed improved cash flow to reduced inventory buildup and lower cash consumption compared to the previous year [60] Question: Can you discuss the company's capital allocation strategy? - Management emphasized a disciplined approach to capital allocation, focusing on organic growth, M&A opportunities, and share repurchases [76]

Q1 2023 Earnings Call September 1, 2022 Safe Harbor and Basis of Presentation Forward-Looking Statement Safe Harbor — This presentation 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," "confident," "continue," "could," "estimate," "expect," "intend," "may," "might," "plan," "potential," "predict," "seek," o ...

Jefferies Industrials Conference August 9, 2022 Safe Harbor and Basis of Presentation Forward-Looking Statement Safe Harbor — This presentation 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," "confident," "continue," "could," "estimate," "expect," "intend," "may," "might," "plan," "potential," "predict," " ...