GMS(GMS) - 2025 Q1 - Quarterly Report

Cautionary Note Regarding Forward-Looking Statements This section warns that the report contains forward-looking statements, whose actual results may differ materially due to various known and unknown risks and uncertainties - The report contains "forward-looking statements" identifiable by terms such as "anticipate," "believe," "expect," "intend," "may," "plan," "potential," "predict," "seek," or "should"[4] - Actual results may differ materially due to factors including general business and economic conditions, dependency on cyclical markets, competition, and operational factors[5][6] - Readers are cautioned not to place undue reliance on forward-looking statements, which are not guarantees of future performance, and the company does not undertake to update them unless required by law[7] PART I Financial Information Item 1 Financial Statements This section presents the unaudited condensed consolidated financial statements, including balance sheets, income statements, equity statements, and cash flow statements, with accompanying notes Condensed Consolidated Balance Sheets (Unaudited) This section presents the unaudited condensed consolidated balance sheets, detailing assets, liabilities, and equity as of July 31, 2024, and April 30, 2024 - Total Assets increased to $3,893,302 thousand as of July 31, 2024, from $3,759,840 thousand as of April 30, 2024[9] - Total Liabilities increased to $2,422,999 thousand as of July 31, 2024, from $2,299,319 thousand as of April 30, 2024[10] - Total Stockholders' Equity increased to $1,470,303 thousand as of July 31, 2024, from $1,460,521 thousand as of April 30, 2024[11] Key Balance Sheet Items (July 31, 2024 vs. April 30, 2024) | Metric | July 31, 2024 (in thousands) | April 30, 2024 (in thousands) | | :-------------------------------------------------------------------------------------------------------------------- | :--------------------------- | :---------------------------- | | Cash and cash equivalents | $53,172 | $166,148 | | Trade accounts and notes receivable, net | $929,508 | $849,993 | | Inventories, net | $607,403 | $580,830 | | Goodwill | $890,699 | $853,767 | | Intangible assets, net | $553,341 | $502,688 | | Total assets | $3,893,302 | $3,759,840 | | Accounts payable | $420,288 | $420,237 | | Total current liabilities | $708,200 | $757,050 | | Long-term debt | $1,326,695 | $1,229,726 | | Total liabilities | $2,422,999 | $2,299,319 | | Total stockholders' equity | $1,470,303 | $1,460,521 | Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) This section presents the unaudited condensed consolidated statements of operations and comprehensive income for the three months ended July 31, 2024 and 2023 - Net Sales increased to $1,448,456 thousand for the three months ended July 31, 2024, from $1,409,600 thousand in the prior year period[13] - Net Income decreased to $57,248 thousand for the three months ended July 31, 2024, from $86,830 thousand in the prior year period[13] - Diluted EPS decreased to $1.42 for the three months ended July 31, 2024, from $2.09 in the prior year period[13] Key Income Statement Items (Three Months Ended July 31, 2024 vs. 2023) | Metric | July 31, 2024 (in thousands) | July 31, 2023 (in thousands) | Change (YoY) | | :------------------------------------------------------------------------------------ | :--------------------------- | :--------------------------- | :----------- | | Net sales | $1,448,456 | $1,409,600 | +2.8% | | Gross profit | $451,563 | $450,554 | +0.2% | | Operating expenses | $353,184 | $318,814 | +10.8% | | Operating income | $98,379 | $131,740 | -25.3% | | Interest expense | $(22,213) | $(18,914) | +17.4% | | Income before taxes | $78,194 | $113,564 | -31.1% | | Provision for income taxes | $20,946 | $26,734 | -21.7% | | Net income | $57,248 | $86,830 | -34.1% | | Diluted EPS | $1.42 | $2.09 | -32.1% | | Comprehensive income | $48,951 | $103,617 | -52.8% | Condensed Consolidated Statements of Stockholders' Equity (Unaudited) This section presents the unaudited condensed consolidated statements of stockholders' equity, detailing changes in equity for the three months ended July 31, 2024 - Total Stockholders' Equity increased from $1,460,521 thousand as of April 30, 2024, to $1,470,303 thousand as of July 31, 2024[15] - Net income contributed $57,248 thousand to retained earnings for the three months ended July 31, 2024[15] - The company repurchased and retired common stock valued at $46,609 thousand during the three months ended July 31, 2024[15] - Equity-based compensation recognized was $3,678 thousand for the three months ended July 31, 2024[15] Condensed Consolidated Statements of Cash Flows (Unaudited) This section presents the unaudited condensed consolidated statements of cash flows, detailing operating, investing, and financing activities for the three months ended July 31, 2024 and 2023 - Cash flow from operating activities shifted from $6,647 thousand provided in 2023 to $(22,939) thousand used in 2024[18] - Cash flow from investing activities increased to $(126,219) thousand used in 2024 from $(51,532) thousand used in 2023, primarily due to acquisitions[18] - Cash flow from financing activities shifted from $(39,103) thousand used in 2023 to $35,290 thousand provided in 2024, driven by net borrowings from the revolving credit facility[18] Key Cash Flow Items (Three Months Ended July 31, 2024 vs. 2023) | Metric | July 31, 2024 (in thousands) | July 31, 2023 (in thousands) | | :-------------------------------------------------------------------- | :--------------------------- | :--------------------------- | | Net income | $57,248 | $86,830 | | Cash (used in) provided by operating activities | $(22,939) | $6,647 | | Cash used in investing activities | $(126,219) | $(51,532) | | Cash provided by (used in) financing activities | $35,290 | $(39,103) | | Decrease in cash and cash equivalents | $(112,976) | $(83,296) | | Cash and cash equivalents, end of period | $53,172 | $81,449 | Notes to Condensed Consolidated Financial Statements (Unaudited) This section provides detailed notes to the unaudited condensed consolidated financial statements, explaining accounting policies, business combinations, and other financial disclosures 1. Business, Basis of Presentation and Summary of Significant Accounting Policies This note describes the company's business, the basis of presentation for the unaudited financial statements, and a summary of significant accounting policies - GMS Inc operates a network of over 300 distribution centers and approximately 100 tool sales, rental, and service centers, providing wallboard, ceilings, steel framing, and complementary construction products[20] - The condensed consolidated financial statements are unaudited and prepared in accordance with SEC rules for interim periods, including all normal and recurring adjustments[21] - Revenue is recognized upon transfer of control of contracted goods to customers, net of taxes collected, with shipping and handling costs billed to customers included in net sales[23] Insurance Liabilities (July 31, 2024 vs. April 30, 2024) | Liability Type | July 31, 2024 (in thousands) | April 30, 2024 (in thousands) | | :---------------------------------------- | :--------------------------- | :---------------------------- | | Medical self-insurance | $4,839 | $6,067 | | General liability, automobile, and workers' compensation | $24,152 | $22,731 | | Expected recoveries for insurance liabilities | $(4,786) | $(3,746) | - The FASB issued new guidance on segment reporting (effective for fiscal years beginning after Dec 15, 2023) and income taxes (effective for fiscal years beginning after Dec 15, 2024), which the Company is currently evaluating for impact[25][26] 2. Business Combinations This note details the company's recent acquisitions, including the consideration transferred and the preliminary allocation of assets acquired and liabilities assumed - On May 1, 2024, the Company acquired Howard & Sons Building Materials, Inc, and on July 2, 2024, acquired Yvon Building Supply, Inc and its affiliates[28] - The primary purpose of these transactions was to expand the Company's geographical coverage and grow the business[29] - For the three months ended July 31, 2024, acquisitions contributed $13.2 million of net sales and resulted in a $0.6 million net loss, with transaction costs of $1.3 million[29] Preliminary Consideration Transferred for Fiscal 2025 Acquisitions | Component | Amount (in thousands) | | :-------------------------------- | :-------------------- | | Cash | $122,572 | | Contingent consideration | $26,648 | | Fair value of consideration transferred | $149,220 | Preliminary Acquisition Accounting (Assets Acquired & Liabilities Assumed) | Item | Amount (in thousands) | | :-------------------------------- | :-------------------- | | Cash | $4,241 | | Trade accounts and notes receivable | $44,285 | | Inventories | $6,931 | | Property and equipment | $15,612 | | Other assets | $9,016 | | Intangible assets | $70,862 | | Goodwill | $39,177 | | Accounts payable and other liabilities | $(19,674) | | Deferred income taxes | $(21,230) | | Fair value of consideration transferred | $149,220 | Intangible Assets Acquired (Fiscal 2025 Acquisitions) | Intangible Asset | Fair Value (in thousands) | Weighted Average Amortization Period (Years) | | :----------------------- | :------------------------ | :------------------------------------------- | | Customer relationships | $61,239 | 11.2 | | Trade names | $8,675 | 15.0 | | Other | $948 | 5.0 | | Total intangible assets | $70,862 | | 3. Accounts Receivable This note provides a breakdown of trade accounts and notes receivable, including allowances for expected credit losses - Trade accounts and notes receivable, net, increased to $929,508 thousand as of July 31, 2024, from $849,993 thousand as of April 30, 2024[35] - Allowance for expected credit losses increased slightly to $10,399 thousand as of July 31, 2024, from $10,228 thousand as of April 30, 2024[35] - Receivables from contracts with customers, net of allowances, were $776.2 million as of July 31, 2024, up from $729.0 million as of April 30, 2024[36] Accounts Receivable Breakdown (July 31, 2024 vs. April 30, 2024) | Component | July 31, 2024 (in thousands) | April 30, 2024 (in thousands) | | :---------------------------------------- | :--------------------------- | :---------------------------- | | Trade receivables | $793,082 | $745,956 | | Other receivables | $153,350 | $120,967 | | Allowance for expected credit losses | $(10,399) | $(10,228) | | Other allowances | $(6,525) | $(6,702) | | Trade accounts and notes receivable | $929,508 | $849,993 | 4. Goodwill and Intangible Assets This note details the carrying amounts of goodwill and intangible assets, including changes due to acquisitions and amortization expense - Goodwill, net, increased to $890,699 thousand as of July 31, 2024, from $853,767 thousand as of April 30, 2024, primarily due to $39,177 thousand recognized from acquisitions[37] - Definite-lived intangible assets, net, increased to $468,974 thousand as of July 31, 2024, from $418,321 thousand as of April 30, 2024[39] - Amortization expense related to definite-lived intangible assets was $18.8 million for the three months ended July 31, 2024, up from $15.7 million in the prior year period[39] Goodwill Carrying Amount (July 31, 2024 vs. April 30, 2024) | Component | July 31, 2024 (in thousands) | April 30, 2024 (in thousands) | | :------------------------------------------------ | :--------------------------- | :---------------------------- | | Gross Carrying Amount | $954,262 | $917,689 | | Accumulated Impairment Loss | $(63,563) | $(63,922) | | Net Carrying Amount | $890,699 | $853,767 | Intangible Assets, Net (July 31, 2024 vs. April 30, 2024) | Intangible Asset | July 31, 2024 (in thousands) | April 30, 2024 (in thousands) | | :-------------------------------- | :--------------------------- | :---------------------------- | | Customer relationships, net | $344,323 | $300,294 | | Definite-lived trade names, net | $116,662 | $110,654 | | Developed technology, net | $2,327 | $2,406 | | Other, net | $5,662 | $4,967 | | Total definite-lived intangible assets, net | $468,974 | $418,321 | | Indefinite-lived intangible assets | $84,367 | $84,367 | | Total intangible assets, net | $553,341 | $502,688 | Estimated Future Amortization Expense for Definite-Lived Intangible Assets | Year Ending April 30, | Amount (in thousands) | | :-------------------- | :-------------------- | | 2025 (remaining nine months) | $58,845 | | 2026 | $70,398 | | 2027 | $62,411 | | 2028 | $53,703 | | 2029 | $46,184 | | Thereafter | $177,433 | | Total | $468,974 | 5. Long-Term Debt This note provides details on the company's long-term debt, including the Term Loan Facility, Senior Notes, ABL Facility, and finance lease obligations - The carrying value of debt increased to $1,380,438 thousand as of July 31, 2024, from $1,280,575 thousand as of April 30, 2024[42] - The Term Loan Facility had $496.3 million outstanding as of July 31, 2024, with a maturity date of May 12, 2030, and an applicable interest rate of 7.59%[43] - The ABL Facility provides $950.0 million in aggregate revolving commitments, with $565.3 million available borrowing capacity as of July 31, 2024, and a weighted average interest rate on borrowings of 6.78%[46][47] Long-Term Debt Breakdown (July 31, 2024 vs. April 30, 2024) | Component | July 31, 2024 (in thousands) | April 30, 2024 (in thousands) | | :-------------------------------------------------------------------------------------------------------------------- | :--------------------------- | :---------------------------- | | Term Loan Facility | $496,256 | $497,503 | | Senior Notes | $350,000 | $350,000 | | ABL Facility | $359,470 | $270,000 | | Finance lease obligations | $173,866 | $168,738 | | Installment notes | $10,259 | $4,170 | | Carrying value of debt | $1,380,438 | $1,280,575 | | Less current portion | $(53,743) | $(50,849) | | Long-term debt | $1,326,695 | $1,229,726 | Debt Maturities as of July 31, 2024 | Year Ending April 30, | Term Loan Facility (in thousands) | Senior Notes (in thousands) | ABL Facility (in thousands) | Finance Leases (in thousands) | Installment Notes (in thousands) | Total (in thousands) | | :-------------------- | :-------------------------------- | :-------------------------- | :-------------------------- | :---------------------------- | :------------------------------- | :------------------- | | 2025 (remaining nine months) | $3,741 | $— | $— | $34,627 | $1,669 | $40,037 | | 2026 | $4,988 | $— | $— | $41,494 | $2,020 | $48,502 | | 2027 | $4,988 | $— | $— | $36,537 | $2,000 | $43,525 | | 2028 | $4,988 | $— | $359,470 | $30,357 | $1,926 | $396,741 | | 2029 | $4,988 | $— | $— | $19,728 | $2,644 | $27,360 | | Thereafter | $472,563 | $350,000 | $— | $11,123 | $— | $833,686 | | Total | $496,256 | $350,000 | $359,470 | $173,866 | $10,259 | $1,389,851 | - The company was in compliance with all covenants contained in the Term Loan Facility, Senior Notes indenture, and ABL Facility as of July 31, 2024[48][49] 6. Leases This note details the company's lease arrangements, including lease costs, right-of-use assets, and future minimum lease payments - Total lease cost increased to $35,458 thousand for the three months ended July 31, 2024, from $28,007 thousand in the prior year period[52] - Operating lease right-of-use assets increased to $288,335 thousand as of July 31, 2024, from $251,207 thousand as of April 30, 2024[9] Lease Expense (Three Months Ended July 31, 2024 vs. 2023) | Lease Component | July 31, 2024 (in thousands) | July 31, 2023 (in thousands) | | :-------------------------------- | :--------------------------- | :--------------------------- | | Amortization of right-of-use assets | $8,339 | $6,764 | | Interest on lease liabilities | $2,694 | $1,857 | | Operating lease cost | $19,593 | $15,716 | | Variable lease cost | $4,832 | $3,670 | | Total lease cost | $35,458 | $28,007 | Future Minimum Lease Payments as of July 31, 2024 | Year Ending April 30, | Finance Leases (in thousands) | Operating Leases (in thousands) | | :-------------------- | :---------------------------- | :------------------------------ | | 2025 (remaining nine months) | $41,907 | $52,319 | | 2026 | $48,510 | $64,750 | | 2027 | $41,367 | $53,300 | | 2028 | $33,173 | $43,199 | | 2029 | $20,927 | $36,077 | | Thereafter | $10,888 | $125,053 | | Total lease payments | $196,772 | $374,698 | | Less imputed interest | $(22,906) | $(81,285) | | Total | $173,866 | $293,413 | - Weighted-average remaining lease term for operating leases was 7.0 years and for finance leases was 3.3 years as of July 31, 2024[55] 7. Income Taxes This note provides information on the company's income tax provision, effective tax rate, and deferred tax assets and liabilities - The effective income tax rate increased to 26.8% for the three months ended July 31, 2024, from 23.5% in the prior year period, primarily due to foreign taxes, state taxes, and equity compensation[57] - The company had a valuation allowance of $12.7 million against its deferred tax assets as of July 31, 2024, a slight increase from $12.5 million as of April 30, 2024[57] - The company had no uncertain tax positions as of July 31, 2024, or April 30, 2024[57] 8. Stockholders' Equity This note details changes in stockholders' equity, including share repurchase activity and accumulated other comprehensive loss - The Board approved an expanded share repurchase program on October 18, 2023, authorizing up to $250.0 million in repurchases, with $154.3 million of authorization remaining as of July 31, 2024[59] - The company repurchased 538 thousand shares for $46.2 million (plus $0.4 million in excise taxes) during the three months ended July 31, 2024[60] - Accumulated other comprehensive loss increased to $(39,816) thousand as of July 31, 2024, from $(31,519) thousand as of April 30, 2024, primarily due to foreign currency translation and derivative financial instruments[61] Share Repurchase Activity (Three Months Ended July 31, 2024 vs. 2023) | Metric | July 31, 2024 (in thousands) | July 31, 2023 (in thousands) | | :---------------------------------------- | :--------------------------- | :--------------------------- | | Amount repurchased | $46,168 | $30,512 | | Excise tax on repurchases | $441 | $272 | | Total repurchases of common stock | $46,609 | $30,784 | | Number of shares repurchased | 538 | 469 | Changes to Accumulated Other Comprehensive Loss (Three Months Ended July 31, 2024) | Component | Foreign Currency Translation (in thousands) | Derivative Financial Instruments (in thousands) | Accumulated Other Comprehensive Loss (in thousands) | | :------------------------------------------------------------------------------------ | :------------------------------------------ | :---------------------------------------------- | :------------------------------------------ | | Balance as of April 30, 2024 | $(40,000) | $8,481 | $(31,519) | | Other comprehensive loss before reclassification | $(1,089) | $(4,520) | $(5,609) | | Losses on intra-entity transactions (long-term investment) | $(1,861) | $— | $(1,861) | | Reclassification to earnings | $— | $(827) | $(827) | | Balance as of July 31, 2024 | $(42,950) | $3,134 | $(39,816) | 9. Equity-Based Compensation This note describes the company's equity-based compensation plans, including stock options and restricted stock units, and related expenses - Equity-based compensation expense was $3.1 million for the three months ended July 31, 2024, up from $2.8 million in the prior year period[62] - As of July 31, 2024, there was $4.5 million of total unrecognized compensation cost related to stock options, expected to be recognized over 1.5 years[63] - As of July 31, 2024, there was $5.9 million of total unrecognized compensation cost related to nonvested restricted stock units, expected to be recognized over 1.5 years[64] ESPP Activity (Three Months Ended July 31, 2024 vs. 2023) | Metric | July 31, 2024 (shares in thousands) | July 31, 2023 (shares in thousands) | | :-------------------------------- | :---------------------------------- | :---------------------------------- | | Number of shares purchased | 44 | 58 | | Average purchase price | $72.20 | $45.90 | Stock Option Activity (Three Months Ended July 31, 2024) | Metric | Number of Options (in thousands) | Weighted Average Exercise Price | Aggregate Intrinsic Value (in thousands) | | :---------------------------------------- | :------------------------------- | :------------------------------ | :--------------------------------------- | | Outstanding as of April 30, 2024 | 968 | $41.79 | $49,086 | | Options exercised | (22) | $25.33 | | | Options forfeited | (3) | $62.16 | | | Outstanding as of July 31, 2024 | 943 | $42.11 | $51,020 | | Exercisable as of July 31, 2024 | 611 | $31.11 | $39,791 | Restricted Stock Unit Activity (Three Months Ended July 31, 2024) | Metric | Number of Restricted Stock Units (in thousands) | Weighted Average Grant Date Fair Value | | :---------------------------------------- | :---------------------------------------------- | :------------------------------------- | | Outstanding as of April 30, 2024 | 314 | $60.74 | | Forfeited | (3) | $61.94 | | Outstanding as of July 31, 2024 | 311 | $60.72 | 10. Stock Appreciation Rights, Deferred Compensation and Redeemable Noncontrolling Interests This note provides details on stock appreciation rights, deferred compensation, and redeemable noncontrolling interests, including their fair value and related expenses - Total expense related to these instruments was $0.7 million for the three months ended July 31, 2024, down from $1.7 million in the prior year period[68] Liabilities (July 31, 2024 vs. April 30, 2024) | Component | Stock Appreciation Rights (in thousands) | Deferred Compensation (in thousands) | Redeemable Noncontrolling Interests (in thousands) | | :---------------------------------------- | :--------------------------------------- | :----------------------------------- | :------------------------------------------------- | | Balance as of April 30, 2024 | $36,013 | $2,060 | $10,259 | | Amounts redeemed | $(2,732) | $(785) | $(3,935) | | Change in fair value | $243 | $60 | $362 | | Balance as of July 31, 2024 | $33,524 | $1,335 | $6,686 | 11. Fair Value Measurements This note describes the company's fair value measurements for financial instruments, including interest rate swaps and senior notes - The fair value of interest rate swaps and collars (Level 2) was $4,178 thousand as of July 31, 2024, down from $11,260 thousand as of April 30, 2024[69] - The company uses interest rate swaps and collars to convert variable interest rates on a portion of its Term Loan Facility to fixed rates and hedge against future interest rate fluctuations[70] - Gains of $1.1 million were recognized during the three months ended July 31, 2024, related to interest rate swaps[71] Fair Value of Senior Notes (July 31, 2024 vs. April 30, 2024) | Metric | Carrying Amount (in thousands) | Fair Value (in thousands) | | :------------- | :----------------------------- | :------------------------ | | July 31, 2024 | $350,000 | $330,246 | | April 30, 2024 | $350,000 | $323,330 | 12. Commitments and Contingencies This note outlines the company's commitments and contingencies, including various lawsuits, administrative actions, and product liability claims - The company is a defendant in various lawsuits and administrative actions associated with personal injuries, property damage, environmental matters, and product liability claims arising in the normal course of business[75] - Certain subsidiaries have been subject to claims related to alleged exposure to asbestos-containing products distributed prior to 1979, with active cases still being vigorously defended[76] - Management does not expect the ultimate outcome of any of these lawsuits to have a material impact on the company's financial condition or operating results[76] 13. Segments This note provides financial information by reportable segment, including net sales, gross profit, and Adjusted EBITDA, along with revenue by product and geographic area - There have been no changes to the Company's reportable segments during the three months ended July 31, 2024[76] Segment Results (Three Months Ended July 31, 2024 vs. 2023) | Metric | Geographic Divisions (2024) (in thousands) | Other (2024) (in thousands) | Total (2024) (in thousands) | Geographic Divisions (2023) (in thousands) | Other (2023) (in thousands) | Total (2023) (in thousands) | | :-------------------------- | :--------------------------------- | :-------------------------- | :-------------------------- | :--------------------------------- | :-------------------------- | :-------------------------- | | Net Sales | $1,416,818 | $31,638 | $1,448,456 | $1,378,962 | $30,638 | $1,409,600 | | Gross Profit | $434,685 | $16,878 | $451,563 | $432,714 | $17,840 | $450,554 | | Depreciation and Amortization | $34,571 | $3,381 | $38,032 | $28,106 | $3,824 | $32,018 | | Adjusted EBITDA | $141,899 | $3,982 | $145,881 | $167,286 | $6,012 | $173,298 | Reconciliation of Adjusted EBITDA to Net Income (Three Months Ended July 31, 2024 vs. 2023) | Metric | July 31, 2024 (in thousands) | July 31, 2023 (in thousands) | | :------------------------------------------------------------------------------------ | :--------------------------- | :--------------------------- | | Net income | $57,248 | $86,830 | | Interest expense | $22,213 | $18,914 | | Provision for income taxes | $20,946 | $26,734 | | Depreciation expense | $19,228 | $16,327 | | Amortization expense | $18,804 | $15,691 | | Equity-based compensation | $3,678 | $3,304 | | Transaction costs (acquisitions and other) | $1,280 | $1,385 | | Adjusted EBITDA | $145,881 | $173,298 | Revenues by Product (Three Months Ended July 31, 2024 vs. 2023) | Product Line | July 31, 2024 (in thousands) | July 31, 2023 (in thousands) | | :----------------------- | :--------------------------- | :--------------------------- | | Wallboard | $587,929 | $571,425 | | Complementary products | $443,513 | $426,210 | | Steel framing | $209,858 | $236,760 | | Ceilings | $207,156 | $175,205 | | Total net sales | $1,448,456 | $1,409,600 | Net Sales of Complementary Products (Three Months Ended July 31, 2024 vs. 2023) | Product | July 31, 2024 (in thousands) | July 31, 2023 (in thousands) | | :---------------- | :--------------------------- | :--------------------------- | | Tools and fasteners | $91,169 | $83,675 | | Insulation | $85,043 | $78,387 | | Joint treatment | $75,289 | $65,282 | | Lumber | $43,023 | $42,074 | | EIFS/stucco | $50,952 | $46,296 | | Other | $98,037 | $110,496 | | Complementary products | $443,513 | $426,210 | Net Sales by Geographic Area (Three Months Ended July 31, 2024 vs. 2023) | Geographic Area | July 31, 2024 (in thousands) | July 31, 2023 (in thousands) | | :-------------- | :--------------------------- | :--------------------------- | | United States | $1,258,905 | $1,218,431 | | Canada | $189,551 | $191,169 | | Total net sales | $1,448,456 | $1,409,600 | Property and Equipment, Net, by Geographic Area (July 31, 2024 vs. April 30, 2024) | Geographic Area | July 31, 2024 (in thousands) | April 30, 2024 (in thousands) | | :-------------- | :--------------------------- | :---------------------------- | | United States | $430,089 | $425,429 | | Canada | $60,624 | $46,828 | | Total property and equipment, net | $490,713 | $472,257 | 14. Earnings Per Common Share This note presents the calculation of basic and diluted earnings per common share, including weighted average shares outstanding - Basic EPS was $1.45 for the three months ended July 31, 2024, down from $2.13 in the prior year period[87] - Diluted EPS was $1.42 for the three months ended July 31, 2024, down from $2.09 in the prior year period[87] Weighted Average Common Shares Outstanding (Three Months Ended July 31, 2024 vs. 2023) | Metric | July 31, 2024 (in thousands) | July 31, 2023 (in thousands) | | :---------------------------------------- | :--------------------------- | :--------------------------- | | Basic weighted average common shares outstanding | 39,542 | 40,749 | | Diluted weighted average common shares outstanding | 40,226 | 41,477 | 15. Subsequent Event This note discloses a significant event that occurred after the balance sheet date, specifically a recent acquisition - On August 26, 2024, the Company acquired R.S Elliott Specialty Supply, a leading regional distributor of stucco, plaster, siding, EIFS, and related construction supplies servicing markets across Florida from five locations[88] Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of the company's financial condition and results of operations, covering market conditions, business strategy, and recent developments Overview This overview describes GMS Inc.'s business, operating model, and comprehensive product offerings to residential and commercial contractors - GMS Inc, founded in 1971, operates a network of over 300 distribution centers and approximately 100 tool sales, rental, and service centers[91] - The company provides a comprehensive selection of wallboard, ceilings, steel framing, and complementary construction products and solutions to residential and commercial contractor customers across the United States and Canada[91] - Its operating model combines the benefits of a national platform and strategy with a local go-to-market focus to generate significant economies of scale while maintaining high levels of customer service[91] Market Conditions and Outlook This section discusses current market conditions and the company's outlook, including demand trends in commercial, single-family, and multi-family construction, and inflationary pressures - The company believes it is well-positioned to meet demand in its end markets due to its broad mix of customers, diverse product offerings, and expansive geographic scope[92] - Commercial wallboard demand was essentially flat for the first quarter of fiscal 2025 compared to the prior year, reflecting an uncertain economic climate and challenging financing environment[93] - Single-family wallboard volume growth turned positive in Q4 fiscal 2024 and Q1 fiscal 2025, indicating an early recovery, but elevated mortgage rates and affordability concerns are expected to temper construction levels[95] - Multi-family construction activity has likely peaked for the short term, with demand for products beginning to decline year-over-year due to a significant decline in starts last year, despite solid underlying demand fundamentals[96][97] - Both the company and its commercial contractor customers face inflationary pressures for labor, certain building products, and other miscellaneous expenses[94] Business Strategy This section outlines the company's strategic priorities, including expanding core and complementary products, platform expansion through acquisitions and greenfields, and driving productivity and profitability - Expand Core Products: Emphasizes expanding market share in wallboard, ceilings, and steel framing both organically and through acquisitions[98] - Grow Complementary Products: Focuses on achieving growth in tools and fasteners, insulation, and External Insulation and Finishing Systems ("EIFS") and stucco to diversify and expand product offerings[98] - Expand our Platform: Pursues greenfield openings to penetrate existing or adjacent markets and strategic acquisitions to broaden geographic markets, enhance service levels, and expand product offerings[98][99][100] - Drive Improved Productivity and Profitability: Focuses on reduced complexity, enhanced productivity, and improved profitability by leveraging scale, technology, and best practices to lower costs and deliver margin expansion and earnings growth[101] Highlights This section summarizes key financial and operational highlights for the period, including changes in net sales, net income, and Adjusted EBITDA - Net sales increased by 2.8% to $1,448.5 million for the three months ended July 31, 2024, driven by recent acquisitions, resilient pricing, and single-family volume growth[102] - Net income decreased by 34.1% to $57.2 million, primarily due to increased selling, general and administrative expenses, a decrease in gross margin, and increased depreciation and amortization[103] - Adjusted EBITDA decreased by 15.8% to $145.9 million, with Adjusted EBITDA margin falling to 10.1% from 12.2%, mainly due to steel price deflation and increased SG&A expenses[104] - The company completed two acquisitions during the three months ended July 31, 2024[104] Recent Developments This section details recent corporate activities, including completed acquisitions and the implementation of a strategic cost reduction initiative - Acquisitions: On May 1, 2024, acquired Howard & Sons Building Materials, Inc; on July 2, 2024, acquired Yvon Building Supply, Inc and its affiliates; on August 26, 2024, acquired R.S Elliott Specialty Supply[105][106] - Cost Reduction Initiative: In August 2024, the company implemented a strategic cost reduction plan, including a workforce reduction, expected to result in $25 million of annualized cost savings[106] Results of Operations This section provides a detailed analysis of the company's financial performance, including net sales, gross profit, operating expenses, and income taxes Key Financial Performance (Three Months Ended July 31, 2024 vs. 2023) | Metric | July 31, 2024 (in thousands) | July 31, 2023 (in thousands) | Change (YoY) | | :------------------------------------------------------------------------------------ | :--------------------------- | :--------------------------- | :----------- | | Net sales | $1,448,456 | $1,409,600 | +2.8% | | Gross profit | $451,563 | $450,554 | +0.2% | | Operating expenses | $353,184 | $318,814 | +10.8% | | Operating income | $98,379 | $131,740 | -25.3% | | Net income | $57,248 | $86,830 | -34.1% | | Adjusted EBITDA | $145,881 | $173,298 | -15.8% | | Adjusted EBITDA margin | 10.1% | 12.3% | -2.2 pp | Net Sales This section analyzes the drivers of net sales, including contributions from acquisitions, pricing, volume changes, and foreign currency impacts - Total net sales increased by 2.8% to $1,448,456 thousand for the three months ended July 31, 2024, compared to $1,409,600 thousand in the prior year[111] - The increase was primarily due to contributions from recent acquisitions and resilient pricing in wallboard, ceilings, and certain complementary products, along with higher single-family wallboard volume[113] - These gains were partially offset by price deflation in steel framing and the negative impact of foreign currency translation[113] Net Sales by Product (Three Months Ended July 31, 2024 vs. 2023) | Product | July 31, 2024 (in thousands) | July 31, 2023 (in thousands) | Change (Dollar) | Change (Percent) | | :----------------------- | :--------------------------- | :--------------------------- | :---------------- | :--------------- | | Wallboard | $587,929 | $571,425 | $16,504 | 2.9% | | Complementary products | $443,513 | $426,210 | $17,303 | 4.1% | | Steel framing | $209,858 | $236,760 | $(26,902) | (11.4)% | | Ceilings | $207,156 | $175,205 | $31,951 | 18.2% | | Total net sales | $1,448,456 | $1,409,600 | $38,856 | 2.8% | Price/Mix Impact on Sales (Three Months Ended July 31, 2024) | Product | Price/Mix Change | | :-------------- | :--------------- | | Wallboard | — % | | Ceilings | 9.3 % | | Steel framing | (16.8)% | - Organic net sales (base business) decreased by 2.2% ($31,588 thousand) year-over-year, primarily due to price deflation in steel framing and lower Canadian single-family residential activity[114][115] Gross Profit and Gross Margin This section analyzes changes in gross profit and gross margin, attributing shifts to acquisition contributions, steel pricing, and product mix - Gross profit increased by 0.2% to $451,563 thousand for the three months ended July 31, 2024, primarily due to contributions from recent acquisitions, partially offset by lower steel pricing[116] - Gross margin on net sales decreased to 31.2% for the three months ended July 31, 2024, from 32.0% in the prior year period, primarily due to the mix impacts of steel price deflation, price vs cost dynamics in wallboard, and a shift from commercial and multi-family to single-family wallboard deliveries[116] Gross Profit and Gross Margin (Three Months Ended July 31, 2024 vs. 2023) | Metric | July 31, 2024 (in thousands) | July 31, 2023 (in thousands) | Change (Dollar) | Change (Percent) | | :------------- | :--------------------------- | :--------------------------- | :---------------- | :--------------- | | Gross profit | $451,563 | $450,554 | $1,009 | 0.2% | | Gross margin | 31.2 % | 32.0 % | | | Selling, General and Administrative Expenses This section analyzes the increase in selling, general and administrative expenses, attributing it to acquisitions, payroll, and operating cost inflation - Selling, general and administrative expenses increased by 9.9% to $315,152 thousand for the three months ended July 31, 2024, from $286,796 thousand in the prior year[117] - Approximately $16.2 million of this increase was due to incremental expenses from acquisitions, with the remaining increase attributed to higher payroll, payroll-related costs, facilities costs, and maintenance costs[117] - As a percentage of net sales, SG&A increased to 21.8% from 20.3%, primarily due to operating cost inflation, activity-based increases, steel price deflation, and costs associated with recent acquisitions and greenfield openings[117] Selling, General and Administrative Expenses (Three Months Ended July 31, 2024 vs. 2023) | Metric | July 31, 2024 (in thousands) | July 31, 2023 (in thousands) | Change (Dollar) | Change (Percent) | | :------------------------------------------------------ | :--------------------------- | :--------------------------- | :---------------- | :--------------- | | Selling, general and administrative expenses | $315,152 | $286,796 | $28,356 | 9.9% | | % of net sales | 21.8 % | 20.3 % | | | Depreciation and Amortization Expense This section analyzes the increase in depreciation and amortization expense, primarily due to acquisitions and capital expenditures - Total depreciation and amortization expense increased by 18.8% to $38,032 thousand for the three months ended July 31, 2024, from $32,018 thousand in the prior year[118] - Depreciation expense increased by 17.8% primarily due to property and equipment obtained in acquisitions and capital expenditures[118] - Amortization expense increased by 19.8% primarily due to definite-lived intangible assets obtained in acquisitions, partially offset by the time-based progression of accelerated amortization[118] Depreciation and Amortization Expense (Three Months Ended July 31, 2024 vs. 2023) | Metric | July 31, 2024 (in thousands) | July 31, 2023 (in thousands) | Change (Dollar) | Change (Percent) | | :-------------------------------- | :--------------------------- | :--------------------------- | :---------------- | :--------------- | | Depreciation | $19,228 | $16,327 | $2,901 | 17.8% | | Amortization | $18,804 | $15,691 | $3,113 | 19.8% | | Total D&A | $38,032 | $32,018 | $6,014 | 18.8% | Interest Expense This section analyzes the increase in interest expense, primarily driven by higher outstanding debt and finance leases - Interest expense increased by 17.4% to $22,213 thousand for the three months ended July 31, 2024, from $18,914 thousand in the prior year period[119] - The increase was primarily due to an increase in outstanding debt and finance leases[120] Interest Expense (Three Months Ended July 31, 2024 vs. 2023) | Metric | July 31, 2024 (in thousands) | July 31, 2023 (in thousands) | Change (Dollar) | Change (Percent) | | :-------------------- | :--------------------------- | :--------------------------- | :---------------- | :--------------- | | Interest expense | $22,213 | $18,914 | $3,299 | 17.4% | Income Taxes This section analyzes the provision for income taxes and the effective tax rate, noting the impact of foreign and state taxes - The provision for income taxes decreased by 21.7% to $20,946 thousand for the three months ended July 31, 2024, from $26,734 thousand in the prior year[120] - The effective tax rate increased to 26.8% from 23.5%, primarily due to foreign taxes and state taxes[120] Income Taxes (Three Months Ended July 31, 2024 vs. 2023) | Metric | July 31, 2024 (in thousands) | July 31, 2023 (in thousands) | Change (Dollar) | Change (Percent) | | :-------------------------------- | :--------------------------- | :--------------------------- | :---------------- | :--------------- | | Provision for income taxes | $20,946 | $26,734 | $(5,788) | (21.7)% | | Effective tax rate | 26.8 % | 23.5 % | | | Liquidity and Capital Resources This section discusses the company's sources of liquidity, capital resources, and their adequacy to fund operations, growth strategies, and debt service Summary This summary outlines the company's primary sources of liquidity and its capacity to fund ongoing operations, capital expenditures, and growth initiatives - The company depends on cash flow from operations, cash on hand, and funds available under its ABL Facility to finance working capital needs, capital expenditures, and acquisitions[121] - These sources are believed to be adequate to fund debt service requirements and support growth strategies, ongoing operations, capital expenditures, lease obligations, and working capital for at least the next twelve months and in the long term[121] - As of July 31, 2024, the company had available borrowing capacity of approximately $565.3 million under its ABL Facility, which matures on December 22, 2027[121] - On May 23, 2024, the ABL Facility was amended to replace the Canadian Dollar Offered Rate (CDOR) with the Canadian Overnight Repo Rate Average (CORRA) as the benchmark rate for Canadian borrowings[122] Cash Flows This section provides a summary of cash flow activities, detailing changes in cash and cash equivalents from operating, investing, and financing activities - The company experienced a decrease in cash and cash equivalents of $(112,976) thousand for the three months ended July 31, 2024, compared to $(83,296) thousand in the prior year[124] Summary of Cash Flows (Three Months Ended July 31, 2024 vs. 2023) | Activity | July 31, 2024 (in thousands) | July 31, 2023 (in thousands) | | :-------------------------------------------------------------------- | :--------------------------- | :--------------------------- | | Cash (used in) provided by operating activities | $(22,939) | $6,647 | | Cash used in investing activities | $(126,219) | $(51,532) | | Cash provided by (used in) financing activities | $35,290 | $(39,103) | | Effect of exchange rates on cash | $892 | $692 | | Decrease in cash and cash equivalents | $(112,976) | $(83,296) | Operating Activities This section analyzes cash flows from operating activities, highlighting the impact of net income and working capital changes - Cash used in operating activities was $(22,939) thousand for the three months ended July 31, 2024, a change from $6,647 thousand provided in the prior year period[124] - This change was primarily due to a decrease in net income and an increase in cash paid for interest expense, partially offset by lower working capital[125] Investing Activities This section analyzes cash flows from investing activities, primarily driven by acquisitions and capital expenditures - Cash used in investing activities increased to $(126,219) thousand for the three months ended July 31, 2024, from $(51,532) thousand in the prior year period[124] - This increase was primarily due to a $79.5 million increase in cash used for acquisitions, partially offset by a $4.6 million decrease in capital expenditures[126] - Capital expenditures primarily consisted of purchases of delivery and warehouse equipment, building and leasehold improvements, and IT-related spending[126] Financing Activities This section analyzes cash flows from financing activities, focusing on debt borrowings, share repurchases, and finance lease payments - Cash provided by financing activities was $35,290 thousand for the three months ended July 31, 2024, a change from $(39,103) thousand used in the prior year period[124] - This change was primarily due to net borrowings of $90.2 million under the ABL Facility in 2024, compared to net borrowings of $2.9 million in the prior year[127] - Also contributing to the change was a $15.8 million increase in repurchases of common stock and a $1.0 million increase in finance lease payments[127] Share Repurchase Program This section details the company's share repurchase program, including authorization, shares repurchased, and remaining capacity - On October 18, 2023, the Board of Directors approved an expanded share repurchase program authorizing up to $250.0 million of outstanding common stock[128] - The company repurchased approximately 0.5 million shares for $46.2 million (plus $0.4 million in excise taxes) during the three months ended July 31, 2024[129] - As of July 31, 2024, $154.3 million of remaining purchase authorization was available under the program[129] Debt Covenants This section confirms the company's compliance with debt covenants and outlines the limitations imposed by these agreements - The company was in compliance with all covenants contained in its ABL Facility, Term Loan Facility, and the indenture governing the Senior Notes as of July 31, 2024[131] - These covenants limit the company's ability to incur more indebtedness, pay dividends, redeem or repurchase stock, make investments, create liens, transfer or sell assets, merge or consolidate, and enter into certain transactions with affiliates[130] Contractual Obligations This section states that there have been no material changes to the company's contractual obligations since the last annual report - There have been no material changes to the company's contractual obligations other than those made in the ordinary course of business, as disclosed in its Annual Report on Form 10-K for the fiscal year ended April 30, 2024[132] Off-Balance Sheet Arrangements This section states that there have been no material changes to the company's off-balance sheet arrangements since the last annual report - There have been no material changes to the company's off-balance sheet arrangements as discussed in its Annual Report on Form 10-K for the fiscal year ended April 30, 2024[133] Newly Issued Accounting Pronouncements This section refers to Note 1 for information on recently issued accounting pronouncements and their potential impact - Information regarding recently issued accounting pronouncements is provided in Note 1 of the Notes to Condensed Consolidated Financial Statements[134] Critical Accounting Estimates This section states that there were no material changes to the company's critical accounting estimates or policies during the quarter - There were no material changes to the company's critical accounting estimates or significant accounting policies during the three months ended July 31, 2024, from those disclosed in its Annual Report on Form 10-K for the fiscal year ended April 30, 2024[135] Non-GAAP Financial Measures This section provides reconciliations and explanations for non-GAAP financial measures, specifically Adjusted EBITDA, used to assess operating performance - The company presents Adjusted EBITDA and Adjusted EBITDA margin as non-GAAP measures to assist investors and analysts in comparing operating performance across reporting periods by excluding items not indicative of core operating performance[136] - Adjusted EBITDA is also utilized in certain calculations under the company's debt agreements, which permit additional adjustments not reflected in the presented Adjusted EBITDA data[137] Adjusted EBITDA This section details the calculation and reconciliation of Adjusted EBITDA, highlighting its decrease and margin impact due to various factors - Adjusted EBITDA decreased by 15.8% to $145,881 thousand for the three months ended July 31, 2024, from $173,298 thousand in the prior year[139] - Adjusted EBITDA margin decreased to 10.1% for the three months ended July 31, 2024, from 12.3% in the prior year, primarily due to deflationary dynamics in steel pricing and increased selling, general and administrative expenses[104][139] Reconciliation of Net Income to Adjusted EBITDA (Three Months Ended July 31, 2024 vs. 2023) | Metric | July 31, 2024 (in thousands) | July 31, 2023 (in thousands) | | :------------------------------------------------------------------------------------ | :--------------------------- | :--------------------------- | | Net income | $57,248 | $86,830 | | Interest expense | $22,213 | $18,914 | | Write-off of debt discount and deferred financing fees | $— | $1,401 | | Interest income | $(370) | $(474) | | Provision for income taxes | $20,946 | $26,734 | | Depreciation expense | $19,228 | $16,327 | | Amortization expense | $18,804 | $15,691 | | Stock appreciation rights | $243 | $1,218 | | Redeemable noncontrolling interests and deferred compensation | $422 | $480 | | Equity-based compensation | $3,678 | $3,304 | | Severance and other permitted costs | $956 | $406 | | Transaction costs (acquisitions and other) | $1,280 | $1,385 | | Loss (gain) on disposal of assets | $858 | $(131) | | Effects of fair value adjustments to inventory | $375 | $302 | | Debt transaction fees | $— | $911 | | Adjusted EBITDA | $145,881 | $173,298 | Item 3 Quantitative and Qualitative Disclosures About Market Risk This section confirms no material changes to the company's market risk exposure since the last annual report - There have been no material changes to the company's exposure to market risks from those reported in its Annual Report on Form 10-K for the fiscal year ended April 30, 2024[142] Item 4 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of July 31, 2024, with no material changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures This section details management's evaluation and conclusion regarding the effectiveness of the company's disclosure controls and procedures - As of July 31, 2024, management, with the participation of the principal executive officer and principal financial officer, concluded that the company's disclosure controls and procedures were effective[144] - These controls are designed to provide reasonable assurance that information required to be disclosed in SEC reports is recorded, processed, summarized, and reported within specified time periods and communicated to management for timely decisions[143] Changes in Internal Control Over Financial Reporting This section confirms no material changes in the company's internal control over financial reporting during the three months ended July 31, 2024 - There were no changes in the company's internal control over financial reporting during the three months ended July 31, 2024, that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting[145] PART II Other Information Item 1 Legal Proceedings The company is involved in various lawsuits and administrative actions, including product liability claims, not expected to materially impact financial condition - The company is a defendant in various lawsuits and administrative actions, including personal injuries, property damage, environmental matters, product liability claims, and claims of former employees, arising in the normal course of business[148] - Certain subsidiaries have been subject to claims related to alleged exposure to asbestos-containing products distributed prior to 1979, with active cases still being vigorously defended[149] - Management does not expect the ultimate outcome of any of these lawsuits to have a material impact on the company's financial condition or operating results[149] Item 1A Risk Factors This section confirms no material changes in the company's risk factors since the last annual report - 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, 2024[150] Item 2 Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's common stock repurchase activity for the quarter, including shares purchased and remaining authorization Share Repurchase Activity (Three Months Ended July 31, 2024) | Month | Total Number of Shares Purchased | Average Price per Share | Shares Purchased as Part of Publicly Announced Program | Dollar Value of Shares Yet Under the Program (in thousands) | | :-------------------- | :------------------------------- | :---------------------- | :----------------------------------------------------- | :---------------------------------------------------------- | | May 1 through May 31 | 102,936 | $94.28 | 102,936 | $190,762 | | June 1 through June 30 | 202,512 | $84.36 | 202,512 | $173,677 | | July 1 through July 31 | 232,630 | $83.30 | 232,630 | $154,299 | | Total | 538,078 | | 538,078 | | - On October 18, 2023, the Board of Directors approved an expanded share repurchase program under which the company is authorized to repurchase up to $250.0 million of its outstanding common stock[152] Item 3 Defaults Upon Senior Securities This section confirms no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[153] Item 4 Mine Safety Disclosures This section is not applicable to the company's operations - This item is not applicable[153] Item 5 Other Information This section confirms no Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted or terminated by directors or officers during the quarter - During the three months ended July 31, 2024, none of the company's directors or officers adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement"[153] Item 6 Exhibits This section lists all exhibits filed as part of the report, including organizational documents, credit agreements, and officer certifications - Key exhibits filed include the First Amendment to Second Amended and Restated ABL Credit Agreement (Exhibit 10.1) and certifications from the Chief Executive Officer and Chief Financial Officer (Exhibits 31.1, 31.2, 32.1, 32.2)[155] Signatures Signatures This section contains the required signatures, certifying the filing of the Quarterly Report on Form 10-Q - The Quarterly Report on Form 10-Q was signed on behalf of GMS Inc by Scott M Deakin, Chief Financial Officer, on August 29, 2024[157]