GMS(GMS) - 2023 Q3 - Quarterly Report

Cautionary Note Regarding Forward-Looking Statements 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][11] - 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][15] PART I - Financial Information Item 1. Financial Statements Unaudited financial statements for January 31, 2023, reflect increased assets, equity, and strong growth in net sales and net income Condensed Consolidated Balance Sheets 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 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 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][79] Condensed Consolidated Statements of Cash Flows 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 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][50][52] - 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][66] - 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][79] 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 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] - 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] - 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] - 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][142] Results of Operations 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][134] - 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] - 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] Liquidity and Capital Resources 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][141] - 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] - 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] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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] Item 4. Controls and Procedures 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] - 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] PART II - Other Information Item 1. Legal Proceedings 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] - 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] Item 1A. Risk Factors 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] Item 3. Defaults Upon Senior Securities The company reports no defaults upon senior securities - The company reports no defaults upon senior securities[172] Item 4. Mine Safety Disclosures This item is not applicable to the company's operations - This item is not applicable to the company[173] Item 5. Other Information The company reports no other information for this item - The company reports no other information for this item[174] Item 6. Exhibits 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] 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][180]