GMS(GMS) - 2022 Q2 - Quarterly Report

Cautionary Note Regarding Forward-Looking Statements Forward-Looking Statements and Risk Factors This section outlines the forward-looking statements within the report and warns that actual results may differ materially due to various known and unknown risks and uncertainties, including the impact of the COVID-19 pandemic, economic conditions, market competition, and supply chain disruptions - The company identifies numerous risk factors that could materially affect future performance, including but not limited to: - The negative impact of the COVID-19 pandemic - Dependency on commercial and residential construction and repair/remodeling (R&R) markets - Competition in a highly fragmented industry - Fluctuations in product prices and the ability to pass increases to customers - Product shortages and supply chain disruptions - Ability to successfully implement strategic initiatives like acquisitions and greenfield expansions - Cybersecurity breaches and IT system disruptions - Risks related to Canadian operations, including currency fluctuations - Restrictions and limitations imposed by debt agreements[11][12][15] PART I: Financial Information Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for the period ended October 31, 2021, including balance sheets, statements of operations, comprehensive income, stockholders' equity, and cash flows, along with detailed accompanying notes Condensed Consolidated Balance Sheets (Unaudited) Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Oct 31, 2021 | Apr 30, 2021 | | :--- | :--- | :--- | | Total Assets | $2,824,983 | $2,483,898 | | Total Current Assets | $1,365,093 | $1,102,252 | | Goodwill | $589,561 | $576,330 | | Total Liabilities | $1,873,632 | $1,661,436 | | Total Current Liabilities | $636,575 | $562,501 | | Long-term debt, less current portion | $1,062,291 | $932,409 | | Total Stockholders' Equity | $951,351 | $822,462 | Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) Statement of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended Oct 31, 2021 | Three Months Ended Oct 31, 2020 | Six Months Ended Oct 31, 2021 | Six Months Ended Oct 31, 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $1,150,551 | $812,856 | $2,192,627 | $1,615,429 | | Gross Profit | $371,870 | $265,071 | $707,703 | $525,529 | | Operating Income | $111,936 | $49,474 | $205,974 | $99,723 | | Net Income | $74,361 | $28,469 | $135,563 | $55,688 | | Diluted EPS | $1.69 | $0.66 | $3.09 | $1.29 | Condensed Consolidated Statements of Cash Flows (Unaudited) Cash Flow Summary for the Six Months Ended October 31 (in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(77,095) | $24,048 | | Net cash used in investing activities | $(140,629) | $(11,176) | | Net cash provided by (used in) financing activities | $110,103 | $(106,895) | | Decrease in cash and cash equivalents | $(107,702) | $(92,741) | | Cash and cash equivalents, end of period | $59,310 | $118,168 | Notes to Condensed Consolidated Financial Statements (Unaudited) The notes provide detailed information supporting the financial statements, covering accounting policies, business combinations, debt, leases, income taxes, equity-based compensation, and segment reporting, including the acquisition of Westside Building Material for $139.6 million and subsequent acquisitions of AMES and Kimco - On July 1, 2021, the Company acquired Westside Building Material for preliminary consideration of $139.6 million, expanding its geographical coverage in California and Nevada[46] - Goodwill increased from $576.3 million at April 30, 2021, to $589.6 million at October 31, 2021, primarily due to acquisitions[55] - Subsequent to the quarter end, on December 1, 2021, the Company acquired AMES Taping Tools Holding LLC for a preliminary purchase price of $212.5 million, funded by borrowings under the ABL Facility[96] - On November 30, 2021, the ABL Facility was amended to increase commitments by $100.0 million to $545.0 million and to change the interest rate provisions from LIBOR to SOFR[98] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the financial results for the three and six months ended October 31, 2021, highlighting significant growth in net sales and net income driven by inflationary pricing, strong residential end markets, complementary products, and recent acquisitions, with net sales for the six-month period increasing 35.7% to $2.2 billion and net income rising 143.4% to $135.6 million - The company's business strategy focuses on organic growth by expanding market share in core products (wallboard, ceilings, steel framing), growing complementary product lines, and pursuing greenfield branch openings and strategic acquisitions[102] - During the six months ended October 31, 2021, the company opened six new greenfield locations in North Carolina, Ontario, Colorado, Mississippi, Delaware, and Tennessee[109] Financial Highlights for the Six Months Ended October 31, 2021 | Metric | Amount | % Change vs. Prior Year | | :--- | :--- | :--- | | Net Sales | $2,192.6 million | +35.7% | | Net Income | $135.6 million | +143.4% | | Adjusted EBITDA | $277.6 million | +67.7% | Results of Operations The company experienced significant growth in the three and six months ended October 31, 2021, with six-month net sales growing 35.7% to $2.2 billion driven by price inflation and strong demand, particularly in steel framing (up 111.1%), while gross profit increased 34.7% to $707.7 million and operating income more than doubled to $206.0 million Net Sales by Product - Six Months Ended October 31 (in thousands) | Product | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Wallboard | $804,657 | $658,600 | +22.2% | | Ceilings | $278,937 | $226,769 | +23.0% | | Steel framing | $468,276 | $221,825 | +111.1% | | Complementary products | $640,757 | $508,235 | +26.1% | | Total net sales | $2,192,627 | $1,615,429 | +35.7% | - For the six months ended October 31, 2021, organic (base business) net sales grew by 27.2% year-over-year, driven by inflationary pricing and healthy residential end markets[126][127] - Selling, general and administrative (SG&A) expenses as a percentage of net sales decreased to 20.3% for the six-month period, down from 23.0% in the prior year, primarily due to the impact of inflationary market pricing on sales[129][130] Liquidity and Capital Resources The company's primary liquidity sources are cash flow from operations, cash on hand, and its ABL Facility, with available borrowing capacity of $278.0 million as of October 31, 2021, and subsequent upsizing to $545.0 million, while cash used in operating activities was $77.1 million for the six-month period, a significant shift from $24.0 million provided in the prior year - Cash used in operating activities for the six months ended Oct 31, 2021 was $77.1 million, compared to cash provided of $24.0 million in the prior year period, primarily due to a decrease in cash from net working capital, driven by an increase in inventory and accounts receivable[139][140] - Cash used in investing activities increased to $140.6 million from $11.2 million in the prior year, mainly due to a $124.9 million increase in cash used for acquisitions[139][141] - The company repurchased approximately 280,000 shares for $13.1 million during the six months ended October 31, 2021, with $41.2 million remaining under its repurchase authorization[137] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company states that there have been no material changes to its exposure to market risks from those reported in its Annual Report on Form 10-K for the fiscal year ended April 30, 2021 - There have been no material changes to the company's market risk exposure since the fiscal year ended April 30, 2021[157] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of October 31, 2021, and the company is integrating the newly acquired Westside Building Material into its internal control system, expecting to exclude it from its fiscal 2022 assessment - The Chief Executive Officer and Chief Financial Officer concluded that as of October 31, 2021, the company's disclosure controls and procedures were effective[159] - The company is integrating Westside Building Material, acquired on July 1, 2021, into its internal control over financial reporting and plans to exclude it from the fiscal 2022 assessment[160] PART II: Other Information Item 1. Legal Proceedings The company is involved in various lawsuits in the normal course of business but is not currently a party to any legal proceedings expected to have a material adverse effect, specifically noting its ongoing defense against asbestos-related personal injury lawsuits, of which 981 out of 1,026 filed since 2002 have been dismissed without payment - The company is not currently party to any legal proceedings expected to have a material adverse effect on its business or financial condition[163] - Since 2002, approximately 1,026 asbestos-related personal injury lawsuits have been filed against the company; as of October 31, 2021, 981 have been dismissed without payment, 35 are pending, and 10 have been settled without material impact[163] Item 1A. Risk Factors This section states that 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, 2021 - There have been no material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for the fiscal year ended April 30, 2021[164] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company provides details on its common stock repurchase program, noting that during the three months ended October 31, 2021, a total of 195,415 shares were repurchased, with approximately $41.2 million remaining available for future repurchases Share Repurchases for the Three Months Ended October 31, 2021 | Period | Total Shares Repurchased | Average Price Paid Per Share | Remaining Authorization (in thousands) | | :--- | :--- | :--- | :--- | | August 2021 | 58,734 | $49.34 | $47,567 | | September 2021 | 64,058 | $47.39 | $44,531 | | October 2021 | 72,623 | $45.92 | $41,196 | | Total | 195,415 | - | $41,196 | Item 5. Other Information This section reports a key subsequent event: on November 30, 2021, the company amended its ABL Facility to increase commitments by $100.0 million, bringing the total to $545.0 million, and to transition the interest rate benchmark from LIBOR to SOFR - On November 30, 2021, the Company's ABL Facility was amended to increase commitments by $100.0 million to $545.0 million and to change the LIBOR interest rate provisions to SOFR[168]