GMS(GMS) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For the full year, net sales were $5.5 billion, a marginal increase compared to the prior year, driven by contributions from recent acquisitions [5] - Organic sales for the year were $5.2 billion, down 5.4% on a same-day basis compared to the prior year [6] - Net income for the full year was $115.5 million, including a $42.5 million non-cash goodwill impairment charge [6] - Adjusted EBITDA was $500.9 million, and free cash flow for the year was $336.1 million, representing 67% of adjusted EBITDA [6] - In the fourth quarter, net sales were $1.3 billion, with organic sales declining 8.3% per day [7][17] - Net income for the fourth quarter was $26.1 million, and adjusted EBITDA was $109.8 million [7][31] - Free cash flow generated during the quarter was $183.4 million, or 167% of adjusted EBITDA, marking the highest level of quarterly free cash flow conversion in the company's history [7][32] Business Line Data and Key Metrics Changes - Ceilings saw volume improvement during the quarter, benefiting from the addition of CAMCO and a focus on architectural specialties projects [8][9] - Wallboard sales for the quarter were $526.6 million, down 10.1% year-over-year, with a 12.1% decrease in volume partially offset by a 1% increase in price and mix [21][22] - Steel framing sales were $189.2 million, down 14.2% for the quarter, with volumes down 2.6% and price and mix down 10.2% [25] - Complementary product sales were nearly flat year-over-year, up 1.4% on a per-day basis, representing the twentieth consecutive quarter of per-day growth in this category [26] Market Data and Key Metrics Changes - Wallboard industry volumes were down 10% in the first calendar quarter, with high interest rates and policy uncertainty being primary impediments to growth [11] - U.S. residential revenues declined 6% per day compared to the prior year, with single-family volumes down 1.9% per day [20][21] - Multifamily revenues fell 32.4% and commercial revenues fell 10.1% on a per-day basis [20] - The company expects to slightly outpace normal seasonal trends in wallboard volumes for the fiscal first quarter [12] Company Strategy and Development Direction - The company is focused on four strategic pillars: expanding share in core products, growing complementary products, expanding the platform, and driving improved productivity and profitability [15] - A significant cost savings program has been executed, achieving $25 million in annualized cost savings in the fiscal fourth quarter, totaling $55 million for the year [16][18] - The company aims to maintain a disciplined approach to capital allocation, balancing stock buybacks with debt reduction while pursuing attractive M&A opportunities [34] Management's Comments on Operating Environment and Future Outlook - Management is cautiously optimistic about nearing the bottom of the cycle, with expectations for recovery tied closely to mortgage rates and the broader macroeconomic environment [10][35] - The company anticipates that pent-up demand will materialize when conditions improve, with expectations for single-family volumes to be flat to slightly up year-over-year for the fiscal first quarter [36] - Management acknowledges the need for market recovery to achieve long-term margin targets of 10% to 12% [62] Other Important Information - The company reduced net debt by more than 10% during the quarter, maintaining a leverage ratio within the target range of 1.5 to 2.5 times [16] - Cash on hand as of April 30 was $55.6 million, with $631.3 million of available liquidity under the revolving credit facility [32] Q&A Session Summary Question: Can you elaborate on the sequential organic trends and why they might improve? - Management noted improvements primarily in the single-family market and share gains with larger customers, contributing to a more positive outlook [44] Question: What technology and efficiency optimization efforts are being implemented? - The company has continued to invest in digital initiatives, including e-commerce and automation, which have contributed to cost reductions and improved efficiencies [48][49] Question: How does the company view the single-family market dynamics and share gains? - Management indicated that they are leveraging scale to support builder partners and have gained share through strong relationships and geographic focus [56][58] Question: What is the expected timeline for seeing start activity flow into shipments? - Typically, there is a three to six-month lead time for production large builder focus, with visibility comfortable for the current quarter [72] Question: How permanent are the recent cost reductions? - Management estimates that about 50% of the cost reductions are permanent, while the other 50% may return with volume recovery [77]