GMS Reports Third Quarter Fiscal 2024 Results

Volume Growth Across All Four Major Product Categories Amid High Levels of Multi-Family And Commercial Activity Coupled With Improving Single-Family Demand

GMS, Inc. (“GMS”), a leading North American specialty building products distributor, reported financial results for the fiscal third quarter ended January 31, 2024.

Third Quarter Fiscal 2024 Highlights

(Comparisons are to the third quarter of fiscal 2023)

• Net sales of $1.3 billion increased 1.9%; organic net sales decreased 0.2%.
• U.S. Wallboard volume growth of 12.7% in multi-family and 7.9% in commercial helped offset a 2.3% decline in single-family.
• Net income of $51.9 million, or $1.28 per diluted share, compared to net income of $64.8 million, or $1.53 per diluted share in the previous year period; Net income margin declined 110 basis points to 4.1%; Adjusted net income of $65.0 million, or $1.60 per diluted share, compared to $78.3 million, or $1.85 per diluted share in the previous year.
• Adjusted EBITDA of $128.0 million decreased $12.8 million, or 9.1%; Adjusted EBITDA margin was 10.2%, compared to 11.4%.
• Cash provided by operating activities and free cash flow was $104.3 million and $94.1 million, respectively; Net debt leverage was 1.5 times, improved from 1.6 times a year ago.

“Continued solid demand in our multi-family and commercial end markets, coupled with an improving single-family backdrop and revenues from our recently acquired businesses, helped our team deliver higher year-over-year net sales along with net income and Adjusted EBITDA that exceeded our previously communicated expectations,” said John C. Turner, Jr., President and Chief Executive Officer of GMS. “While steel price deflation tempered our sales dollar growth as expected, sales volumes increased as compared with a year ago for each of our four major product categories including Wallboard, Ceilings, Steel Framing and Complementary Products. These gains were realized despite adverse weather conditions in late January which pushed some activity into our fiscal fourth quarter.”

Turner continued, “We remain focused on the continued execution of our strategic priorities and, as such, we were excited to announce during the quarter our agreement to purchase Kamco Supply Corporation, a leading specialty building products distributor in the New York City market. We expect this transaction to close in the coming days. With a solid pipeline of additional M&A opportunities, we expect to continue our disciplined approach to capital allocation, balancing investing in our strategic initiatives while opportunistically leveraging favorable market conditions for share repurchases.”

“Looking ahead, with a wide breadth of product offerings, significant scale across the US and Canada and the expertise to flex our operations as demand dynamics fluctuate, we feel well positioned to deliver a strong close to our fiscal year. We expect our multifamily backlog to continue to support year-over-year growth and commercial activity to remain solid in most of our verticals for our fiscal fourth quarter. Single-family is also expected to show year-over-year growth for the fourth quarter as lower interest rates have resulted in higher activity levels.”

Third Quarter Fiscal 2024 Results

Net sales for the third quarter of fiscal 2024 of $1.3 billion increased 1.9% as compared with the prior year quarter. Despite weather-related project delays in January, which pushed an estimated $15 million of net sales into the next quarter, continued solid demand in commercial and multi-family construction and an improving single-family backdrop during the rest of the third quarter drove volume increases in each of the major product categories. These benefits were partially offset by substantial year-over-year price deflation in Steel Framing, which reduced net sales by approximately $55 million for the quarter, which was calculated assuming current year volumes had been sold at prior year prices. Prices in Wallboard and Ceilings were essentially flat for the quarter. Recent acquisitions also contributed positively for the quarter. Organic net sales, which exclude the first year of acquired business net sales as well as the impact of foreign currency translation were down marginally as compared to a year ago.

Year-over-year quarterly sales changes by product category were as follows:

· Wallboard sales of $520.7 million increased 4.0% (up 3.5% on an organic basis).

· Ceilings sales of $155.7 million increased 6.1% (up 4.2% on an organic basis).

· Steel Framing sales of $203.4 million decreased 13.3% (down 14.0% on an organic basis).

· Complementary Product sales of $378.6 million increased 7.3% (up 1.8% on an organic basis).

Gross profit of $414.7 million increased $12.5 million, or 3.1%, compared to the third quarter of fiscal 2023, reflecting improved volumes and the associated attainment of calendar year-end volume incentive targets, partially offset by deflationary dynamics in steel pricing. Gross margin was 33.0%, up 40 basis points as compared to 32.6% a year ago.

Selling, general and administrative (“SG&A”) expenses were $295.7 million for the quarter, up from $267.4 million in the prior year period. Of the $28.3 million year-over-year difference, nearly $10 million related to recent acquisitions and newly-opened greenfield locations while the remaining organic increase was primarily driven by labor expenses associated with the higher cost to serve mix and higher volume of commercial and multi-family end market demand.

SG&A expense as a percentage of net sales increased 180 basis points to 23.5% for the quarter, compared to 21.7% in the third quarter of fiscal 2023. Along with the items noted above in the discussion on SG&A expenses, reduced revenue from steel price deflation negatively impacted SG&A as a percentage of net sales as did the weather-related revenue delays and associated operational inefficiencies. Adjusted SG&A expense as a percentage of net sales of 22.9% also increased 150 basis points from 21.4% in the prior year quarter.

All in, inclusive of a $1.8 million, or 10.9%, increase in interest expense, net income decreased 19.9% to $51.9 million, or $1.28 per diluted share, compared to net income of $64.8 million, or $1.53 per diluted share, in the third quarter of fiscal 2023. Net income margin declined 110 basis points from 5.2% to 4.1%. Adjusted net income was $65.0 million, or $1.60 per diluted share, compared to $78.3 million, or $1.85 per diluted share, in the third quarter of the prior fiscal year.

Adjusted EBITDA decreased $12.8 million, or 9.1%, to $128.0 million compared to the prior year quarter. Adjusted EBITDA margin was 10.2%, compared with 11.4% for the third quarter of fiscal 2023.

Balance Sheet, Liquidity and Cash Flow

As of January 31, 2024, the Company had cash on hand of $88.3 million, total debt of $1.0 billion and $866.3 million of available liquidity under its revolving credit facilities. Net debt leverage was 1.5 times as of the end of the quarter, down from 1.6 times at the end of the third quarter of fiscal 2023.

For the third quarter of fiscal 2024, cash provided by operating activities was $104.3 million, compared to $134.1 million in the prior year period. Free cash flow was $94.1 million for the quarter ended January 31, 2024, compared to $122.5 million for the quarter ended January 31, 2023.

Share Repurchases

During the quarter, the Company repurchased 370,232 shares of common stock for $24.8 million. As of January 31, 2024, the Company had $216.5 million of share repurchase authorization remaining.

Platform Expansion Activities

During the third quarter of fiscal 2024, the Company continued the execution of its platform expansion strategy with the announcement of its intention to purchase Kamco Supply Corporation, a highly-attractive opportunity for GMS to become a leading specialty building products supplier in the New York City market.

In addition during the quarter, the Company added three new greenfield locations in Bonita Springs, FL, Indianapolis, IN and Orlando, FL.

Subsequent Event: Successful Repricing of the Company’s Term Loan Facility

Just after the end of the quarter, on February 2, 2024, the Company successfully entered into an amendment on the Company’s senior secured first lien term loan (“Term Loan Facility”) to reduce the interest rate applicable to its outstanding borrowings. Pursuant to the amendment, the applicable rate for term SOFR loans under the Term Loan Facility was reduced from a floating rate per annum of Term SOFR plus 3.00% to a floating rate per annum of Term SOFR plus 2.25% and the applicable rate for base rate loans under the Term Loan Facility was reduced from a floating rate per annum of the Base Rate (as defined in the Term Loan Facility) plus 2.00% to a floating rate per annum of the Base Rate plus 1.25%.

The amendment to the Company’s Term Loan Facility is expected to result in an approximate $3.5 million improvement to pretax income, or $2.6 million on a net basis after tax, per year. The loan matures in May 2030.

Please see the Form 8K filed by GMS on February 2, 2024 for more details on this amendment.

For the full third quarter results, click here.

About GMS, Inc.

Founded in 1971, GMS operates a network of more than 300 distribution centers with extensive product offerings of Wallboard, Ceilings, Steel Framing and Complementary Products. In addition, GMS operates more than 100 tool sales, rental and service centers, providing a comprehensive selection of building products and solutions for its residential and commercial contractor customer base across the United States and Canada. The Company’s unique operating model combines the benefits of a national platform and strategy with a local go-to-market focus, enabling GMS to generate significant economies of scale while maintaining high levels of customer service.

Contact:

Carey Phelps – Investor Relations – ir@gms.com – (770) 723-3369

Source: GMS, Inc.