GMS Reports Second Quarter Fiscal 2025 Results

Continued Resilience in Wallboard Pricing Offset by Softening End Market Demand, Year-Over-Year Steel Price Deflation and Hurricane-Related Impacts

Share Repurchase Authorization Renewed

GMS Inc., a leading North American specialty building products distributor, reported financial results for the fiscal second quarter ended October 31, 2024.

Second Quarter Fiscal 2025 Highlights

(Comparisons are to the second quarter of fiscal 2024)

• Net sales of $1.5 billion increased 3.5%; organic net sales decreased 4.6%.
• Net income of $53.5 million, or $1.35 per diluted share, decreased from net income of $81.0 million, or $1.97 per diluted share; Net income margin declined 200 basis points to 3.6%.
• Adjusted net income of $80.1 million, or $2.02 per diluted share, decreased from $98.4 million, or $2.40 per diluted share.
• Adjusted EBITDA of $152.2 million decreased $15.3 million, or 9.2%; Adjusted EBITDA margin was 10.3%, compared to 11.8%.
• Cash provided by operating activities and free cash flow were $115.6 million and $101.5 million, respectively, compared to cash provided by operating activities and free cash flow of $118.1 million and $102.1 million, respectively, in the prior year period; Net debt leverage was 2.3 times at the end of the quarter, up from 1.5 times a year ago.
• Subsequent to the end of the quarter, the Board of Directors renewed the Company’s share repurchase program, authorizing the Company to repurchase up to $250 million of its outstanding common stock.

“During our second quarter of fiscal 2025, the GMS team delivered net sales of $1.5 billion, net income of $53.5 million and Adjusted EBITDA of $152.2 million, reflecting the team’s continued ability to effectively navigate a challenging and dynamic operating environment,” said John C. Turner, Jr., President and CEO of GMS. “Prices remained resilient across our major product lines, including for Steel Framing where, while lower year-over-year, pricing improved sequentially as compared with the first quarter of fiscal 2025 and monthly as we moved through the quarter. Also, as compared with the second quarter of fiscal 2024, we realized volume growth, inclusive of acquisitions, in Ceilings, Steel Framing and Complementary Products. Partially offsetting this growth were soft multi-family activity and softening commercial shipments. Hurricane-related slowdowns also significantly impacted one of our largest and fastest-growing regions during the quarter, causing operational inefficiencies and holding back demand, particularly in Wallboard.”

Turner continued, “In spite of softening end markets overall, we saw pockets of relative strength in activity in certain commercial sectors, including data centers, public and private education, healthcare and projects backed by government incentive programs, such as the CHIPS and Inflation Reduction Acts. Single-family construction was relatively flat year-over-year. Stubbornly high mortgage rates and generally tight financing availability, however, continued to weaken the broader construction environment for each of our end markets, particularly for multi-family. Despite these near-term challenges, which we expect to continue into the new calendar year, our resilient team and business model are expected to again deliver solid levels of free cash flow as we progress through choppy market conditions. We expect to continue to invest in our business such that when longer-term rates retreat or become the new normal, we are positioned well to capitalize on the likely subsequent improvement in construction activity.”

“We remain focused on the execution of our strategic priorities, including expanding our platform through both acquisitions and greenfield opportunities while maintaining a disciplined capital allocation strategy, as well as enhancing our product and service offerings and delivering improved profitability as we leverage technology and best practices to achieve advancements in productivity. We are confident these actions will position us for long term success as we continue providing our customers outstanding products and service.”

Second Quarter Fiscal 2025 Results

(Comparisons are to the second quarter of fiscal 2024 unless otherwise noted)

Net sales for the second quarter of fiscal 2025 of $1.5 billion increased 3.5% due to contributions from recent acquisitions, which helped drive volume growth in Ceilings, Steel Framing and Complementary Products. While pricing improved sequentially as compared to the first quarter of fiscal 2025 in all of our major product categories, year-over-year deflation in Steel Framing reduced net sales by approximately $18 million, compared to the prior year quarter. Hurricanes Helene and Milton also reduced total net sales and organic net sales by an estimated $20 million during the quarter.

Organic net sales declined 4.6% as softened demand across our multi-family and commercial end markets combined with the hurricane-related impacts. The storms most notably reduced demand for single-family Wallboard.

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

• Wallboard sales of $582.1 million decreased 0.5% (down 5.2% on an organic basis).
• Ceilings sales of $204.4 million increased 16.6% (up 1.6% on an organic basis).
• Steel Framing sales of $217.4 million decreased 6.3% (down 14.0% on an organic basis).
• Complementary Product sales of $466.8 million increased 9.0% (down 1.4% on an organic basis).

Gross profit of $461.1 million increased $2.5 million from the prior year quarter. Gross margin was 31.4%, down 90 basis points as compared to 32.3% a year ago, primarily due to price and cost dynamics in Wallboard, a mix shift from commercial and multi-family to single-family Wallboard deliveries, unrealized manufacturer purchasing incentives due to lighter demand and storm disruption, and several operational impacts to cost of sales.

Selling, general and administrative (“SG&A”) expenses were $324.2 million for the quarter, up from $300.9 million. Of the $23.3 million year-over-year increase, approximately $21 million related to recent acquisitions and $5.6 million related to an increase in severance costs primarily associated with the previously disclosed cost containment actions, and $2 million related to higher insurance claims. Despite the headwind of storm-related inefficiencies, these increases were partially offset by lower overall operating costs, reflective of the realized savings from the previously disclosed cost reduction actions and reduced activity from changes in demand.

SG&A expense as a percentage of net sales increased 80 basis points to 22.0% for the quarter, compared to 21.2%. A combination of general operating cost inflation, additional accident claim activity and rent expense, together with steel price deflation negatively impacted SG&A leverage by approximately 105 basis points. Also, costs, primarily severance, related to our previously announced cost containment efforts, negatively impacted SG&A leverage by 45 basis points. These factors were partially offset by lower average operating costs at recently acquired companies, cost improvements from our restructuring actions, and the impacts of Wallboard price inflation. Adjusted SG&A expense as a percentage of net sales of 21.1% increased 50 basis points from 20.6%.

Inclusive of a $5.0 million, or 26.4%, increase in interest expense, net income decreased 33.9% to $53.5 million, or $1.35 per diluted share, compared to net income of $81.0 million, or $1.97 per diluted share. Net income margin declined 200 basis points from 5.7% to 3.6%. Adjusted net income was $80.1 million, or $2.02 per diluted share, for the second quarter of fiscal 2025, compared to $98.4 million, or $2.40 per diluted share.

Adjusted EBITDA decreased $15.3 million, or 9.2%, to $152.2 million compared to the prior year quarter. Adjusted EBITDA margin was 10.3%, compared with 11.8% for the second quarter of fiscal 2024.

Balance Sheet, Liquidity and Cash Flow

As of October 31, 2024, the Company had cash on hand of $83.9 million, total debt of $1.5 billion and $458.6 million of available liquidity under its revolving credit facilities. Net debt leverage was 2.3 times as of the end of the quarter, up from 1.5 times at the end of the second quarter of fiscal 2024.

For the second quarter of fiscal 2025, cash provided by operating activities was $115.6 million, compared to $118.1 million in the prior year period. Free cash flow was $101.5 million for the quarter ended October 31, 2024, compared to $102.1 million for the quarter ended October 31, 2023.

Share Repurchase Activity and Renewed Share Repurchase Authorization

During the Company’s fiscal second quarter, the Company repurchased 593,168 shares of common stock for $52.3 million. As of October 31, 2024, the Company had $102.0 million of share repurchase authorization remaining.

However, on December 2, 2024, the Company’s Board of Directors approved a renewal of the share repurchase program authorizing the Company to repurchase up to $250 million of its outstanding common stock. This authorization replaces the Company’s previous share repurchase authorization of $250 million, which commenced in October 2023 and had $94.6 million of authorization remaining as of November 30, 2024. Repurchases will be made from time to time on the open market at prevailing market prices or in negotiated transactions off the market. The renewal of the Company’s share repurchase authorization reflects the Board’s confidence in the business going forward.

Platform Expansion Activities

During the second quarter of fiscal 2025, the Company continued the execution of its platform expansion strategy. As previously announced, the Company successfully acquired R. S. Elliott Specialty Supply, a leading distributor of exterior building products within the state of Florida, on August 26, 2024.

In addition, during the quarter, the Company established one new greenfield location, expanding its presence to provide enhanced service and product offerings in Summerville, SC. Additionally, subsequent to the end of the quarter, the Company opened two more locations with a facility in Middleton, MA and another facility in Clackamas, OR, which is in the greater Portland, OR market.

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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.