GMS Reports Fourth Quarter and Fiscal Year 2023 Results

Record Levels of Full Year Net Sales, Net Income, Adjusted EBITDA and Cash Flow Generation

GMS Inc. (NYSE: GMS), a leading North American specialty building products distributor, today reported financial results for the fourth quarter and fiscal year ended April 30, 2023.

Fourth Quarter Fiscal 2023 Highlights

(Comparisons are to the fourth quarter of fiscal 2022 unless otherwise noted)

• Net sales of $1,304.1 million increased 1.2%; organic net sales increased 0.7%. On a per day basis, net sales were up 2.8% and organic net sales increased 2.2%.
• Net income of $75.6 million decreased 1.2% from $76.5 million a year ago. Net income per diluted share of $1.80 increased from $1.75 a year ago; Adjusted net income of $88.6 million, or $2.11 per diluted share, compared to $91.3 million, or $2.09 per diluted share.
• Adjusted EBITDA of $154.3 million compared to $154.2 million; Adjusted EBITDA margin was 11.8% compared to 12.0% a year ago.
• Cash provided by operating activities of $204.8 million, compared to $199.5 million. Free cash flow of $185.4 million, compared with $191.6 million.
• Repurchased 496,737 shares of common stock for $27.9 million at an average cost per share of $56.15, compared to 348,197 shares for $17.6 million at an average cost per share of $50.63 in the prior year quarter.
• Completed two strategic acquisitions, enhancing service, product offerings and reach in the greater Chicago and Toronto areas; Also, opened a greenfield yard and two new AMES store locations.
• Net debt leverage was 1.4 times as of the end of the fourth quarter of fiscal 2023, down from 1.6 times at the end of the third quarter of fiscal 2023 and down from 1.8 times at the end of the fourth quarter of fiscal 2022.

Full Year Fiscal 2023 Highlights

(Comparisons are to the full year of fiscal 2022, unless otherwise noted.)

• Net sales of $5,329.3 million increased 15.0%; organic net sales increased 12.7%.
• Net income of $333.0 million increased 21.8% compared to net income of $273.4 million. Net income per diluted share of $7.82 increased from $6.23 a year ago; Adjusted net income of $395.7 million increased 20.3% compared to $328.8 million. Adjusted net income per diluted share of $9.29 increased from $7.49 a year ago.
• Adjusted EBITDA of $665.7 million increased $98.8 million, or 17.4%; Adjusted EBITDA margin improved 30 basis points to 12.5% from 12.2%.
• Cash provided by operating activities improved from $179.6 million a year ago to $441.7 million. Similarly, free cash flow grew from $138.5 million in fiscal 2022 to $389.1 million.
• Repurchased 2.3 million shares of common stock for $110.6 million at an average cost per share of $48.74, compared with 715,709 shares repurchased during fiscal 2022 for $35.5 million at an average cost per share of $49.59.
• Demonstrating the continued execution of its strategic priorities, including Platform Expansion and Complementary Product growth, the Company completed four acquisitions, opened six greenfield yard locations and added 11 AMES stores to its portfolio.

“GMS’s fourth quarter results marked a solid finish to a year of record full-year levels of net sales, net income, adjusted EBITDA and cash flow generation,” said John C. Turner, Jr., President and Chief Executive Officer of GMS. “Our scale and balanced mix of products and customers enabled us to capitalize on strong demand in multi-family residential and continued growth in commercial. These demand tailwinds, coupled with favorable pricing in Wallboard, Ceilings and Complementary Products, contributed to our record results despite significantly lower steel prices and soft single-family residential activity in the back half of our fiscal year. Plus, our team closed out the year with our ninth straight quarter of year-over-year growth in Adjusted EBITDA despite having one less selling day in the quarter.”

Turner continued, “We continued to make progress on our four strategic priorities in fiscal 2023. Specifically, we focused on ensuring product availability and delivering exceptional customer service in our efforts to grow our share in our core products, and we took steps to further expand our Complementary Products. During the fourth quarter, we were pleased to announce the completion of two acquisitions, a new greenfield yard location and two new AMES store openings, all of which grow and strengthen our footprint, scale and product offerings.”

“We ended the year with a strong balance sheet, which we believe will enable us to continue executing our strategy and to invest in key growth and expansion opportunities. Looking ahead, given our scale, expertise, breadth of product offerings and commitment to providing outstanding service, we believe we are well-positioned to navigate the current slowdown in single-family activity and the resultant shift in demand toward multi-family and commercial projects. Moreover, given the limited inventory of existing homes and the structural need for residential housing, we are also encouraged by recent improvement in starts activity and builder sentiment as we look later into our year.”

Fourth Quarter Fiscal 2023 Results

Net sales for the fourth quarter of fiscal 2023 of $1.30 billion increased 1.2% as compared with the prior year quarter, primarily due to strong levels of multi-family construction activity, continued recovery in commercial construction and resilient pricing in Wallboard, Ceilings and Complementary Products, partially offset by declining single-family construction demand and lower year-over-year prices in Steel framing. Organic net sales increased 0.7%.

Excluding the impact from one less selling day in the fourth quarter of fiscal 2023 compared to the same period a year ago, net sales and organic net sales were up 2.8% and 2.2%, respectively.

Fourth quarter year-over-year sales by product category were as follows:

• Wallboard sales of $544.7 million increased 10.9% (up 11.4% on an organic basis).
• Ceilings sales of $155.1 million increased 4.2% (up 3.8% on an organic basis).
• Steel framing sales of $223.8 million decreased 19.2% (down 19.1% on an organic basis).
• Complementary Product sales of $380.5 million increased 2.3% (flat on an organic basis).

For more details on sales by product category, including per day organic sales due to volume and/or price, mix and foreign exchange, please refer to the tables included at the back of this press release.

Gross profit of $424.5 million increased 2.8% compared to the fourth quarter of fiscal 2022, and gross margin improved 50 basis points to 32.5%, both primarily due to the successful pass through of product price inflation, favorable product mix from strong multi-family conditions and improving commercial Wallboard demand. Solid, double-digit growth in the sales of certain Complementary Products such as insulation, tools & fasteners and EIFS, along with accretive gross margins from acquisitions were also contributors.

Selling, general and administrative (“SG&A”) expense leverage during the quarter was negatively impacted by deflationary dynamics related to the price of steel and softened demand in single-family construction, the latter of which resulted in a relative mix shift in end market volumes. While this end market shift was favorable to gross margin, it also requires a higher operational cost to serve. Inflationary wages and higher facilities costs also contributed to the year-over-year variance. As a result, SG&A as a percentage of net sales increased 90 basis points to 21.45% for the quarter compared to 20.52% in the fourth quarter of fiscal 2022. Adjusted SG&A expense as a percentage of net sales of 20.89% increased 70 basis points from 20.17% in the prior year quarter.

All in, and inclusive of a 27.5% increase in interest expense, net income decreased 1.2% to $75.6 million compared to net income of $76.5 million in the fourth quarter of fiscal 2022. Including the impact of increased share repurchase activity, net income per diluted share of $1.80 increased from $1.75 per diluted share in the fourth quarter of fiscal 2022. Adjusted net income was $88.6 million, or $2.11 per diluted share, compared to $91.3 million, or $2.09 per diluted share, a year ago.

Adjusted EBITDA of $154.3 million compared to $154.2 million in the prior year quarter. Adjusted EBITDA margin of 11.8% decreased 20 basis points compared to 12.0% recorded a year ago.

Balance Sheet, Liquidity and Cash Flow

As of April 30, 2023, the Company had cash on hand of $164.7 million, total debt of $1.1 billion and $759.2 million of available liquidity under its revolving credit facilities. Net debt leverage was 1.4 times as of the end of the quarter, down from 1.8 times at the end of the fourth quarter of fiscal 2022.

The Company generated cash from operating activities and free cash flow of $204.8 million and $185.4 million, respectively, for the quarter ended April 30, 2023. For the quarter ended April 30, 2022, the Company generated cash from operating activities and free cash flow of $199.5 million and $191.6 million, respectively. The increase in cash flow from operating activities was primarily due to larger increases in inventory and accounts receivable in the prior year period to support volume and inflationary based sales growth and ensure product availability amid a constrained supply chain environment.

During the quarter, the Company repurchased 496,737 shares of common stock for $27.9 million. As of April 30, 2023, the Company had $100.2 million of share repurchase authorization remaining.

Platform Expansion Activities

During the fourth quarter of fiscal 2023, the Company continued the execution of its platform expansion activities with two strategic acquisitions, both of which closed on April 3, 2023.

First, as a leading distributor of wallboard, ceilings and related construction products to the greater Chicago, IL area, the addition of Engler, Meier & Justus, Inc. (“EMJ”) enabled GMS to expand its presence in that market, enhancing service levels and extending its reach. Additionally, in the Southeastern U.S., EMJ distributes EIFS-related products, which is one of the key product categories that the Company is focused on growing as part of its drive to expand its Complementary Product offerings. Second, the acquisition of Blair Building Materials, Inc. (“Blair”) enabled the further scaling of Complementary Products in the greater Toronto, Canada area.

Also during this period, the Company opened a greenfield yard in Ottawa, Canada and two AMES store locations in Myrtle Beach, SC and Olive Branch, MS.

Subsequent Event - Refinancing Activities

On May 12, 2023, subsequent to the end of its fiscal 2023 fourth quarter, the Company refinanced its term loan, extending its maturity date by seven years. The new borrowings consist of a $500 million term loan facility due in 2030, which bears interest at a floating rate per annum of SOFR plus 3.0%.

Also, in connection with the amendment to the Term Loan Facility, the Company entered into new interest rate swap agreements to eliminate the variability of interest payment cash flows associated with the variable interest rates under the Term Loan Facility and otherwise hedge exposure to future interest rate moves.

For additional information on these transactions, please see the Company’s Form 8-K filed on May 12, 2023.

Conference Call and Webcast

GMS will host a conference call and webcast to discuss its results for the fourth quarter and full year fiscal 2023, which ended on April 30, 2023, and other information related to its business at 8:30 a.m. Eastern Time on Thursday, June 22, 2023. Investors who wish to participate in the call should dial 877-407-3982 (domestic) or 201-493-6780 (international) at least 5 minutes prior to the start of the call. The live webcast will be available on the Investors section of the Company’s website at www.gms.com. There will be a slide presentation of the results available on that page of the website as well. Replays of the call will be available through July 22, 2023 and can be accessed at 844-512-2921 (domestic) or 412-317-6671 (international) and entering the pass code 13738770.

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 construction products. In addition, GMS operates over 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.

Use of Non-GAAP Financial Measures

GMS reports its financial results in accordance with GAAP. However, it presents Adjusted net income, free cash flow, Adjusted SG&A, Adjusted EBITDA, and Adjusted EBITDA margin, which are not recognized financial measures under GAAP. GMS believes that Adjusted net income, free cash flow, Adjusted SG&A, Adjusted EBITDA, and Adjusted EBITDA margin assist investors and analysts in comparing its operating performance across reporting periods on a consistent basis by excluding items that the Company does not believe are indicative of its core operating performance. The Company’s management believes Adjusted net income, Adjusted SG&A, free cash flow, Adjusted EBITDA and Adjusted EBITDA margin are helpful in highlighting trends in its operating results, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which the Company operates and capital investments. In addition, the Company utilizes Adjusted EBITDA in certain calculations in its debt agreements.

You are encouraged to evaluate each adjustment and the reasons GMS considers it appropriate for supplemental analysis. In addition, in evaluating Adjusted net income, Adjusted SG&A and Adjusted EBITDA, you should be aware that in the future, the Company may incur expenses similar to the adjustments in the presentation of Adjusted net income, Adjusted SG&A and Adjusted EBITDA. The Company’s presentation of Adjusted net income, Adjusted SG&A, Adjusted SG&A margin, Adjusted EBITDA, and Adjusted EBITDA margin should not be construed as an inference that its future results will be unaffected by unusual or non-recurring items. In addition, Adjusted net income, free cash flow, Adjusted SG&A and Adjusted EBITDA may not be comparable to similarly titled measures used by other companies in GMS’s industry or across different industries. Please see the tables at the end of this release for a reconciliation of Adjusted EBITDA, free cash flow, Adjusted SG&A and Adjusted net income to the most directly comparable GAAP financial measures.

When calculating organic net sales growth, the Company excludes from the calculation (i) net sales of acquired businesses until the first anniversary of the acquisition date, and (ii) the impact of foreign currency translation.

Forward-Looking Statements and Information

This press release includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. You can generally identify forward-looking statements by the Company’s use of forward-looking terminology such as “anticipate,” “believe,” “confident,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “seek,” or “should,” or the negative thereof or other variations thereon or comparable terminology. In particular, statements about the markets in which GMS operates, including in particular residential and commercial construction, and the economy generally, pricing, the demand for the Company’s products, the Company’s strategic priorities and the results thereof, service levels and the ability to drive value and results contained in this press release may be considered forward-looking statements. In addition, forward looking statements may include statements regarding the Company’s expectations concerning management’s plans for execution of a stock repurchase program, including the maximum amount, manner and duration of the purchase of the Company’s common stock under its authorized stock repurchase program. The Company has based forward-looking statements on its current expectations, assumptions, estimates and projections. While the Company believes these expectations, assumptions, estimates, and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond its control, including economic issues, geopolitical issues, and future public health issues, that may affect the Company’s business. Forward-looking statements involve risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section in the Company’s most recent Annual Report on Form 10-K, and in its other periodic reports filed with the SEC. In addition, the statements in this release are made as of June 22, 2023. The Company undertakes no obligation to update any of the forward-looking statements made herein, whether as a result of new information, future events, changes in expectation or otherwise. These forward-looking statements should not be relied upon as representing the Company’s views as of any date subsequent to June 22, 2023.

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