GMS Reports Fourth Quarter and Fiscal Year 2019 Results

GMS Inc., a North American specialty distributor of interior building products, today reported financial results for the fourth quarter and fiscal year ended April 30, 2019.

Fourth Quarter Fiscal 2019 Highlights

Net sales of $780.1 million increased 22.7% from $635.8 million in the fourth quarter of the prior fiscal year. Organic net sales increased 7.0% year over year as a result of higher volumes and pricing improvement across all product groups.
Reported net income of $16.6 million, or $0.39 per diluted share, compared to $9.9 million, or $0.24 per diluted share, in the fourth quarter of the prior fiscal year.
Adjusted net income of $28.7 million, or $0.68 per diluted share, compared to $23.5 million, or $0.56 per diluted share, in the fourth quarter of the prior fiscal year.
Adjusted EBITDA of $73.5 million, or 9.4% of net sales compared to Adjusted EBITDA of $50.1 million, or 7.9% of net sales, in the fourth quarter of the prior fiscal year.
Cash provided by operating activities of $88.2 million and free cash flow of $82.8 million increased from $24.9 million and $14.6 million, respectively, in the fourth quarter of the prior fiscal year.
Net leverage decreased to 3.6 times at the end of the fourth quarter of fiscal 2019 from 3.8 times at the end of the third quarter of fiscal 2019.
The Company completed one business acquisition and four Greenfield openings during the fourth quarter of fiscal 2019.
The Company repurchased $5.0 million of common stock during the fourth quarter of fiscal 2019.

Full Year Fiscal 2019 Highlights

Net sales of $3.12 billion increased 24.1% from $2.51 billion in the prior fiscal year. Organic net sales increased 7.1% year over year.
Reported net income of $56.0 million, or $1.31 per diluted share, compared to $63.0 million, or $1.49 per diluted share, in the prior fiscal year.
Adjusted net income of $119.5 million, or $2.80 per diluted share, compared to $84.7 million, or $2.01 per diluted share, in the prior fiscal year.
Adjusted EBITDA of $295.7 million, or 9.5% of net sales, compared to Adjusted EBITDA of $199.3 million, or 7.9% of net sales, in the prior fiscal year.
Cash provided by operating activities of $193.6 million and free cash flow of $174.8 million increased from $91.3 million and $67.5 million, respectively, in the prior fiscal year.
Net leverage decreased to 3.6 times at the end of fiscal 2019 from 4.2 times at the end of the first quarter of fiscal 2019, following the acquisition of Titan.
The Company completed three business acquisitions and eight greenfield openings during fiscal 2019.
The Company repurchased $16.5 million of common stock during fiscal 2019.

“We were pleased to deliver a strong finish to fiscal 2019 with record net sales and earnings for our fourth fiscal quarter,” said Mike Callahan, Chief Executive Officer. “Strong organic sales growth of 7.0% reflects higher volumes and pricing across all our product groups. Activity levels across our end markets in the United States remain solid and continue to exhibit healthy fundamentals. While long-term factors contributing to housing demand and overall economic growth for Canada remain positive, we currently face some challenging conditions in the Canadian single-family housing market. We generated significant cash from operations and free cash flow in the quarter, enabling us to execute on our capital allocation priorities, which include reducing our net leverage, expanding through accretive acquisitions and greenfield investments and repurchasing our common stock.”

Mr. Callahan continued, “We made significant progress throughout fiscal 2019 on a number of fronts, surpassing $3.0 billion in net sales through both organic growth and acquisitions, including the strategic acquisition of WSB Titan, which increased our scale and footprint in North America, provided entry into the highly attractive Canadian market, and created a well-balanced platform for long-term growth. At the same time, we significantly improved our operating leverage in fiscal 2019. We believe our market-leading position, broad product portfolio and diversified exposure across attractive commercial and residential new and R&R construction markets will enable us to continue to take advantage of further growth opportunities.”

Fourth Quarter Fiscal 2019 Results

Net sales for the fourth quarter of fiscal 2019 were $780.1 million, up 22.7%, or 7.0% on an organic basis, compared to $635.8 million for the fourth quarter of the prior fiscal year.
Wallboard sales of $322.3 million increased 15.1% (3.8% on an organic basis) compared to the fourth quarter of fiscal 2018, driven by acquisitions, higher organic volumes and pricing.
Ceilings sales of $112.2 million increased 17.4% (13.7% on an organic basis) compared to the fourth quarter of fiscal 2018, primarily due to higher organic volumes as a result of increased commercial business, the positive impact of acquisitions and pricing.
Steel framing sales of $124.5 million increased 16.3% (8.3% on an organic basis) compared to the fourth quarter of fiscal 2018, driven by the positive impact of acquisitions, higher organic volumes as a result of greater commercial activity and pricing.
Other product sales of $221.1 million increased 44.4% (7.8% on an organic basis) compared to the fourth quarter of fiscal 2018, as a result of the positive impact of acquisitions, as well as higher organic growth.

Gross profit of $256.9 million increased 24.8% compared to $205.8 million in the fourth quarter of fiscal 2018, as a result of higher sales, both organically and including the positive impact of acquisitions, as well as pricing improvement. Gross margin of 32.9% improved 50 basis points from 32.4% a year ago due to contributions from the Titan acquisition, favorable price-cost dynamics and mix. On a sequential basis, gross margin also improved 50 basis points from 32.4% in the third quarter of fiscal 2019.

Selling, general and administrative (SG&A) expense as a percentage of net sales was 24.4% for the quarter compared to 25.4% in the fourth quarter of fiscal 2018. Adjusted SG&A expense as a percentage of net sales was 23.6% compared to 24.6% in the prior year quarter. Of the 100 basis point improvement in adjusted SG&A, 20 basis points was the result of increased cost efficiencies which were partially offset by inflationary pressures, primarily in logistics, as well as unanticipated insurance costs and the timing of certain other expenses. The remaining 80 basis points was the result of the amendment of certain equipment operating leases that are now being accounted for as capital leases.

Net income of $16.6 million, or $0.39 per diluted share, compared to $9.9 million, or $0.24 per diluted share, in the fourth quarter of fiscal 2018. Adjusted net income of $28.7 million, or $0.68 per diluted share, compared to $23.5 million, or $0.56 per diluted share, in the fourth quarter of fiscal 2018. Adjusted EBITDA of $73.5 million increased 46.9% year over year and represented an Adjusted EBITDA margin of 9.4%.

Capital Allocation and Expansion Activity

As of April 30, 2019, the Company had cash of $47.3 million and total debt of $1.14 billion, compared to cash of $74.3 million and total debt of $1.23 billion, as of January 31, 2019. During the fourth fiscal quarter, the Company reduced its net debt by $65.6 million and net leverage was 3.6 times as of the end of the quarter and fiscal year.

Under the previously announced $75.0 million stock repurchase program, the Company repurchased $5.0 million, or approximately 287,000 shares, of common stock during the fourth quarter of fiscal 2019. As of April 30, 2019, approximately $58.5 million of availability remained under the program.

During the fourth quarter of fiscal 2019, the Company completed the previously-announced acquisition of Commercial Builders Group, LLC in southern Louisiana and opened four Greenfield locations in Carrollton, TX, Fredericksburg, VA, Harrisburg, PA and Portland, ME. For fiscal year 2019, the Company completed a total of three business acquisitions and opened eight Greenfield locations.