GMS Reports Second Quarter Fiscal 2020 Results

Net Sales of $861.9 million up 3.4 percent; Organic Net Sales up 2.7 percent
Reported Net Income of $29.1 Million, or $0.68 per Diluted Share, up 17.0 percent
Adjusted Net Income of $42.7 Million, or $1.00 per Diluted Share, up 11.6 percent
Adjusted EBITDA of $89.9 million, or 10.4 percent of net sales

GMS Inc. reported financial results for the second quarter of fiscal 2020 ended October 31, 2019.

Second Quarter Fiscal 2020 Highlights

Net sales of $861.9 million increased 3.4 percent from $833.8 million in the second quarter of the prior fiscal year. Organic net sales increased 2.7 percent year over year.
Reported net income of $29.1 million, or $0.68 per diluted share, compared to $24.9 million, or $0.58 per diluted share, in the second quarter of the prior fiscal year.
Adjusted net income of $42.7 million, or $1.00 per diluted share, compared to $38.3 million, or $0.89 per diluted share, in the second quarter of the prior fiscal year.
Adjusted EBITDA of $89.9 million, or 10.4 percent of net sales, compared to Adjusted EBITDA of $87.1 million, or 10.5 percent of net sales, in the second quarter of the prior fiscal year.
The company completed one Greenfield opening during the second quarter of fiscal 2020.
Net leverage was reduced to 3.5 times as of the end of the second quarter of fiscal 2020 from 3.7 times as of the end of the first quarter of fiscal 2020.
Cash provided by operating activities and free cash flow for the first six months of fiscal 2020 totaled $69.9 million and $55.3 million, respectively, representing increases of 53.2 percent and 51.5 percent, respectively, from the first six months of fiscal 2019.

“The GMS team continued to execute well in the second quarter, growing sales, expanding gross margin and achieving higher net income and Adjusted EBITDA,” said John C. Turner, Jr., President and Chief Executive Officer. “We achieved strong volume performance in the United States, where demand conditions remain solid, while managing continued softness in Canada. We also generated strong cash from operations and free cash flow, and continue to pursue our existing capital allocation priorities, including debt reduction and prudent geographic and market share expansion through acquisitions and greenfields.

“Moving forward, we remain focused on our strategic priorities which include increased emphasis on organic growth through expanding market share in core products and growing our complementary product lines. We will also continue to pursue strategic acquisitions and Greenfield branch openings as we broaden our geographic platform. With a heightened focus on enhanced productivity and profitability across the organization, we are confident that we are well-positioned to capitalize on the growth opportunities ahead and drive value for our shareholders.”

Second Quarter Fiscal 2020 Results

Net sales for the second quarter of fiscal 2020 of $861.9 million were up 3.4 percent, or 2.7 percent on an organic basis, compared to $833.8 million for the second quarter of the prior fiscal year.

Wallboard sales of $350.6 million increased 4.8 percent (4.0 percent on an organic basis) compared to the second quarter of fiscal 2019, driven primarily by higher organic volumes and acquisitions, partially offset by lower pricing/mix.

Ceilings sales of $122.8 million increased 3.7 percent (1.7 percent on an organic basis) compared to the second quarter of fiscal 2019, primarily due to higher organic volumes and acquisitions, as well as slightly higher pricing/mix.

Steel framing sales of $136.2 million increased 0.3 percent (down 0.6 percent on an organic basis) compared to the second quarter of fiscal 2019, driven by higher organic volumes and acquisitions, partially offset by lower pricing/mix.

Other product sales of $252.3 million increased 3.0 percent (3.1 percent on an organic basis) compared to the second quarter of fiscal 2019, due to higher organic growth and acquisitions.

Gross profit of $284.5 million increased 6.1 percent from $268.2 million in the second quarter of fiscal 2019, as a result of higher sales, both organically and including the positive impact of acquisitions. Gross margin of 33.0 percent increased 80 basis points from 32.2 percent a year ago primarily due to net favorable price-cost dynamics, acquisition-related purchasing synergies and product mix.

Selling, general and administrative (SG&A) expense as a percentage of net sales was 23.3 percent for the quarter compared to 22.2 percent in the second quarter of fiscal 2019. Adjusted SG&A expense as a percentage of net sales was 22.7 percent compared to 21.8 percent in the prior year quarter. The 90 basis point increase in adjusted SG&A as a percentage of sales resulted primarily from the year-over-year decline in the selling price of certain of our products and, to a lesser extent, continuing inflationary cost pressures. In addition, the Company continued to make ongoing investments in Greenfields and business initiatives intended to drive growth and productivity.

Net income of $29.1 million, or $0.68 per diluted share, compared to $24.9 million, or $0.58 per diluted share, in the second quarter of fiscal 2019. Adjusted net income of $42.7 million, or $1.00 per diluted share, compared to $38.3 million, or $0.89 per diluted share, in the second quarter of fiscal 2019. Adjusted EBITDA of $89.9 million increased 3.2 percent year over year and represented an Adjusted EBITDA margin of 10.4 percent.

Balance Sheet

As of October 31, 2019, the Company had cash of $36.3 million and total debt of $1.10 billion, compared to cash of $24.1 million and total debt of $1.16 billion, as of July 31, 2019.

As previously disclosed, during the second fiscal quarter, the Company amended its asset based revolving credit facility to increase commitments from $345.0 million to $445.0 million, extend the maturity date to September 30, 2024 and improve the rate structure. Also during the second fiscal quarter, the Company made a $50.0 million prepayment of outstanding principal of its senior secured first lien term loan facility. As of the end of the fiscal second quarter, the Company had a total of $410.4 million available under its revolving credit facilities.

During the second fiscal quarter, the Company reduced its net debt by $73.1 million and net leverage was 3.5 times as of the end of the quarter compared to 3.7 times as of the end of the first quarter of fiscal 2020.

Platform Expansion Activity

During the second quarter of fiscal 2020, the Company opened a Greenfield location in Wilsonville, Oregon. Subsequent to the end of the second quarter, the Company also completed the previously announced acquisition of Rigney Building Supplies LTD in Kingston, Ontario.