Market Overview

GMS Reports Results for First Quarter 2019

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- First Quarter Net Sales Increased 21.2% to a record $778.1 Million –

- First Quarter Net Income of $8.7 Million -

- First Quarter Adjusted EBITDA Increased to a record $75.3 Million -

GMS Inc. (NYSE:GMS), a leading North American distributor of wallboard
and suspended ceilings systems, today reported financial results for the
first quarter of fiscal 2019 ended July 31, 2018.

Net sales for the fiscal first quarter ended July 31, 2018 increased
21.2% to a record $778.1 million from $642.2 million for the fiscal
first quarter ended July 31, 2017. Reported net income decreased to $8.7
million, or $0.20 per diluted share, compared to $15.3 million, or $0.36
per diluted share. As previously disclosed, the decrease in net income
is attributable to $10.5 million in pre-tax transaction related costs
related to the June 1, 2018 acquisition of WSB Titan ("Titan"), $4.1
million in pre-tax purchase accounting adjustments for Titan inventory
and $4.8 million in pre-tax severance costs related to our previously
announced cost reduction plan. Adjusted EBITDA for the fiscal first
quarter increased to $75.3 million from Adjusted EBITDA of $52.8 million
for the first quarter of fiscal 2018.

Mike Callahan, President and CEO of GMS, stated, "We are off to a solid
start to the year, generating record sales and strong earnings. We
delivered organic revenue growth of 6.1% driven by broad-based growth
across each of our product groups. We also generated strong earnings,
reflecting the contribution of Titan, our commitment to operational
improvement initiatives and continued pricing discipline. The previously
announced cost reduction plan coupled with the successful integration of
Titan are expected to drive additional benefits as we progress through
fiscal 2019 and beyond."

Mr. Callahan continued, "Looking ahead to the balance of the year, we
remain confident in the health of our end-markets and overall market
conditions. We were able to capture more than three percent of price
growth within the U.S. wallboard market and believe some of the pricing
challenges facing our industry have begun to stabilize. As one of the
largest wallboard distributors in North America with significant scale
advantages and a well-balanced portfolio built for growth, we intend to
continue to drive profitable growth while managing our business for the
long-term. We remain excited about the overall strength of our business
and confident in our ability to deliver another year of record sales and
strong earnings in fiscal 2019."

First Quarter 2019 Results

Net sales for the first quarter of fiscal 2019 ended July 31, 2018 were
$778.1 million, compared to $642.2 million for the first quarter of
fiscal 2018 ended July 31, 2017.

  • Wallboard sales of $317.7 million increased 11.6% compared to the
    first quarter of fiscal 2018, with the positive impact of the June 1st
    acquisition of Titan and pricing improvement, slightly offset by an
    organic wallboard unit volume decline of 0.4%.
  • Ceilings sales of $115.9 million rose 16.2% compared to the first
    quarter of fiscal 2018, mainly due to greater commercial activity,
    pricing improvement and the positive impact of acquisitions.
  • Steel framing sales of $129.1 million grew 23.4% compared to the first
    quarter of fiscal 2018, mainly driven by greater commercial activity,
    pricing improvement and the positive impact of acquisitions.
  • Other product sales of $215.4 million were up 40.7% compared to the
    first quarter of fiscal 2018, as a result of the positive impact of
    the acquisition of Titan and pricing improvement.

Gross profit of $244.8 million grew 19.4% compared to $205.1 million in
the first quarter of fiscal 2018, mainly attributable to increased sales
from the Titan acquisition. Gross margin adjusted for the non-cash
impact of purchase accounting adjustments improved by approximately 10
basis points to 32.0% compared to 31.9% in the first quarter of fiscal
2018.

Net income of $8.7 million, or $0.20 per diluted share, decreased by
43.6% or $6.7 million compared to $15.3 million, or $0.36 per diluted
share, in the first quarter of fiscal 2018. The decrease in net income
is attributable to $5.7 million in pre-tax mark-to-market currency
adjustments, $4.8 million in pre-tax transaction costs, $4.1 million in
pre-tax fair value adjustments to inventory, all related to the
acquisition of Titan, as well as $4.8 million in previously disclosed
severance costs associated with the Company's cost reduction plan.
Adjusted net income of $35.2 million, or $0.82 per diluted share,
increased 32.3% or $8.9 million, compared to $26.3 million, or $0.62 per
diluted share, in the first quarter of fiscal 2018.

Adjusted EBITDA of $75.3 million increased from $52.8 million in the
first quarter of fiscal 2018. Adjusted EBITDA margin was 9.7% as a
percentage of net sales or 9.1% excluding the impact of the favorable
accounting benefit related to the previously disclosed changes in lease
accounting, reflecting strong performance from the Titan business, as
well as improvement in our organic operating leverage.

Capital Resources

As of July 31, 2018, GMS had cash of $36.9 million and total debt of
$1.30 billion, compared to cash of $36.4 million and total debt of
$595.9 million, as of July 31, 2017.

On June 1, 2018, the Company amended its First Lien Credit Agreement to
provide it with new borrowings consisting of an approximately $997
million term loan facility due in 2025. Borrowings under the new term
loan bear interest at a floating rate based on LIBOR, with a 0% floor,
plus 2.75%, representing a 25 basis point improvement compared to the
previous term loan's interest rate. Net proceeds from the new term loan
were used to repay amounts outstanding on the Company's prior first lien
term loan of approximately $572 million and to finance the acquisition
of Titan.

Acquisition Activity

GMS completed its acquisition of Titan, Canada's largest gypsum
specialty dealer with 30 locations across five provinces, on June 1,
2018. Subsequent to July 31, 2018, the Company acquired Charles G.
Hardy, Inc. a leading distributor of interior building products that
serves residential and non-residential customers in the Los Angeles
market. The acquisition marks GMS' entry into the Los Angeles area, the
second largest metropolitan area nationwide.

Conference Call and Webcast

GMS will host a conference call and webcast to discuss its results for
the first quarter ended July 31, 2018 and other information related to
its business at 8:30 a.m. Eastern Time on August 30, 2018. 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 September 30, 2018 and can be accessed at 844-512-2921
(domestic) or 412-317-6671 (international) and entering the pass code
13682840.

About GMS Inc.

Founded in 1971, GMS operates a network of more than 245 distribution
centers across the United States and Canada. GMS's extensive product
offering of wallboard, suspended ceilings systems, or ceilings, and
complementary construction products is designed to provide a
comprehensive one-stop-shop for our core customer, the interior
contractor who installs these products in commercial and residential
buildings.

Use of Non-GAAP Financial Measures

GMS reports its financial results in accordance with GAAP. However, it
presents Adjusted net income, Adjusted EBITDA and Adjusted EBITDA
margin, which are not recognized financial measures under GAAP. GMS
believes that Adjusted net income, 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 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 under its senior secured asset
based revolving credit facility and its senior secured first lien term
loan facility.

You are encouraged to evaluate each adjustment and the reasons GMS
considers it appropriate for supplemental analysis. In addition, in
evaluating Adjusted net income 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 and Adjusted
EBITDA. The Company's presentation of Adjusted net income and Adjusted
EBITDA 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 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 and Adjusted net income
to the most directly comparable GAAP financial measures.

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," "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, statements about its
expectations, beliefs, plans, strategies, objectives, prospects,
assumptions or future events or performance, statements related to net
sales, gross profit and gross margins, as well as non-GAAP financial
measures such as Adjusted EBITDA, Adjusted net income and base business
growth, , statements about our ability to continue to drive profitable
growth while managing our business for the long-term and our ability to
deliver record sales and strong earnings in fiscal 2019, demand trends
and the anticipated benefits of our cost reduction plan, including
future SG&A savings, and Titan acquisition contained in this press
release are forward-looking statements. In addition, statements relating
to the Titan acquisition, including its expected contribution to the
Company's Adjusted EBITDA for the eleven months ending April 30, 2019,
are forward-looking statements. The Company has based these
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. Forward-looking statements involve risks and uncertainties,
including, but not limited to, economic, competitive, governmental and
technological factors outside of the Company's control, that may cause
its business, strategy or actual results to differ materially from the
forward-looking statements. These risks and uncertainties may include,
among other things: changes in the prices, supply, and/or demand for
products which GMS distributes; general economic and business conditions
in the United States and Canada; the activities of competitors; changes
in significant operating expenses; changes in the availability of
capital and interest rates; adverse weather patterns or conditions; acts
of cyber intrusion; variations in the performance of the financial
markets, including the credit markets; the possibility that the expected
synergies and cost savings and final impacts from the Titan acquisition
will not be realized, or will not be realized within the expected time
period; the risk that the GMS and Titan businesses will not be
integrated successfully; disruption from the transaction making it more
difficult to maintain business and operational relationships and to
accomplish other GMS objectives; the risk of customer attrition; our
ability to efficiently manage and control our costs and the success of
our previously announced cost reduction plan; and other factors
described in the "Risk Factors" section in the Company's Annual Report
on Form 10-K for the fiscal year ended April 30, 2018, and in its other
periodic reports filed with the SEC. In addition, the statements in this
release are made as of August 30, 2018. 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 August 30, 2018.

   
GMS Inc.
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Ended July 31, 2018 and 2017
(in thousands, except per share data)
 
 
Three Months Ended
July 31,
2018 2017
Net sales $ 778,144 $ 642,157
Cost of sales (exclusive of depreciation and amortization shown
separately below)
  533,328   437,053
Gross profit   244,816   205,104
Operating expenses:
Selling, general and administrative 185,435 156,072
Depreciation and amortization   26,322   16,345
Total operating expenses   211,757   172,417
Operating income 33,059 32,687
Other (expense) income:
Interest expense (16,188) (7,500)
Change in fair value of financial instruments (6,019) (196)
Write-off of debt discount and deferred financing fees (74)
Other income, net   634   486
Total other expense, net   (21,573)   (7,284)
Income before taxes 11,486 25,403
Provision for income taxes   2,836   10,060
Net income $ 8,650 $ 15,343
Weighted average common shares outstanding:
Basic 41,094 40,971
Diluted 42,074 42,128
Net income per share:
Basic $ 0.21 $ 0.37
Diluted $ 0.20 $ 0.36
   
GMS Inc.
Condensed Consolidated Balance Sheets (Unaudited)
July 31, 2018 and April 30, 2018
(in thousands, except per share data)
 
 
July 31, April 30,
2018 2018
Assets
Current assets:
Cash and cash equivalents $ 36,865 $ 36,437
Trade accounts and notes receivable, net of allowances of $7,982 and
$9,633, respectively
474,394 346,450
Inventories, net 315,968 239,223
Prepaid expenses and other current assets   17,135   11,726
Total current assets   844,362   633,836
Property and equipment, net of accumulated depreciation of $94,015
and $85,761, respectively
272,806 163,582
Goodwill 623,200 427,645
Intangible assets, net 494,586 222,682
Other assets   10,916   6,766
Total assets $ 2,245,870 $ 1,454,511
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 145,865 $ 116,168
Accrued compensation and employee benefits 33,077 56,323
Other accrued expenses and current liabilities 60,640 45,146
Current portion of long-term debt   34,317   16,284
Total current liabilities   273,899   233,921
Non-current liabilities:
Long-term debt, less current portion 1,269,323 579,602
Deferred income taxes, net 24,508 10,742
Other liabilities 46,087 35,088
Liabilities to noncontrolling interest holders, less current portion   12,773   15,707
Total liabilities   1,626,590   875,060
Commitments and contingencies
Stockholders' equity:
Stockholders' equity
Common stock, par value $0.01 per share, 500,000 shares authorized;
41,139 and 41,069 shares issued and outstanding as of July 31, 2018
and April 30, 2018, respectively
411 411
Preferred stock, par value $0.01 per share, 50,000 shares
authorized; 0 shares issued and outstanding as of July 31, 2018 and
April 30, 2018
Exchangeable shares 33,194
Additional paid-in capital 490,670 489,007
Retained earnings 98,242 89,592
Accumulated other comprehensive income (loss)   (3,237)   441
Total stockholders' equity   619,280   579,451
Total liabilities and stockholders' equity $ 2,245,870 $ 1,454,511
   
GMS Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended July 31, 2018 and 2017
(in thousands)
 
 
Three Months Ended
July 31,
2018 2017
Cash flows from operating activities:
Net income $ 8,650 $ 15,343
Adjustments to reconcile net income to net cash (used in) provided
by operating activities:
Depreciation and amortization 26,322 16,345
Write-off and amortization of debt discount and debt issuance costs 825 734
Provision for losses on accounts and notes receivable 148 849
Provision for obsolescence of inventory (22) 371
Effects of fair value adjustments to inventory 4,129
Increase in fair value of contingent consideration 229
Equity-based compensation 1,269 1,178
Gain on sale and disposal of assets (121) (390)
Change in fair value of financial instruments 6,019 196
Changes in assets and liabilities net of effects of acquisitions:
Trade accounts and notes receivable (40,974) (12,913)
Inventories (20,943) (3,318)
Prepaid expenses and other assets 416 (2,996)
Accounts payable (1,696) 9,506
Accrued compensation and employee benefits (22,945) (27,694)
Derivative liability (10,778)
Other accrued expenses and current liabilities 2,219 14,026
Deferred income taxes   (571)   (2,712)
Cash (used in) provided by operating activities   (47,824)   8,525
Cash flows from investing activities:
Purchases of property and equipment (3,793) (5,511)
Proceeds from sale of assets 266 1,424
Acquisition of businesses, net of cash acquired   (575,499)   (3,124)
Cash used in investing activities   (579,026)   (7,211)
Cash flows from financing activities:
Repayments on the revolving credit facility (176,769) (257,382)
Borrowings from the revolving credit facility 392,170 167,429
Payments of principal on long-term debt (2,492) (1,444)
Payments of principal on capital lease obligations (3,998) (1,434)
Borrowings from term loan 996,840 577,616
Repayments of term loan (571,840) (477,616)
Debt issuance costs (7,933) (3,308)
Proceeds from exercises of stock options 431
Other financing activities   873  
Cash provided by financing activities   627,282   3,861
Effect of exchange rates on cash and cash equivalents (4)
Increase in cash and cash equivalents 428 5,175
Cash and cash equivalents, beginning of period   36,437   14,561
Cash and cash equivalents, end of period $ 36,865 $ 19,736
Supplemental cash flow disclosures:
Cash paid for income taxes $ 958 $ 1,787
Cash paid for interest 10,980 6,792
Supplemental schedule of noncash activities:
Assets acquired under capital lease $ 79,139 $ 2,957
Issuance of installment notes associated with equity-based
compensation liability awards
2,645
Increase in insurance claims payable and insurance recoverable 2,231 1,590
       
GMS Inc.
Net Sales by Product Group (Unaudited)
Three Months Ended July 31, 2018 and 2017
(dollars in thousands)
 
 
Three Months Ended
July 31, % of July 31, % of
2018 Total   2017 Total
(dollars in thousands)
Wallboard $ 317,735 40.8 % $ 284,657 44.3 %
Ceilings 115,855 14.9 % 99,710 15.6 %
Steel framing 129,112 16.6 % 104,651 16.3 %
Other products   215,442 27.7 %   153,139 23.8 %
Total net sales $ 778,144 $ 642,157
 
GMS Inc.
Reconciliation of Net Income to Adjusted EBITDA (Unaudited)
Three Months Ended July 31, 2018 and 2017
(in thousands)
 
 
Three Months Ended
July 31,
2018 2017
 
Net income $ 8,650 $ 15,343
Interest expense 16,188 7,500
Write-off of debt discount and deferred financing fees 74
Interest income (236) (23)
Provision for income taxes 2,836 10,060
Depreciation expense 10,610 5,990
Amortization expense   15,712   10,355
EBITDA $ 53,760 $ 49,299
Stock appreciation expense(a) 334 590
Redeemable noncontrolling interests(b) 531 866
Equity-based compensation(c) 404 473
Severance and other permitted costs(d) 4,836 205
Transaction costs (acquisitions and other)(e) 4,753 159
Gain on disposal of assets (121) (390)
Effects of fair value adjustments to inventory(f) 4,129
Change in fair value of financial instruments(g) 6,019 196
Secondary public offering costs(h) 631
Debt transaction costs(i)   627   723
EBITDA add-backs   21,512   3,453
Adjusted EBITDA $ 75,272 $ 52,752
Adjusted EBITDA margin 9.7 % 8.2 %
     
(a)     Represents non-cash compensation expenses related to stock
appreciation rights agreements.
(b) Represents non-cash compensation expense related to changes in the
redemption values of noncontrolling interests.
(c) Represents non-cash equity-based compensation expense related to the
issuance of share-based awards.
(d) Represents severance expenses and other costs permitted in
calculations under the ABL Facility and the First Lien Facility.
(e) Represents one-time costs related to acquisitions paid to third
party advisors.
(f) Represents the non-cash cost of sales impact of purchase accounting
adjustments to increase inventory to its estimated fair value.
(g) Represents the mark-to-market adjustments for derivative financial
instruments.
(h) Represents one-time costs related to our secondary offering paid to
third party advisors.
(i) Represents costs paid to third party advisors related to debt
refinancing activities.
   
GMS Inc.
Reconciliation of Income Before Taxes to Adjusted Net Income
(Unaudited)
Three Months Ended July 31, 2018 and 2017
(in thousands, except per share data)
 
 
Three Months Ended
July 31,
2018 2017
Income before taxes $ 11,486 $ 25,403
EBITDA add-backs 21,512 3,453
Write-off of debt discount and deferred financing fees 74
Purchase accounting depreciation and amortization (1)   12,455   5,024
Adjusted pre-tax income 45,453 33,954
Adjusted income tax expense   10,227   7,640
Adjusted net income $ 35,226 $ 26,314
Effective tax rate (2) 22.5 % 22.5 %
 
Weighted average shares outstanding:
Basic 41,094 40,971
Diluted (3) 43,203 42,128
Adjusted net income per share:
Basic $ 0.86 $ 0.64
Diluted $ 0.82 $ 0.62
     
(1)     Depreciation and amortization from the increase in value of certain
long-term assets associated with the April 1, 2014 acquisition of
the predecessor company and the acquisition of Titan. Full year
projected amount for FY19 is $49.7 million.
(2) Normalized cash tax rate determined based on our estimated taxes for
fiscal 2019 excluding the impact of purchase accounting and certain
other deferred tax accounts. Fiscal Q1 2018 normalized cash tax rate
updated to reflect this rate.
(3) Includes the effect of 1.1 million shares of equity issued in
connection with the acquisition of Titan that are exchangeable for
the Company's common stock.

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