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Section 1: 8-K (8-K)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 8-K

 


 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): August 31, 2017

 


 

GMS INC.

(Exact name of registrant as specified in charter)

 


 

Delaware

 

001-37784

 

46-2931287

(State or Other Jurisdiction
of Incorporation)

 

(Commission
File Number)

 

(I.R.S. Employer
Identification No.)

 

100 Crescent Centre Parkway, Suite 800
Tucker, Georgia

 

30084

(Address of Principal Executive Offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (800) 392-4619

 


 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

o            Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o            Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o            Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o            Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company o

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

 

 

 



 

Item 2.02. Results of Operations and Financial Condition.

 

On September 6, 2017, GMS Inc. (the “Company” or “GMS”) issued a press release, a copy of which is furnished as Exhibit 99.1 hereto and incorporated herein by reference, announcing the Company’s financial results for the three months ended July 31, 2017.

 

The information contained in Item 7.01 concerning the presentation to GMS investors is hereby incorporated into this Item 2.02 by reference.

 

In accordance with General Instruction B.2 of Form 8-K, the information in this Item 2.02 of this Current Report on Form 8-K, including Exhibits 99.1 and 99.2 attached hereto, shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

 

Item 4.01 Changes in Registrant’s Certifying Accountant.

 

On August 31, 2017, GMS Inc. (the “Company”) dismissed PricewaterhouseCoopers LLP (“PricewaterhouseCoopers”) effective upon the completion of PricewaterhouseCoopers’ review of the Company’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2017 (the “Form 10-Q”), which was completed on September 6, 2017.  The Audit Committee of the Board of Directors (the “Audit Committee”) of GMS Inc. (the “Company”) approved the change in the Company’s independent registered public accounting firm for the fiscal year ending April 30, 2018.

 

PricewaterhouseCoopers’ reports on the Company’s consolidated financial statements as of and for the fiscal years ended April 30, 2017 and 2016 did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles.

 

During the fiscal years ended April 30, 2017 and 2016 and the subsequent interim period through August 31, 2017 there have been no “disagreements” (as defined in Item 304(a)(1)(iv) of Regulation S-K and related instructions) with PricewaterhouseCoopers on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of PricewaterhouseCoopers, would have caused PricewaterhouseCoopers to make reference thereto in their reports on the consolidated financial statements for such fiscal years. During the fiscal years ended April 30, 2017 and 2016 and any subsequent interim period through August 31, 2017, there have been no “reportable events” (as defined in Item 304(a)(1)(v) of Regulation S-K), except that the Company’s internal control over financial reporting was not effective due to the existence of material weaknesses in the Company’s internal control over financial reporting. As disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2017, the Company had ineffective information technology, or IT, general computer controls and a lack of effective formal accounting policies, procedures, and controls that constituted material weaknesses. Additionally, there were two material weaknesses identified as of April 30, 2016 that are remediated as of April 30, 2017 including an insufficient complement of personnel with a level of U.S. GAAP accounting knowledge commensurate with our financial reporting requirements and a lack of controls over the preparation and review of manual journal entries. These material weaknesses previously resulted in material adjustments to correct the consolidated financial statements of our wholly owned subsidiary, GYP Holdings III Corp., that were issued for fiscal 2013 and 2014 and contributed to

 

2



 

certain immaterial revisions of previously issued consolidated financial statements for the fiscal years ended April 30, 2016 and 2015. These weaknesses could result in material misstatements to our annual and interim consolidated financial statements that would not be prevented or detected.  PricewaterhouseCoopers discussed each of these matters with the Audit Committee. The Company has authorized PricewaterhouseCoopers to fully respond to the inquiries of Ernst & Young LLP (“EY”), the successor independent registered public accounting firm, concerning these matters.

 

The Company provided PricewaterhouseCoopers with a copy of the disclosures it is making in this Current Report on Form 8-K (this “Report”) prior to the time this Report was filed with the SEC. The Company requested that PricewaterhouseCoopers furnish a letter addressed to the SEC stating whether or not it agrees with the statements made herein. A copy of PricewaterhouseCoopers’ letter, dated September 6, 2017, is filed as Exhibit 16.1 hereto.

 

The Company completed a competitive process to review the appointment of the Company’s independent registered public accounting firm for the fiscal year ending April 30, 2018. As a result of this process, on August 31, 2017, the Audit Committee elected to engage EY as the Company’s independent registered public accounting firm for the fiscal year ending April 30, 2018.

 

During the fiscal years ended April 30, 2017 and 2016 and the subsequent interim period through August 31, 2017, neither the Company nor anyone acting on its behalf has consulted with EY with respect to (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements, and neither a written report nor oral advice was provided to the Company that EY concluded was an important factor considered by the Company in reaching a decision as to any accounting, auditing, or financial reporting issue or (ii) any matter that was either the subject of a “disagreement” or “reportable event” within the meaning of Item 304(a)(1) of Regulation S-K.

 

Item 7.01. Regulation FD Disclosure.

 

The slide presentation furnished as Exhibit 99.2 hereto, and incorporated herein by reference, will be presented to certain investors of GMS on September 6, 2017 and may be used by GMS in various other presentations to investors on or after September 6, 2017.

 

In accordance with General Instruction B.2 of Form 8-K, the information in this Item 7.01 of this Current Report on Form 8-K, including Exhibit 99.2 attached hereto, shall not be deemed “filed” for the purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

 

Item 9.01. Financial Statements and Exhibits

 

(d) Exhibits:

 

Exhibit Number

 

Description

16.1

 

Letter of PricewaterhouseCoopers, dated September 6, 2017.

99.1*

 

Press release, dated September 6, 2017.

99.2*

 

GMS Inc. presentation to investors.

 


* Furnished herewith

 

3



 

EXHIBIT INDEX

 

Exhibit Number

 

Description

16.1

 

Letter of PricewaterhouseCoopers, dated September 6, 2017.

99.1*

 

Press release, dated September 6, 2017.

99.2*

 

GMS Inc. presentation to investors.

 


* Furnished herewith

 

4



 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

GMS INC.

 

 

 

 

 

 

Date: September 6, 2017

By:

/s/ H. Douglas Goforth

 

 

Name:

H. Douglas Goforth

 

 

Title:

Chief Financial Officer

 

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Section 2: EX-16.1 (EX-16.1)

Exhibit 16.1

 

September 6, 2017

 

Securities and Exchange Commission

100 F Street, N.E.

Washington, DC 20549

 

Commissioners:

 

We have read the statements made by GMS Inc. (copy attached), which we understand will be filed with the Securities and Exchange Commission, pursuant to Item 4.01 of Form 8-K, as part of the Form 8-K of GMS Inc. dated August 31, 2017.  We agree with the statements concerning our Firm in such Form 8-K.

 

Very truly yours,

 

 

 

 

 

/s/ PricewaterhouseCoopers LLP

 

Atlanta, Georgia

 

 


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Section 3: EX-99.1 (EX-99.1)

Exhibit 99.1

 

 

GMS REPORTS RECORD SALES AND ADJUSTED EBITDA FOR FIRST QUARTER 2018

- First Quarter Net Sales Increased 16.8% to $642.2 Million -

- First Quarter Net Income Improved by 67.4% to $15.3 Million -

- First Quarter Adjusted EBITDA Increased 14.8% to $52.8 Million -

 

Tucker, Georgia, September 6, 2017. 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 2018 ended July 31, 2017.

 

First Quarter 2018 Highlights Compared to First Quarter 2017

 

·                  Net sales increased 16.8% to a record $642.2 million; base business net sales increased 7.8%

 

·                  Wallboard unit volume grew 11.8% to a record 914 million square feet

 

·                  Net income increased to $15.3 million, or $0.36 per diluted share, compared to $9.2 million, or $0.24 per diluted share

 

·                  Adjusted EBITDA grew 14.8% to a record $52.8 million

 

·                  Net debt to LTM Pro Forma Adjusted EBITDA improved to 2.9x from 3.4x

 

·                  Reduced the interest rate on the Company’s first lien term loan by 50 basis points and extended the maturity to April 2023

 

·                  In August 2017, acquired a leading provider of ceilings and other quality building products in Eastern Michigan

 

Mike Callahan, President and CEO of GMS, stated, “We were pleased to start the year with another quarter of double digit percentage growth in Adjusted EBITDA to $52.8 million supported by a record sales performance. Stronger commercial activity drove an 11% and 10% increase in ceilings and steel framing base business net sales, respectively, while wallboard base business sales were up mid-single digits.  Our first quarter gross margin of 31.9% was down 60 basis points versus the first quarter of the prior year, but was at the top end of our expected range. Due to a variety of purchasing initiatives executed during the quarter, our gross margin improved each month throughout the quarter, and we continue to believe that we will be able to deliver a full year gross margin of 32.5% in fiscal 2018. Combined with our ability to capitalize on healthy demand trends, execute on our attractive acquisition pipeline and generate additional SG&A savings, our focus for full year fiscal 2018 will be geared towards delivering a record year of Adjusted EBITDA and at a higher margin year-over-year.”

 

First Quarter 2018 Results

 

Net sales for the first quarter of fiscal 2018 ended July 31, 2017 were $642.2 million, compared to $549.8 million for the first quarter of fiscal 2017 ended July 31, 2016.

 

·                  Wallboard sales of $284.7 million increased 13.3%, compared to the first quarter of fiscal 2017 driven by wallboard unit volume growth of 11.8% to 914 million square feet and price gains. Wallboard volumes benefitted from steady end market demand and the positive contribution from acquisitions.

 

·                  Ceilings sales of $99.7 million rose 15.5%, compared to the first quarter of fiscal 2017, mainly due to greater commercial activity, price gains and the positive impact of acquisitions.

 

·                  Steel framing sales of $104.7 million grew 24.1%, compared to the first quarter of fiscal 2017, due to strong commercial activity, price gains as a result of higher industry steel prices and acquisitions.

 

·                  Other product sales of $153.1 million were up 19.8%, compared to the first quarter of fiscal 2017, as a result of strategic initiatives, price gains and acquisitions.

 

Gross profit of $205.1 million grew 14.8%, compared to $178.6 million in the first quarter of fiscal 2017, mainly attributable to higher pricing and increased sales. Gross margin was 31.9%, compared to 32.5% in the first quarter of fiscal 2017 largely due to higher cost

 



 

material purchases in wallboard, along with product mix. Gross margin improved sequentially from May 2017 to July 2017 due to improved purchasing opportunities.

 

Net income of $15.3 million, or $0.36 per diluted share, increased by 67.4% or $6.2 million, compared to $9.2 million, or $0.24 per diluted share, in the first quarter of fiscal 2017. Adjusted net income of $19.7 million, or $0.47 per diluted share, grew $1.9 million, compared to $17.8 million, or $0.46 per diluted share, in the first quarter of fiscal 2017.

 

Adjusted EBITDA of $52.8 million rose 14.8%, compared to $45.9 million in the first quarter of fiscal 2017.  Adjusted EBITDA margin was 8.2% as a percentage of net sales, compared to 8.4% in the first quarter of fiscal 2017, reflecting a lower gross margin which outweighed an improvement in SG&A as a percent of net sales.

 

Capital Resources

 

On June 7, 2017, the Company amended its First Lien Credit Agreement with new borrowings consisting of a $578 million term loan facility due in 2023. Borrowings under the new term loan bear interest at a floating rate based on LIBOR, with a 1.00% floor, plus 3.00%, representing a 50 basis point improvement compared to the previous term loan’s interest rate. Net proceeds from the new term loan and cash on hand were used to repay the Company’s previous first lien term loan of $478 million and approximately $94 million of loans under the asset based revolving credit facility as well as related expenses.

 

At July 31, 2017, GMS had cash of $19.7 million and total debt of $602.9 million, as compared to cash of $14.6 million and total debt of $594.9 million at April 30, 2017.

 

Acquisition Activity

 

Subsequent to July 31, 2017, the Company acquired ASI Building Products, LLC, or ASI, a leading provider of ceilings and other quality building products serving residential and commercial projects of all sizes in the Eastern Michigan market through three locations. GMS now has a total of 16 locations in Michigan.

 

Conference Call and Webcast

 

GMS will host a conference call and webcast to discuss its results for the first quarter ended July 31, 2017 at 10:00 a.m. Eastern Time on September 6, 2017. Investors who wish to participate in the call should dial 888-601-3878 (domestic) or 719-325-4782 (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 October 6, 2017 and can be accessed at 844-512-2921 (domestic) or 412-317-6671 (international) and entering the pass code 6813639.

 

About GMS Inc.

 

Founded in 1971, GMS operates a network of more than 205 distribution centers across the United States. GMS’s extensive product offering of wallboard, suspended ceilings systems, or ceilings, and complementary interior 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, Adjusted EBITDA margin and base business growth, 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, Adjusted EBITDA margin and base business growth 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.

 



 

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, including the potential for growth in the commercial, residential and repair and remodeling, or R&R, markets, statements about its expectations, beliefs, plans, strategies, objectives, prospects, assumptions or future events or performance, statements related to net sales, gross profit, gross margins and capital expenditures, as well as non-GAAP financial measures such as Adjusted EBITDA, Adjusted net income and base business growth and statements regarding potential acquisitions and future greenfield locations, demand trends and future SG&A savings contained in this press release 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; 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; 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, 2017, and in its other periodic reports filed with the SEC.  In addition, the statements in this release are made as of September 6, 2017. 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 September 6, 2017.

 



 

GMS Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)

Three Months Ended July 31, 2017 and 2016

(in thousands of dollars, except for share and per share data)

 

 

 

Three Months Ended
July 31,

 

 

 

2017

 

2016

 

Net sales

 

$

642,157

 

$

549,800

 

Cost of sales (exclusive of depreciation and amortization shown separately below)

 

437,053

 

371,215

 

Gross profit

 

205,104

 

178,585

 

Operating expenses:

 

 

 

 

 

Selling, general and administrative

 

156,072

 

135,058

 

Depreciation and amortization

 

16,345

 

15,795

 

Total operating expenses

 

172,417

 

150,853

 

Operating income

 

32,687

 

27,732

 

Other (expense) income:

 

 

 

 

 

Interest expense

 

(7,500

)

(7,577

)

Write-off of debt discount and deferred financing fees

 

(74

)

(5,426

)

Other income, net

 

290

 

593

 

Total other (expense), net

 

(7,284

)

(12,410

)

Income before taxes

 

25,403

 

15,322

 

Provision for income taxes

 

10,060

 

6,159

 

Net income

 

$

15,343

 

$

9,163

 

Weighted average shares outstanding:

 

 

 

 

 

Basic

 

40,970,905

 

38,200,597

 

Diluted

 

42,171,806

 

38,602,378

 

Net income per share:

 

 

 

 

 

Basic

 

$

0.37

 

$

0.24

 

Diluted

 

$

0.36

 

$

0.24

 

 



 

GMS Inc.

Condensed Consolidated Balance Sheets (Unaudited)

July 31, 2017 and April 30, 2017

(in thousands of dollars, except share data)

 

 

 

July 31,
2017

 

April 30,
2017

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

19,736

 

$

14,561

 

Trade accounts and notes receivable, net of allowances of $10,957 and $9,851, respectively

 

341,302

 

328,988

 

Inventories, net

 

203,181

 

200,234

 

Prepaid expenses and other current assets

 

15,014

 

11,403

 

Total current assets

 

579,233

 

555,186

 

Property and equipment, net of accumulated depreciation of $74,268 and $71,409, respectively

 

156,993

 

154,465

 

Goodwill

 

423,773

 

423,644

 

Intangible assets, net

 

241,938

 

252,293

 

Other assets

 

7,458

 

7,677

 

Total assets

 

$

1,409,395

 

$

1,393,265

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

112,329

 

$

102,688

 

Accrued compensation and employee benefits

 

30,823

 

58,393

 

Other accrued expenses and current liabilities

 

50,797

 

37,891

 

Current portion of long-term debt

 

12,936

 

11,530

 

Total current liabilities

 

206,885

 

210,502

 

Non-current liabilities:

 

 

 

 

 

Long-term debt, less current portion

 

589,921

 

583,390

 

Deferred income taxes, net

 

24,084

 

26,820

 

Other liabilities

 

36,417

 

35,371

 

Liabilities to noncontrolling interest holders, less current portion

 

21,560

 

22,576

 

Total liabilities

 

878,867

 

878,659

 

Commitments and contingencies

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Common stock, par value $0.01 per share, authorized 500,000,000 shares; 40,970,905 shares issued at July 31, 2017 and April 30, 2017

 

410

 

410

 

Preferred stock, par value $0.01 per share, authorized 50,000,000 shares; 0 shares issued at July 31, 2017 and April 30, 2017

 

 

 

Additional paid-in capital

 

488,884

 

488,459

 

Retained earnings

 

41,965

 

26,621

 

Accumulated other comprehensive loss

 

(731

)

(884

)

Total stockholders’ equity

 

530,528

 

514,606

 

Total liabilities and stockholders’ equity

 

$

1,409,395

 

$

1,393,265

 

 



 

GMS Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

Three Months Ended July 31, 2017 and 2016

(in thousands of dollars)

 

 

 

Three Months Ended
July 31,

 

 

 

2017

 

2016

 

Cash flows from operating activities:

 

 

 

 

 

Net Income

 

$

15,343

 

$

9,163

 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

 

 

 

 

 

Depreciation and amortization of property and equipment

 

5,990

 

6,382

 

Write-off, accretion and amortization of debt discount and deferred financing fees

 

734

 

6,129

 

Amortization of intangible assets

 

10,355

 

9,413

 

Provision for losses on accounts and notes receivable

 

849

 

(75

)

Provision for obsolescence of inventory

 

371

 

23

 

Equity-based compensation

 

1,178

 

627

 

(Gain) on sale or impairment of assets

 

(390

)

(199

)

Trade accounts and notes receivable

 

(12,913

)

(19,360

)

Inventories

 

(3,318

)

(17,101

)

Accounts payable

 

9,506

 

1,672

 

Deferred income taxes

 

(2,712

)

(3,222

)

Prepaid expenses and other assets

 

(3,482

)

(3,058

)

Accrued compensation and employee benefits

 

(28,080

)

(24,947

)

Accrued expenses and liabilities

 

1,020

 

852

 

Liabilities to noncontrolling interest holders

 

386

 

246

 

Income taxes

 

11,016

 

2,835

 

Cash provided by (used in) operating activities

 

5,853

 

(30,620

)

Cash flows from investing activities:

 

 

 

 

 

Purchases of property and equipment

 

(5,511

)

(2,607

)

Proceeds from sale of assets

 

1,424

 

841

 

Acquisitions of businesses, net of cash acquired

 

(3,124

)

(26,582

)

Cash used in investing activities

 

(7,211

)

(28,348

)

Cash flows from financing activities:

 

 

 

 

 

Repayments on the revolving credit facility

 

(257,382

)

(225,702

)

Borrowings from the revolving credit facility

 

167,429

 

280,397

 

Payments of principal on long-term debt

 

(1,444

)

(975

)

Principal repayments of capital lease obligations

 

(1,434

)

(1,213

)

Proceeds from issuance of common stock in initial public offering, net of underwriting discounts

 

 

157,217

 

Repaymemt on term loan

 

 

(160,000

)

Proceeds from term loan amendment

 

577,616

 

 

Repayments on term loan amendment

 

(477,616

)

 

Debt issuance costs

 

(636

)

 

Cash provided by financing activities

 

6,533

 

49,724

 

Increase (decrease) in cash and cash equivalents

 

5,175

 

(9,244

)

Balance, beginning of period

 

14,561

 

19,072

 

Balance, end of period

 

$

19,736

 

$

9,828

 

Supplemental cash flow disclosures:

 

 

 

 

 

Cash paid for income taxes

 

$

1,787

 

$

6,540

 

Cash paid for interest

 

$

6,792

 

$

6,613

 

 



 

GMS Inc.

Net Sales by Product Group

Three Months Ended July 31, 2017 and 2016

(in thousands of dollars)

 

 

 

Three Months Ended July 31,

 

 

 

2017

 

% of
Total

 

2016

 

% of
Total

 

Wallboard

 

$

284,657

 

44.3

%

$

251,296

 

45.7

%

Ceilings

 

99,710

 

15.6

%

86,349

 

15.8

%

Steel Framing

 

104,651

 

16.3

%

84,343

 

15.3

%

Other Products

 

153,139

 

23.8

%

127,812

 

23.2

%

Total Net Sales

 

$

642,157

 

 

 

$

549,800

 

 

 

 



 

GMS Inc.

Adjusted EBITDA

Three Months Ended July 31, 2017 and 2016

(in thousands of dollars)

 

 

 

Three Months Ended
July 31,

 

 

 

2017

 

2016

 

 

 

 

 

 

 

Net Income

 

$

15,343

 

$

9,163

 

Interest expense

 

7,500

 

7,577

 

Change in fair value of mandatorily redeemable shares

 

74

 

5,426

 

Interest income

 

(23

)

(43

)

Income tax expense

 

10,060

 

6,159

 

Depreciation expense

 

5,990

 

6,382

 

Amortization expense

 

10,355

 

9,413

 

EBITDA

 

$

49,299

 

$

44,077

 

Stock appreciation rights(a)

 

$

590

 

$

(92

)

Redeemable noncontrolling interest(b)

 

866

 

292

 

Equity based compensation(c)

 

473

 

673

 

Severance and other permitted costs(d)

 

205

 

140

 

Transaction costs (acquisitions and other)(e)

 

159

 

654

 

(Gain) on sale or impairment of assets

 

(390

)

(198

)

Management fee to related party (f)

 

 

188

 

Effects of fair value adjustments to inventory(g)

 

 

164

 

Interest rate cap mark-to-market(h)

 

196

 

43

 

Secondary public offering costs(i)

 

631

 

 

Debt transaction costs(j)

 

723

 

 

EBITDA add-backs

 

3,453

 

1,864

 

Adjusted EBITDA

 

$

52,752

 

$

45,941

 

 


(a)                                 Represents non-cash compensation expenses related to stock appreciation rights agreements. For additional details regarding stock appreciation rights, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies—Subsidiary Equity-Based Deferred Compensation Arrangements” included in our Annual Report on Form 10-K for the year ended April 30, 2017.

(b)                                 Represents non-cash compensation expense related to changes in the redemption values of noncontrolling interests. For additional details regarding redeemable noncontrolling interests of our subsidiaries, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies—Subsidiary Equity-Based Deferred Compensation Arrangements” included in our Annual Report on Form 10-K for the year ended April 30, 2017.

(c)                                  Represents non-cash equity-based compensation expense related to the issuance of stock options.

(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 our IPO and acquisitions (other than the Acquisition) paid to third party advisors.

(f)                                   Represents management fees paid by us to AEA. Following our IPO, our AEA no longer receives management fees from us.

(g)                                  Represents the non-cash cost of sales impact of purchase accounting adjustments to increase inventory to its estimated fair value.

(h)                                 Represents the mark-to-market adjustments for the interest rate cap.

(i)                                     Represents one-time costs related to our secondary offering paid to third party advisors.

(j)                                    Represents expenses paid to third party advisors related to debt refinancing activities.

 



 

GMS Inc.

Reconciliation of Net Income to Adjusted Net Income

Three Months Ended July 31, 2017 and 2016

(in thousands of dollars, except for share and per share data)

 

 

 

Three Months Ended
July 31,

 

 

 

2017

 

2016

 

Income before taxes

 

$

25,403

 

$

15,322

 

EBITDA add-backs

 

3,453

 

1,864

 

Write-off of debt discount and deferred financing fees

 

74

 

5,426

 

Purchase accounting depreciation and amortization (1)

 

5,024

 

7,999

 

Adjusted pre-tax income

 

33,954

 

30,611

 

Adjusted income tax expense

 

14,227

 

12,826

 

Adjusted net income

 

$

19,727

 

$

17,785

 

Effective tax rate (2)

 

41.9

%

41.9

%

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

Basic

 

40,970,905

 

38,200,597

 

Diluted

 

42,171,806

 

38,602,378

 

Adjusted net income per share:

 

 

 

 

 

Basic

 

$

0.48

 

$

0.47

 

Diluted

 

$

0.47

 

$

0.46

 

 


(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. Full year projected amounts are $21.8 million and $15.6 million for FY18 and FY19, respectively.

(2)         Normalized effective tax rate excluding the impact of purchase accounting and certain other deferred tax amounts.

 

Contact Information:

 

Investor Relations:

ir@gms.com

678-353-2883

 

Media Relations:

marketing@gms.com

770-723-3378

 


(Back To Top)

Section 4: EX-99.2 (EX-99.2)

Exhibit 99.2

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GMS Quarterly Review Fiscal Q1 2018

 


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Safe Harbor and Basis of Presentation Forward-Looking Statement Safe Harbor - This presentation includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All of these forward-looking statements are based on estimates and assumptions made by our management that, although believed by us to be reasonable, are inherently uncertain. Examples of forward-looking statements include those related to net sales, gross profit, gross margins, capital expenditures and market share growth, as well as non-GAAP financial measures such as Adjusted EBITDA, the ratio of debt-to-Adjusted EBITDA, adjusted net income and base business sales, including any management expectations or outlook for fiscal 2018 and beyond. In addition, statements regarding potential acquisitions and future greenfield locations are forward-looking statements, as well as statements regarding the markets in which the Company operates and the potential for growth in the commercial, residential and repair and remodeling, or R&R, markets. Forward-looking statements involve risks and uncertainties, including, but not limited to, economic, competitive, governmental and technological factors outside of our control, that may cause our 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, margin, supply, and/or demand for products which we distribute; general economic and business conditions in the United States; 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; and other factors described in the "Risk Factors" section in our Annual Report on Form 10-K for the fiscal year ended April 30, 2017, and in our other periodic reports filed with the SEC. In addition, the statements in this presentation are made as of September 6, 2017. We undertake 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 our views as of any date subsequent to September 6, 2017. Use of Non-GAAP and Adjusted Financial Information - To supplement GAAP financial information, we use adjusted measures of operating results which are non-GAAP measures. This non-GAAP adjusted financial information is provided as additional information for investors. These adjusted results exclude certain costs, expenses, gains and losses, and we believe their exclusion can enhance an overall understanding of our past financial performance and also our prospects for the future. These adjustments to our GAAP results are made with the intent of providing both management and investors a more complete understanding of our operating performance by excluding non-recurring, infrequent or other non-cash charges that are not believed to be material to the ongoing performance of our business. The presentation of this additional information is not meant to be considered in isolation or as a substitute for GAAP measures of net income, diluted earnings per share or net cash provided by (used in) operating activities prepared in accordance with generally accepted accounting principles in the United States. 2

 


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GMS at a Glance GMS Overview Net Sales Breakdown (LTM FY18 Q1) (2) Wallboard 46% Ceilings 15% Steel Framing 16% Other 23% CAGR: 41.1% (3) ($ in millions, April FYE) #1 North American specialty distributor of interior construction products (1) More than 205 branches across 42 states 14.6% market share in wallboard 16.7% market share in ceilings Balanced mix of commercial new construction, commercial R&R, residential new construction and residential R&R Critical link between suppliers and highly fragmented customer base National scale drives purchasing advantages over peers while local expertise enhances service capabilities One-stop-shop for the interior contractor with broad product offering of 20,000+ SKUs Since the 2016 IPO, GMS has continued to execute on its strategy Increased market share in wallboard by ~160 bps Executed 8 acquisitions and opened 5 new greenfields Increased LTM Q1 18 net sales by 29.8% and Adj. EBITDA by 41.1% compared to FY16 Expanded Adj. EBITDA margins by 70 bps compared to FY16 Based on sales of wallboard and ceilings. Wallboard share based on LTM 6/30/17 volume. Ceilings share based on LTM 6/30/17 sales. Net sales do not reflect net sales attributable to acquired entities for any period prior to their respective dates of acquisition. Breakdown based on FY2017 Net Sales. FY2015, FY2016, FY2017 and 1Q18 LTM Adj. EBITDA includes approximately $8.1 million, $12.1 million, $10.0 million and $3.6 million, respectively, from entities acquired in FY2015, FY2016, FY2017 and 1Q18 LTM respectively, for the period prior to their respective dates of acquisition. However, Adj. EBITDA margin and the 5.25-year CAGR exclude the impact of the entities acquired for the period prior to their respective dates of acquisition. For a reconciliation of Adj. EBITDA to Net Income (loss), the most directly comparable GAAP measure, see Appendix. Adjusted EBITDA (3) 3 Net Sales (2) ($ in millions, April FYE) % Margin (3) 3.3% 5.0% 6.4% 6.7% 7.4% 8.1% 8.1% +480bps +360bps Residential ~40% Commercial ~60% $106 $138 $188 $195 $8 $12 $10 $4 $32 $57 $87 $114 $150 $198 $199 FY-12 FY-13 FY-14 FY-15 FY-16 FY-17 LTM Q118

 


GRAPHIC

Includes the wallboard volume from entities acquired in calendar 2014 assuming that the entities were acquired on January 1, 2014. Includes the wallboard volume from entities acquired in calendar 2015 assuming that the entities were acquired on January 1, 2015. Includes the wallboard volume from entities acquired in calendar 2016 assuming that the entities were acquired on January 1, 2016. Includes the wallboard volume from entities acquired in FY2016 and FY2017 assuming that the entities were acquired on April 1, 2016. Market Leader with Scale Advantages National Scale Combined With Local Expertise 4 Market Leader with Significant Scale Advantages – #1 North American Distributor of Wallboard and Ceilings Differentiated Service Model Drives Market Leadership Multiple Levers to Drive Above-Market Growth – Market Share, Greenfields, M&A, Operating Leverage Capitalizing on Large, Diverse End Markets Poised for Continued Growth Entrepreneurial Culture with Dedicated Employees and Experienced Leadership Driving Superior Execution GMS Wallboard Market Share ’10–’17 Q2 share gain: ~600 bps (1) (2) (3) (4) 8.6% 8.8% 9.4% 9.9% 11.1% 13.1% 14.3% 14.6% CY2010 CY2011 CY2012 CY2013 CY2014 CY2015 CY2016 LTM Q2 CY2017

 


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Q1 2018 Highlights Above-Market Growth Attractive Capital Structure Accretive Acquisitions Continued Profit Improvement Net sales increased 16.8% to a record $642.2 million Base business net sales up 7.8% Wallboard unit volume grew 11.8% to a record 914 million square feet Net income significantly increased 67.4% to $15.3 million, or EPS of $0.36 per share Gross profit increased 14.8% to $205.1 million Adjusted EBITDA grew 14.8% to $52.8 million In Q2 2018, acquired ASI Building Products, LLC, a leading provider of ceilings and other quality building products in Eastern Michigan Completed 8 acquisitions representing 18 branches since IPO (24 acquisitions representing 57 branches since FY2013) 2.9x leverage (net debt(1) / LTM PF Adjusted EBITDA(2)) as of July 31, 2017 Expanded First Lien Term Loan by $100 million, extended maturity to 2023, reduced the interest rate by 50 bps and used the net proceeds of $94 million to pay off the majority of the ABL Facility 5 Includes unamortized discount and deferred financing costs. Numbers may not add up due to rounding. PF Adjusted EBITDA includes the earnings of acquired entities from the beginning of the periods presented to the date of such acquisitions, as well as certain purchasing synergies and cost savings, as defined in and permitted by the ABL Facility and the First Lien Facility, and which isY2016, FY2017 and FY18 Q1 LTM PF Adj. EBITDA includes approximately $12.1 million, $9.5 million and $3.6 million, respectively, from entities acquired in FY2016, FY2017 and FY18 Q1 LTM, respectively, for the period prior to their respective dates of acquisition used in the calculation of certain baskets to covenants in the Company’s debt agreements, including in connection with the Company’s ability to incur additional indebtedness. For a reconciliation of PF Adjusted EBITDA to net income, the most directly comparable GAAP metric, see Appendix.

 


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Attractive Acquirer with Significant Consolidation Opportunity Acquisition Strategy Recent GMS Acquisitions Acquisition Rationale Industry Structure: Large, highly fragmented industry comprised of hundreds of competitors Similar business operations enable efficient integration Limited number of scaled players Acquisition Strategy: Criteria: leading capabilities in targeted new markets / increase existing network density / enhance strategic capabilities Fit GMS culture and platform Deliver scale benefits Attractive purchase price multiples Dedicated M&A team Pipeline: Significant portion of the market is comprised of local, independent competitors representing significant opportunity Maintain active dialogue with many potential targets One branch with LTM Sales of $46.8 million Strategic entrance into the greater Philadelphia metropolitan area Founded in 1994 Sept 1, 2016 Aug 29, 2016 Three branches with LTM Sales of $52.9 million Strategic entrance into south Florida Founded in 2008 and headquartered in Pompano, FL Three branches with LTM Sales of $26.7 million Expands existing operations in Arizona and Colorado Oct 3, 2016 Three branches with LTM Sales of $30.0 million Strategic entrance into south central Ohio Founded in 1996 and headquartered in Dayton, OH Quarter FY17 Q2 FY17 Q2 FY17 Q2 FY17 Q1 FY17 Q2 Oct 31, 2016 Three branches with LTM Sales of $27.0 million Nice geographic fit with FY16 Q3 MI acquisition Founded in 1965 and headquartered in Southfield, MI FY17 Q3 One branch with LTM sales of $12.3 million Strategic entrance into northeastern Indiana Founded in 1984 Dec 5, 2016 FY17 Q4 One branch with LTM sales of $11.7 million Expands existing presence in Hawaii Founded in 1974 Feb 1, 2017 July 5, 2016 6 FY18 Q1 August 1, 2017 Three branches with LTM sales of $24.5 million Expands existing presence in Michigan Founded in 1988

 


GRAPHIC

Profitable Sales Expansion in Fiscal Q1 2018 Gross Profit ($ mm) Fiscal Q1 2018 Gross Profit & Margin Adj. EBITDA ($ mm) Fiscal Q1 2018 Adjusted EBITDA (3) When calculating our “base business” results, we exclude any branches that were acquired in the current fiscal year, prior fiscal year and three months prior to the start of the prior fiscal year. Base Business YOY growth adjusted for the difference in shipping days. For a reconciliation of Adj. EBITDA to Net Income (loss), the most directly comparable GAAP metric, see Appendix. Margin (3): 8.4% 8.2% 7.8% organic sales growth including +10% in ceilings, steel framing and other products Adjusted EBITDA grew 14.8% to $52.8 million reflecting stronger sales activity Adjusted EBITDA margins decreased 20 basis points, as expected, due to temporary gross margin pressure, which was partially offset by improved operating leverage Commentary +14.8% YOY Fiscal Q1 2018 Performance 7 $45.9 $52.8 $0 $10 $20 $30 $40 $50 $60 Fiscal Q1 2017 Fiscal Q1 2018 ($ in millions) Fiscal Q1 YOY FY17 FY18 Growth Actual Per Day (2) WB Volume (MSF) 817 914 11.8% 3.7% 2.1% WB Price ($ / MSF) 307 $ 311 $ 1.3% Net Sales Wallboard 251.3 $ 284.7 $ 13.3% 4.9% 3.3% Ceilings 86.3 99.7 15.5% 10.6% 8.9% Steel Framing 84.3 104.7 24.1% 10.0% 8.3% Other Products 127.8 153.1 19.8% 10.0% 8.3% Total Net Sales 549.8 $ 642.2 $ 16.8% 7.8% 6.1% Shipping Days 63 64 Base Business (1)

 


GRAPHIC

Attractive Capital Structure Leverage of 2.9x Net Debt / LTM Pro Forma Adj. EBITDA as of 7/31/17, down from 3.4x Net Debt / LTM Pro Forma Adj. EBITDA as of 7/31/16 Substantial liquidity, with $20 million of cash and an additional $320 million undrawn on the ABL facility, as of 7/31/17 Moody’s and Standard & Poor’s current rating of B1/B+ (Moody’s upgraded GMS to B1 in July) In Q1 2018, expanded First Lien Term Loan by another $100 million, extended maturity to 2023, reduced the rate by 50 bps and used the net proceeds to pay down ABL facility Commentary Leverage Summary Net Debt / PF Adjusted EBITDA Includes unamortized discount and deferred financing costs. Numbers may not add up due to rounding. PF Adjusted EBITDA includes the earnings of acquired entities from the beginning of the periods presented to the date of such acquisitions, as well as certain purchasing synergies and cost savings, as defined in and permitted by the ABL Facility and the First Lien Facility, and which is used in the calculation of certain baskets to covenants in the Company’s debt agreements, including in connection with the Company’s ability to incur additional indebtedness. FY2016, FY2017 and FY18 Q1 LTM PF Adj. EBITDA includes approximately $12.1 million, $9.5 million and $3.6 million, respectively, from entities acquired in FY2016, FY2017 and FY18 Q1 LTM, respectively, for the period prior to their respective dates of acquisition.. For a reconciliation of PF Adjusted EBITDA to net income, the most directly comparable GAAP metric, see Appendix. 8 4.9x 4.3x 2.9x 2.9x 4/30/15 4/30/16 4/30/17 LTM 7/31/17 ($ mm) 4/30/15 4/30/16 4/30/17 7/31/17 FYE FYE FYE LTM Cash and cash equivalents $12 $19 $15 $20 Asset-Based Revolver 17 102 103 13 First Lien Term Loan 386 382 478 576 Second Lien Term Loan 160 160 - - Capital Lease and Other 10 14 14 13 Total Debt $573 $658 $595 603 PF Adj. EBITDA (1) $114 $150 $198 $199 Total Debt / PF Adj. EBITDA 5.0x 4.4x 3.0x 3.0x Net Debt / PF Adj. EBITDA 4.9x 4.3x 2.9x 2.9x

 


GRAPHIC

Leading Specialty Distributor Poised for Continued Growth Market Leader with Significant Scale Advantages – #1 North American Distributor of Wallboard and Ceilings Differentiated Service Model Drives Market Leadership Multiple Levers to Drive Above-Market Growth – Market Share, Greenfields, M&A, Operating Leverage Capitalizing on Large, Diverse End Markets Poised for Continued Growth Entrepreneurial Culture with Dedicated Employees and Experienced Leadership Driving Superior Execution 9

 


GRAPHIC

Appendix

 


GRAPHIC

Summary Quarterly Financials Note: Fiscal year end April 30. 11 (In millions, except per share data) 1Q17 2Q17 3Q17 4Q17 FY17 1Q18 (Unaudited) Wallboard Volume (MSF) 818 891 842 906 3,458 914 Wallboard Price ($ / '000 Sq. Ft.) 307 $ 303 $ 303 $ 311 $ 306 $ 311 $ Wallboard 251 $ 270 $ 255 $ 282 $ 1,058 $ 285 $ Ceilings 86 85 82 87 341 100 Steel framing 84 96 94 100 374 105 Other products 128 140 132 145 546 153 Net sales 550 592 563 615 2,319 642 Cost of sales 371 399 377 414 1,561 437 Gross profit 179 193 186 201 759 205 Gross margin 32.5% 32.6% 33.0% 32.7% 32.7% 31.9% Operating expenses: Selling, general and administrative expenses 135 150 147 153 585 156 Depreciation and amortization 16 17 18 18 69 16 Total operating expenses 151 167 166 171 654 172 Operating income (loss) 28 26 20 30 104 33 Other (expense) income: Interest expense (8) (7) (7) (7) (29) (8) Write-off of discount and deferred financing costs (5) (1) (0) - (7) (0) Other income, net 1 0 1 2 4 0 Total other (expense), net (12) (8) (7) (6) (33) (7) Income (loss) from continuing operations, before tax 15 18 14 25 72 25 Income tax expense (benefit) 6 1 5 10 23 10 Net income (loss) 9 $ 17 $ 8 $ 14 $ 49 $ 15 Weighted average shares outstanding: Basic 38,201 40,943 40,943 40,956 40,260 40,971 Diluted 38,602 41,320 41,578 41,759 41,070 42,172 Net income (loss) per share: Basic 0.24 $ 0.42 $ 0.20 $ 0.35 $ 1.21 $ 0.37 $ Diluted 0.24 $ 0.42 $ 0.20 $ 0.34 $ 1.19 $ 0.36 $

 


GRAPHIC

Quarterly Net Sales Note: Fiscal year end April 30. When calculating our “base business” results, we exclude any branches that were acquired in the current fiscal year, prior fiscal year and three months prior to the start of the prior fiscal year. FY17 quarterly sales from acquisitions have been updated in accordance with our presentation of base business for the FY18 vs. FY17 comparative period. Total business days for FY18 are 254. Includes greenfields, which we consider extensions of “base business.” FY17 acquired branches have been updated to reflect the number of acquired branches that are included within the sales from acquisitions FY18 Business Days 1Q18 64 days (+1) 2Q18 65 days 3Q18 62 days 4Q18 63 days FY18 254 days (+1) 12 ($ in millions) 1Q17 2Q17 3Q17 4Q17 FY17 1Q18 (Unaudited) Base Business (1) (2) 544 $ 561 $ 511 $ 558 $ 2,173 $ 586 $ Acquisitions (2) 6 31 52 57 146 56 Total Net Sales 550 $ 592 $ 563 $ 615 $ 2,319 $ 642 $ Business Days (3) 63 65 62 63 253 64 Net Sales by Business Day 8.7 $ 9.1 $ 9.1 $ 9.8 $ 9.2 $ 10.0 $ Base Business Branches (4) (5) 185 188 188 189 189 190 Acquired Branches (5) 5 15 16 16 16 16 Total Branches 190 203 204 205 205 206

 


GRAPHIC

Quarterly Net Income to Adjusted EBITDA Adjusted EBITDA Reconciliation Commentary Represents non-cash compensation expenses related to stock appreciation rights agreements Represents non-cash compensation expense related to changes in the fair values of noncontrolling interests Represents non-cash equity-based compensation expense related to the issuance of stock options Represents severance and other costs permitted in calculations under the ABL Facility and the First Lien Facility Represents one-time costs related to our initial public offering and acquisitions (including the Acquisition) paid to third party advisors, including fees to financial advisors, accountants, attorneys and other professionals as well as costs related to the retirement of corporate stock appreciation rights. Also included are one-time bonuses paid to certain employees in connection with the Acquisition Represents management fees paid to AEA, which were discontinued after the IPO. 1Q17 includes fees paid for the month of May Non-cash cost of sales impact of purchase accounting adjustments to increase inventory to its estimated fair value Mark-to-market adjustments for certain financial instruments Represents costs paid to third party advisors related to the secondary public offerings of our common stock Represents costs paid to third party advisors related to debt refinancing activities. 13 ( $ in 000s) 1Q17 2Q17 3Q17 4Q17 FY17 1Q18 (Unaudited) Net Income (Loss) 9,163 $ 17,224 $ 8,227 $ 14,272 $ 48,886 $ 15,343 $ Add: Interest Expense 7,577 7,154 7,431 7,198 29,360 7,500 Add: Write off of debt discount and deferred financing fees 5,426 1,466 211 - 7,103 74 Less: Interest Income (43) (35) (23) (51) (152) (23) Add: Income Tax Expense 6,159 710 5,363 10,422 22,654 10,060 Add: Depreciation Expense 6,382 6,548 6,465 6,170 25,565 5,990 Add: Amortization Expense 9,413 10,820 11,851 11,591 43,675 10,355 EBITDA 44,077 $ 43,887 $ 39,525 $ 49,602 $ 177,091 $ 49,299 $ Adjustments Stock appreciation rights expense (benefit) (A) (92) (144) (498) 882 148 590 Redeemable noncontrolling interests (B) 292 2,531 256 457 3,536 866 Equity-based compensation (C) 673 686 622 553 2,534 473 Severance and other permitted costs (D) 140 118 57 (472) (157) 205 Transaction costs (acquisition and other) (E) 654 1,827 566 (798) 2,249 159 Loss (gain) on disposal of assets (198) 68 (114) (94) (338) (390) AEA management fee (F) 188 - - - 188 - Effects of fair value adjustments to inventory (G) 164 457 155 170 946 - Interest rate swap / cap mark-to-market (H) 43 89 109 141 382 196 Secondary Public Offering (I) - - - 1,385 1,385 631 Debt Related Costs (J) - - - 265 265 723 Total Add-Backs 1,864 $ 5,632 $ 1,153 $ 2,489 $ 11,138 $ 3,453 $ Adjusted EBITDA 45,941 $ 49,519 $ 40,678 $ 52,091 $ 188,229 $ 52,752 $

 


GRAPHIC

LTM Net Income to Pro Forma Adjusted EBITDA Pro Forma Adjusted EBITDA Reconciliation Commentary 14 Represents non-cash compensation expenses related to stock appreciation rights agreements Represents non-cash compensation expense related to changes in the fair values of noncontrolling interests Represents non-cash equity-based compensation expense related to the issuance of stock options Represents non-recurring expenses related specifically to the AEA acquisition of GMS Represents severance and other costs permitted in calculations under the ABL Facility and the First Lien Facility Represents one-time costs related to our initial public offering and acquisitions (including the Acquisition) paid to third party advisors, including fees to financial advisors, accountants, attorneys and other professionals as well as costs related to the retirement of corporate stock appreciation rights. Also included are one-time bonuses paid to certain employees in connection with the Acquisition Represents management fees paid to AEA, which were discontinued after the IPO. Non-cash cost of sales impact of purchase accounting adjustments to increase inventory to its estimated fair value Represents costs paid to third party advisors related to the secondary public offerings of our common stock Mark-to-market adjustments for certain financial instruments Represents costs paid to third party advisors related to debt refinancing activities. Pro forma impact of earnings from acquisitions from the beginning of the LTM period to the date of acquisition ( $ in 000s) 1Q18 LTM 2017 2016 2015 (Unaudited) Net Income (Loss) 55,066 $ 48,886 $ $ 12,564 $ (11,697) Add: Interest Expense 29,283 29,360 37,418 36,396 Add: Write off of debt discount and deferred financing fees 1,751 7,103 - - Less: Interest Income (132) (152) (928) (1,010) Add: Income Tax Expense 26,555 22,654 12,584 (6,626) Add: Depreciation Expense 25,173 25,565 26,667 32,208 Add: Amortization Expense 44,617 43,675 37,548 31,957 EBITDA 182,313 $ 177,091 $ $ 125,853 $ 81,228 Adjustments Stock appreciation rights expense (benefit) (A) 830 148 1,988 2,268 Redeemable noncontrolling interests (B) 4,110 3,536 880 1,859 Equity-based compensation (C) 2,334 2,534 2,699 6,455 AEA transaction related costs (D) - - - 837 Severance and other permitted costs (E) (92) (157) 379 413 Transaction costs (acquisition and other) (F) 1,754 2,249 3,751 1,891 (Gain) on disposal of assets (530) (338) (645) 1,089 AEA management fee (G) - 188 2,250 2,250 Effects of fair value adjustments to inventory (H) 782 946 1,009 5,012 Secondary Public Offering (I) 2,016 1,385 Interest rate swap / cap mark-to-market (J) 535 382 19 2,494 Debt Related Costs (K) 988 265 Total Add-Backs 12,727 $ 11,138 $ 12,330 $ 24,568 $ Adjusted EBITDA 195,040 $ 188,229 $ 138,183 $ 105,796 $ Contributions from acquisitions (L) 3,565 9,500 12,093 8,064 Pro Forma Adjusted EBITDA 198,605 $ 197,729 $ 150,276 $ 113,860 $

 


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Net Income to Adjusted EBITDA Adjusted EBITDA Reconciliation Commentary Represents compensation paid to certain executives who were majority owners prior to the AEA acquisition of GMS. Following the acquisition, these executives’ compensation agreements were amended and, going forward, GMS does not anticipate additional adjustments Represents non-cash compensation expenses related to stock appreciation rights agreements Represents non-cash compensation expense related to changes in the fair values of noncontrolling interests Represents non-cash equity-based compensation expense related to the issuance of stock options Represents non-recurring expenses related specifically to the AEA acquisition of GMS Represents severance and other costs permitted in calculations under the ABL Facility and the First Lien Facility Represents one-time costs related to our initial public offering and acquisitions (including the Acquisition) paid to third party advisors, including fees to financial advisors, accountants, attorneys and other professionals as well as costs related to the retirement of corporate stock appreciation rights. Also included are one-time bonuses paid to certain employees in connection with the Acquisition Represents management fees paid to AEA, which were discontinued after the IPO. Non-cash cost of sales impact of purchase accounting adjustments to increase inventory to its estimated fair value Mark-to-market adjustments for certain financial instruments Represents costs incurred in connection with withdrawal from a multi-employer pension plan 15 FY14 is comprised of 11 month period (predecessor) and one month period (successor) ($ in 000s) (Unaudited) 2015 2014 (1) 2013 2012 Net income (loss) $ (11,697) $(219,814) $(182,627) $ (7,830) Income tax expense (benefit) (6,626) (240) 11,534 2,658 Discountinued operations, net of tax - - - (362) Interest income (1,010) (922) (798) (885) Interest expense 36,396 7,180 4,413 2,966 Change in fair value of mandatorily redeemable shares - 200,004 198,212 8,952 Depreciation expense 32,208 16,042 11,665 7,840 Amortization expense 31,957 2,556 72 732 EBITDA $ 81,228 $ 4,806 $ 42,471 $ 14,071 Adjustments Executive compensation (A) $ - $ 2,447 $ 13,420 $ 8,266 Stock appreciation rights expense (benefit) (B) 2,268 1,368 1,061 253 Redeemable noncontrolling interests (C) 1,859 3,028 2,195 407 Equity-based compensation (D) 6,455 28 82 (154) AEA transaction related costs (E) 837 67,964 230 133 Severance costs and other permitted costs (F) 413 - (30) (205) Transaction costs (acquisition and other) (G) 1,891 - - - Loss (gain) on disposal of assets 1,089 (864) (2,231) (556) AEA management fee (H) 2,250 188 - - Effects of fair value adjustments to inventory (I) 5,012 8,289 - - Interest rate swap / cap mark-to-market (J) 2,494 (192) 313 - Pension withdrawal (K) - - - 10,179 Total Add-Backs 24,568 82,256 15,040 18,323 Adjusted EBITDA $105,796 $ 87,062 $ 57,511 $ 32,394

 


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Quarterly Cash Flows 16 ($ in millions) (Unaudited) 1Q17 2Q17 3Q17 4Q17 FY17 1Q18 Net income (loss) $ 9.2 $ 17.2 $ 8.2 $ 14.3 $ 48.9 15.3 Non-cash changes (5.0) 11.5 23.8 30.1 60.4 (2.8) Changes in primary working capital components: Trade accounts and notes receivable (19.4) 0.0 16.1 (17.2) (20.4) (12.9) Inventories (17.1) 3.7 (12.3) 7.3 (18.4) (3.3) Accounts payable 1.7 (1.1) (0.3) (4.1) (3.8) 9.5 Cash provided by (used in) operating activities (30.6) 31.3 35.6 30.4 66.7 5.9 Purchases of property and equipment (2.6) (2.4) (1.9) (4.2) (11.1) (5.5) Proceeds from sale of assets 0.8 0.5 1.9 0.8 4.0 1.4 Purchase of financial instruments - - - - - - Acquisitions of businesses, net of cash acquired (26.6) (113.4) (6.0) (4.5) (150.4) (3.1) Cash (used in) provided by investing activities (28.3) (115.3) (6.0) (7.9) (157.5) (7.2) Cash provided by (used in) financing activities 49.7 90.5 (35.4) (18.5) 86.3 6.6 Increase (decrease) in cash and cash equivalents (9.2) 6.6 (5.8) 4.0 (4.5) 5.2 Balance, beginning of period 19.1 9.8 16.4 10.6 19.1 14.6 Balance, end of period $ 9.8 $ 16.4 $ 10.6 $ 14.6 $ 14.6 19.8 Supplemental cash flow disclosures: Cash paid for income taxes $ 6.5 $ 24.3 $ 9.0 $ 9.3 $ 49.2 $ 1.8 Cash paid for interest $ 6.6 $ 6.6 $ 6.9 $ 6.4 $ 26.4 $ 6.8 Historical

 


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SG&A Adjustments Table GAAP SG&A Reconciliation Commentary Represents non-cash compensation expenses related to stock appreciation rights agreements Represents non-cash compensation expense related to changes in the fair values of noncontrolling interests Represents non-cash equity-based compensation expense related to the issuance of stock options Represents severance and other costs permitted in calculations under the ABL Facility and the First Lien Facility Represents one-time costs related to our initial public offering and acquisitions (including the Acquisition) paid to third party advisors, including fees to financial advisors, accountants, attorneys and other professionals as well as costs related to the retirement of corporate stock appreciation rights. Also included are one-time bonuses paid to certain employees in connection with the Acquisition Represents management fees paid to AEA, which were discontinued after the IPO. 1Q17 includes fees paid for the month of May Represents costs paid to third party advisors related to the secondary public offerings of our common stock Represents costs paid to third party advisors related to debt refinancing activities. 17 (Unaudited) 1Q17 2Q17 3Q17 4Q17 FY2017 1Q18 ($ in millions) SG&A - Reported 135.1 $ 149.8 $ 147.3 $ 153.0 $ 585.1 $ 156.1 $ Adjustments Stock appreciation rights expense (benefit) (A) 0.1 0.1 0.5 (0.9) (0.1) (0.6) Redeemable noncontrolling interests (B) (0.3) (2.5) (0.3) (0.5) (3.5) (0.9) Equity-based compensation (C) (0.7) (0.7) (0.6) (0.6) (2.5) (0.5) Severance and other permitted costs (D) (0.1) (0.1) (0.1) 0.5 0.2 (0.2) Transaction costs (acquisition and other) (E) (0.7) (1.8) (0.6) 0.8 (2.2) (0.2) Loss (gain) on disposal of assets 0.2 (0.1) 0.1 0.1 0.3 0.4 AEA management fee (F) (0.2) - - - (0.2) - Secondary Public Offering (G) - - - (1.4) (1.4) (0.6) Debt Related Costs (H) - - - (0.3) (0.3) (0.7) SG&A - Adjusted 133.4 $ 144.7 $ 146.4 $ 150.8 $ 575.3 $ 152.8 $

 


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