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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 29, 2019

 


 

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))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchanged on which registered

Common Stock, par value $0.01 per share

 

GMS

 

New York Stock Exchange

 

Indicate by check mark whether the registrant is an emerging growth company 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 August 29, 2019, 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, 2019.

 

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 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 August 29, 2019 and may be used by GMS in various other presentations to investors on or after August 29, 2019.

 

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

 

Description

99.1*

 

Press release, dated August 29, 2019.

99.2*

 

GMS Inc. presentation to investors.

 


*Furnished herewith

 

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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: August 29, 2019

By:

/s/ Craig D. Apolinsky

 

 

Name:

Craig D. Apolinsky

 

 

Title:

General Counsel and Corporate Secretary

 

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Section 2: EX-99.1 (EX-99.1)

Exhibit 99.1

 

 

GMS REPORTS FIRST QUARTER FISCAL 2020 RESULTS

Q1 Net Sales of $847.2 million up 8.9%; Organic Net Sales up 3.4%

Q1 Reported Net Income of $24.8 Million, or $0.59 per Diluted Share

Q1 Adjusted Net Income of $37.5 Million, or $0.89 per Diluted Share

Q1 Adjusted EBITDA of $83.6 million or 9.9% of net sales

 

Tucker, Georgia, August 29, 2019. GMS Inc. (NYSE:GMS), a leading North American specialty distributor of interior building products, today reported financial results for the first quarter of fiscal 2020 ended July 31, 2019.

 

First Quarter Fiscal 2020 Highlights

 

·                  Net sales of $847.2 million increased 8.9% from $778.1 million in the first quarter of the prior fiscal year. Organic net sales (as described below) increased 3.4% year over year.

 

·                  Reported net income of $24.8 million, or $0.59 per diluted share, compared to $8.7 million, or $0.20 per diluted share, in the first quarter of the prior fiscal year.

 

·                  Adjusted net income of $37.5 million, or $0.89 per diluted share, compared to $35.2 million, or $0.82 per diluted share, in the first quarter of the prior fiscal year.

 

·                  Adjusted EBITDA of $83.6 million, or 9.9% of net sales compared to Adjusted EBITDA of $75.3 million, or 9.7% of net sales, in the first quarter of the prior fiscal year.

 

·                  The Company completed one business acquisition and two greenfield openings during the first quarter of fiscal 2020.

 

“We are off to a strong start to fiscal 2020 as we remain focused on leveraging the foundation of our business and positioning GMS for long-term growth and profitability,” said John C. Turner, Jr., President and Chief Executive Officer. “Our team achieved record net sales results in the quarter, with organic net sales growth driven by strong sales in the United States, where we continue to see healthy end markets with solid demand, partially offset by continued softness in the Canadian single-family housing market.  We also generated greater profitability with higher year-over-year net income and a 20 basis point improvement in Adjusted EBITDA margin.”

 

Mr. Turner continued, “GMS has a strong market position through our extensive North American network coupled with local expertise and teams focused on superior service delivery.  Moving forward, we are committed to advancing the Company’s next phase of growth and success.  We will seek to capitalize on the significant organic growth opportunities across our existing platform and continue to enhance and expand our geographic footprint through greenfield operations and accretive acquisitions balanced with our debt reduction priorities. At the same time, we will continue to leverage our scale and employ best practices to deliver further profit improvement.”

 

First Quarter Fiscal 2020 Results

 

Net sales for the first quarter of fiscal 2020 of $847.2 million were up 8.9%, or 3.4% on an organic basis, compared to $778.1 million for the first quarter of the prior fiscal year.

 

·                  Wallboard sales of $341.6 million increased 7.5% (3.5% on an organic basis) compared to the first quarter of fiscal 2019, driven by higher organic volumes and benefits from acquisitions, partially offset by a slight decrease in price.

 

·                  Ceilings sales of $129.1 million increased 11.4% (8.3% on an organic basis) compared to the first quarter of fiscal 2019, primarily due to higher organic volumes, the positive impact of acquisitions and higher pricing.

 

1


 

·                  Steel framing sales of $131.8 million increased 2.1% (down 0.8% on an organic basis) compared to the first quarter of fiscal 2019, driven by higher organic volumes and the positive impact of acquisitions, partially offset by lower pricing and mix.

 

·                  Other product sales of $244.6 million increased 13.6% (3.1% on an organic basis) compared to the first quarter of fiscal 2019, as a result of the positive impact of acquisitions, as well as higher organic growth.

 

Gross profit of $273.7 million increased 11.8% from $244.8 million in the first quarter of fiscal 2019, as a result of higher sales, both organically and including the positive impact of acquisitions, as well as $4.1 million of non-cash purchase accounting adjustments recorded in the prior year related to the Titan acquisition. Gross margin of 32.3% increased 80 basis points from 31.5% a year ago primarily due to net favorable price-cost dynamics, Titan purchasing synergies, and the prior year non-cash purchase accounting adjustments.

 

Selling, general and administrative (SG&A) expense as a percentage of net sales was 23.0% for the quarter compared to 23.8% in the first quarter of fiscal 2019.  Adjusted SG&A expense as a percentage of net sales was 22.6% compared to 22.4% in the prior year quarter. The 20 basis point increase in adjusted SG&A was the result of investments in business initiatives, reduced operating leverage in Canada and inflationary cost pressures including those resulting from adverse weather conditions.  These impacts were partially offset by increased cost efficiencies resulting from the Company’s cost reduction initiatives.

 

Net income of $24.8 million, or $0.59 per diluted share, compared to $8.7 million, or $0.20 per diluted share, in the first quarter of fiscal 2019.  Adjusted net income of $37.5 million, or $0.89 per diluted share, compared to $35.2 million, or $0.82 per diluted share, in the first quarter of fiscal 2019.  Adjusted EBITDA of $83.6 million increased 11.0% year over year and represented an Adjusted EBITDA margin of 9.9%.

 

Balance Sheet and Expansion Activity

 

As of July 31, 2019, the Company had cash of $24.1 million and total debt of $1.16 billion, compared to cash of $36.9 million and total debt of $1.30 billion, as of July 31, 2018. Net leverage was 3.7 times at the end of the first quarter of fiscal 2020 compared to 4.2 times at the end of the first quarter of fiscal 2019.

 

During the first quarter of fiscal 2020, the Company completed the previously-announced acquisition of Hart Acoustical & Drywall Supply in South Texas with two locations in San Antonio, TX and one location in San Feria, TX.  The Company also opened two greenfield locations in Manchester, NH and Wichita Falls, TX.

 

Organic Net Sales Growth Calculation and Adoption of Lease Standard

 

At the beginning of fiscal 2020, the Company modified its calculation of organic, or base business, net sales growth.  When calculating organic net sales growth, the Company now excludes net sales of acquired businesses until the first anniversary of the acquisition date.  Previously, the Company excluded net sales of businesses acquired in the current fiscal year, the prior fiscal year and three months prior to the start of the prior fiscal year.  In addition, the Company excludes the impact of foreign currency translation in its calculation of organic net sales growth.  Further information, including a presentation of prior years’ results under the new methodology, can be found in the Company’s earnings supplement furnished today on Form 8-K and posted on the Company’s website.

 

At the beginning of fiscal 2020, the Company also adopted new authoritative guidance issued by the FASB on accounting for leases. The adoption resulted in recording operating lease right-of-use assets and operating lease liabilities on the Company’s Consolidated Balance Sheet of $118.8 million. The Company also reclassed deferred rent of $4.8 million from liabilities into its operating lease right-of-use assets.

 

Conference Call and Webcast

 

GMS will host a conference call and webcast to discuss its results for the first quarter ended July 31, 2019 and other information related to its business at 8:30 a.m. Eastern Time on August 29, 2019. 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 29, 2019 and can be accessed at 844-512-2921 (domestic) or 412-317-6671 (international) and entering the pass code 13693769.

 

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About GMS Inc.

 

Founded in 1971, GMS operates a network of more than 250 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, free cash flow, Adjusted SG&A, Adjusted EBITDA and Adjusted EBITDA margin, which are not recognized financial measures under GAAP. GMS believes that Adjusted net income, free cash flow, Adjusted SG&A, Adjusted EBITDA and Adjusted EBITDA margin assist investors and analysts in comparing its operating performance across reporting periods on a consistent basis by excluding items that the Company does not believe are indicative of its core operating performance.  The Company’s management believes Adjusted net income, Adjusted SG&A, free cash flow, Adjusted EBITDA and Adjusted EBITDA margin are helpful in highlighting trends in its operating results, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which the Company operates and capital investments.  In addition, the Company utilizes Adjusted EBITDA in certain calculations 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, Adjusted SG&A and Adjusted EBITDA, you should be aware that in the future, the Company may incur expenses similar to the adjustments in the presentation of Adjusted net income, Adjusted SG&A and Adjusted EBITDA.  The Company’s presentation of Adjusted net income, Adjusted SG&A, Adjusted SG&A margin, Adjusted EBITDA and Adjusted EBITDA margin should not be construed as an inference that its future results will be unaffected by unusual or non-recurring items. In addition, Adjusted net income, free cash flow, Adjusted SG&A and Adjusted EBITDA may not be comparable to similarly titled measures used by other companies in GMS’s industry or across different industries.  Please see the tables at the end of this release for a reconciliation of Adjusted EBITDA, free cash flow, Adjusted SG&A and Adjusted net income to the most directly comparable GAAP financial measures.

 

3


 

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 and the economy generally and statements about growth potential across the Company’s business and the ability to deliver growth and value creation 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, those described in the “Risk Factors” section in the Company’s most recent Annual Report on Form 10-K, and in its other periodic reports filed with the SEC.  In addition, the statements in this release are made as of August 29, 2019.  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 29, 2019.

 

Contact Information:

 

Investors:

Leslie H. Kratcoski

[email protected]

770-723-3306

 

Media:

[email protected]

770-723-3378

 

4


 

GMS Inc.

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except per share data)

 

 

 

Three Months Ended

 

 

 

July 31, 

 

 

 

2019

 

2018

 

Net sales

 

$

847,176

 

$

778,144

 

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

 

573,522

 

533,328

 

Gross profit

 

273,654

 

244,816

 

Operating expenses:

 

 

 

 

 

Selling, general and administrative

 

194,631

 

185,435

 

Depreciation and amortization

 

29,275

 

26,322

 

Total operating expenses

 

223,906

 

211,757

 

Operating income

 

49,748

 

33,059

 

Other (expense) income:

 

 

 

 

 

Interest expense

 

(18,277

)

(16,188

)

Change in fair value of financial instruments

 

 

(6,019

)

Other income, net

 

939

 

634

 

Total other expense, net

 

(17,338

)

(21,573

)

Income before taxes

 

32,410

 

11,486

 

Provision for income taxes

 

7,590

 

2,836

 

Net income

 

$

24,820

 

$

8,650

 

Weighted average common shares outstanding:

 

 

 

 

 

Basic

 

41,001

 

41,094

 

Diluted

 

41,615

 

42,074

 

Net income per common share(1):

 

 

 

 

 

Basic

 

$

0.60

 

$

0.21

 

Diluted

 

$

0.59

 

$

0.20

 

 


(1) The following table sets forth the computation of basic and diluted earnings per share of common stock for periods presented:

 

 

 

Three Months Ended

 

 

 

July 31, 

 

 

 

2019

 

2018

 

 

 

(in thousands, except per share data)

 

Net income

 

$

24,820

 

$

8,650

 

Less: Net income allocated to participating securities

 

319

 

156

 

Net income attributable to common stockholders

 

$

24,501

 

$

8,494

 

Basic earnings per common share:

 

 

 

 

 

Basic weighted average common shares outstanding

 

41,001

 

41,094

 

Basic earnings per common share

 

$

0.60

 

$

0.21

 

Diluted earnings per common share:

 

 

 

 

 

Basic weighted average common shares outstanding

 

41,001

 

41,094

 

Add: Common Stock Equivalents

 

614

 

980

 

Diluted weighted average common shares outstanding

 

41,615

 

42,074

 

Diluted earnings per common share

 

$

0.59

 

$

0.20

 

 

5


 

GMS Inc.

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except per share data)

 

 

 

July 31,

 

April 30,

 

 

 

2019

 

2019

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

24,123

 

$

47,338

 

Trade accounts and notes receivable, net of allowances of $6,683 and $6,432, respectively

 

473,411

 

445,771

 

Inventories, net

 

295,553

 

290,829

 

Prepaid expenses and other current assets

 

17,925

 

18,368

 

Total current assets

 

811,012

 

802,306

 

Property and equipment, net of accumulated depreciation of $132,815 and $123,583, respectively

 

287,535

 

282,349

 

Operating lease right-of-use assets

 

111,213

 

 

Goodwill

 

622,032

 

617,327

 

Intangible assets, net

 

419,250

 

429,313

 

Deferred income taxes

 

7,410

 

4,676

 

Other assets

 

15,942

 

13,583

 

Total assets

 

$

2,274,394

 

$

2,149,554

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

164,794

 

$

173,751

 

Accrued compensation and employee benefits

 

36,606

 

62,858

 

Other accrued expenses and current liabilities

 

70,669

 

79,848

 

Current portion of long-term debt

 

49,308

 

42,118

 

Current portion of operating lease liabilities

 

32,622

 

 

Total current liabilities

 

353,999

 

358,575

 

Non-current liabilities:

 

 

 

 

 

Long-term debt, less current portion

 

1,111,697

 

1,099,077

 

Long-term operating lease liabilities

 

83,384

 

 

Deferred income taxes, net

 

9,647

 

10,226

 

Other liabilities

 

45,191

 

41,571

 

Liabilities to noncontrolling interest holders, less current portion

 

8,181

 

10,929

 

Total liabilities

 

1,612,099

 

1,520,378

 

Commitments and contingencies

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Common stock, par value $0.01 per share, 500,000 shares authorized; 41,589 and 40,375 shares issued and outstanding as of July 31, 2019 and April 30, 2019, respectively

 

416

 

404

 

Preferred stock, par value $0.01 per share, 50,000 shares authorized; 0 shares issued and outstanding as of July 31, 2019 and April 30, 2019

 

 

 

Exchangeable shares

 

 

29,639

 

Additional paid-in capital

 

512,244

 

480,113

 

Retained earnings

 

170,414

 

145,594

 

Accumulated other comprehensive loss

 

(20,779

)

(26,574

)

Total stockholders’ equity

 

662,295

 

629,176

 

Total liabilities and stockholders’ equity

 

$

2,274,394

 

$

2,149,554

 

 

6


 

GMS Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

 

 

 

Three Months Ended

 

 

 

July 31,

 

 

 

2019

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

24,820

 

$

8,650

 

Adjustments to reconcile net income to net cash used in operating activities:

 

 

 

 

 

Depreciation and amortization

 

29,275

 

26,322

 

Write-off and amortization of debt discount and debt issuance costs

 

835

 

825

 

Provision for losses on accounts and notes receivable

 

657

 

148

 

Provision for obsolescence of inventory

 

119

 

(22

)

Effects of fair value adjustments to inventory

 

151

 

4,129

 

Increase in fair value of contingent consideration

 

228

 

229

 

Equity-based compensation

 

2,071

 

1,269

 

Gain on sale and disposal of assets

 

(156

)

(121

)

Change in fair value of financial instruments

 

 

6,019

 

Deferred income taxes

 

(1,440

)

(571

)

Changes in assets and liabilities net of effects of acquisitions:

 

 

 

 

 

Trade accounts and notes receivable

 

(23,230

)

(40,974

)

Inventories

 

18

 

(20,943

)

Prepaid expenses and other assets

 

(1,359

)

416

 

Accounts payable

 

(9,526

)

(1,696

)

Accrued compensation and employee benefits

 

(26,347

)

(22,945

)

Derivative liability

 

 

(10,778

)

Other accrued expenses and liabilities

 

(8,556

)

2,219

 

Cash used in operating activities

 

(12,440

)

(47,824

)

Cash flows from investing activities:

 

 

 

 

 

Purchases of property and equipment

 

(5,891

)

(3,793

)

Proceeds from sale of assets

 

232

 

266

 

Acquisition of businesses, net of cash acquired

 

(10,633

)

(575,499

)

Cash used in investing activities

 

(16,292

)

(579,026

)

Cash flows from financing activities:

 

 

 

 

 

Repayments on the revolving credit facility

 

(262,107

)

(176,769

)

Borrowings from the revolving credit facility

 

274,810

 

392,170

 

Payments of principal on long-term debt

 

(2,492

)

(2,492

)

Payments of principal on finance lease obligations

 

(6,021

)

(3,998

)

Borrowings from term loan

 

 

996,840

 

Repayments from term loan

 

 

(571,840

)

Debt issuance costs

 

 

(7,933

)

Proceeds from exercises of stock options

 

133

 

431

 

Other financing activities

 

1,022

 

873

 

Cash provided by financing activities

 

5,345

 

627,282

 

Effect of exchange rates on cash and cash equivalents

 

172

 

(4

)

(Decrease) increase in cash and cash equivalents

 

(23,215

)

428

 

Cash and cash equivalents, beginning of period

 

47,338

 

36,437

 

Cash and cash equivalents, end of period

 

$

24,123

 

$

36,865

 

Supplemental cash flow disclosures:

 

 

 

 

 

Cash paid for income taxes

 

$

18,776

 

$

958

 

Cash paid for interest

 

17,011

 

10,980

 

 

7


 

GMS Inc.

Net Sales by Product Group (Unaudited)

(dollars in thousands)

 

 

 

Three Months Ended 

 

 

 

July 31, 

 

% of

 

July 31, 

 

% of

 

 

 

2019

 

Total

 

2018

 

Total

 

 

 

 

 

 

 

 

 

 

 

Wallboard

 

$

341,595

 

40.3

%

$

317,735

 

40.8

%

Ceilings

 

129,110

 

15.2

%

115,855

 

14.9

%

Steel framing

 

131,829

 

15.6

%

129,112

 

16.6

%

Other products

 

244,642

 

28.9

%

215,442

 

27.7

%

Total net sales

 

$

847,176

 

 

 

$

778,144

 

 

 

 

8


 

GMS Inc.

Reconciliation of Net Income to Adjusted EBITDA (Unaudited)

(in thousands)

 

 

 

Three Months Ended

 

 

 

July 31, 

 

 

 

2019

 

2018

 

 

 

 

 

 

 

Net income

 

$

24,820

 

$

8,650

 

Interest expense

 

18,277

 

16,188

 

Interest income

 

(12

)

(236

)

Provision for income taxes

 

7,590

 

2,836

 

Depreciation expense

 

12,422

 

10,610

 

Amortization expense

 

16,853

 

15,712

 

EBITDA

 

$

79,950

 

$

53,760

 

Stock appreciation expense (a)

 

60

 

334

 

Redeemable noncontrolling interests(b)

 

662

 

531

 

Equity-based compensation(c)

 

1,395

 

404

 

Severance and other permitted costs(d)

 

554

 

4,836

 

Transaction costs (acquisitions and other)(e)

 

972

 

4,753

 

Gain on disposal of assets

 

(156

)

(121

)

Effects of fair value adjustments to inventory(f)

 

151

 

4,129

 

Change in fair value of financial instruments(g)

 

 

6,019

 

Debt transaction costs(h)

 

 

627

 

EBITDA add-backs

 

3,638

 

21,512

 

Adjusted EBITDA

 

$

83,588

 

$

75,272

 

 

 

 

 

 

 

Net sales

 

$

847,176

 

$

778,144

 

Adjusted EBITDA margin

 

9.9

%

9.7

%

 


(a)                                 Represents non-cash expense related to stock appreciation rights agreements.

 

(b)                                 Represents non-cash compensation expense related to changes in the 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 costs related to acquisitions paid to third parties.

 

(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 expenses paid to third-party advisors related to debt refinancing activities.

 

9


 

GMS Inc.

Reconciliation of Cash Used in Operating Activities to Free Cash Flow (Unaudited)

(in thousands)

 

 

 

Three Months Ended

 

 

 

July 31, 

 

 

 

2019

 

2018

 

 

 

 

 

 

 

Cash used in operating activities

 

$

(12,440

)

$

(47,824

)

Purchases of property and equipment

 

(5,891

)

(3,793

)

Free cash flow(a)

 

$

(18,331

)

$

(51,617

)

 


(a)                                 Free cash flow is a non-GAAP financial measure that we define as net cash provided by (used in) operations less capital expenditures.

 

GMS Inc.

Reconciliation of Selling, General and Administrative Expense to Adjusted SG&A (Unaudited)

(in thousands)

 

 

 

Three Months Ended

 

 

 

July 31, 

 

 

 

2019

 

2018

 

 

 

 

 

 

 

Selling, general and administrative expense

 

$

194,631

 

$

185,435

 

 

 

 

 

 

 

Adjustments

 

 

 

 

 

Stock appreciation expense (a)

 

(60

)

(334

)

Redeemable noncontrolling interests(b)

 

(662

)

(531

)

Equity-based compensation(c)

 

(1,395

)

(404

)

Severance and other permitted costs(d)

 

(554

)

(4,836

)

Transaction costs (acquisitions and other)(e)

 

(972

)

(4,753

)

Gain on disposal of assets

 

156

 

121

 

Debt transaction costs(f)

 

 

(627

)

Adjusted SG&A

 

$

191,144

 

$

174,071

 

 

 

 

 

 

 

Net sales

 

$

847,176

 

$

778,144

 

Adjusted SG&A margin

 

22.6

%

22.4

%

 


(a)                                 Represents non-cash expense related to stock appreciation rights agreements.

 

(b)                                 Represents non-cash compensation expense related to changes in the 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 costs related to acquisitions paid to third parties.

 

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

 

10


 

GMS Inc.

Reconciliation of Income Before Taxes to Adjusted Net Income (Unaudited)

(in thousands, except per share data)

 

 

 

Three Months Ended

 

 

 

July 31, 

 

 

 

2019

 

2018

 

Income before taxes

 

$

32,410

 

$

11,486

 

EBITDA add-backs

 

3,638

 

21,512

 

Purchase accounting depreciation and amortization (1)

 

12,385

 

12,455

 

Adjusted pre-tax income

 

48,433

 

45,453

 

Adjusted income tax expense

 

10,897

 

10,227

 

Adjusted net income

 

$

37,536

 

$

35,226

 

Effective tax rate (2)

 

22.5

%

22.5

%

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

Basic

 

41,001

 

41,094

 

Diluted (3)

 

42,148

 

43,203

 

Adjusted net income per share:

 

 

 

 

 

Basic

 

$

0.92

 

$

0.86

 

Diluted

 

$

0.89

 

$

0.82

 

 


(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.

 

(2)          Normalized cash tax rate determined based on our estimated taxes for fiscal 2020 excluding the impact of purchase accounting and certain other deferred tax amounts.

 

(3)          Includes the effect of 1.1 million shares of equity issued in connection with the acquisition of Titan that were exchangeable for the Company’s common stock as of April 30, 2019.

 

11


(Back To Top)

Section 3: EX-99.2 (EX-99.2)

Exhibit 99.2

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August 29, 2019 Q1 FY 2020 Earnings Conference Call

 

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2 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. 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 and the economy generally, statements about growth potential across the Company’s business and the ability to deliver growth and value creation, and the anticipated benefits of the Company’s cost reduction and operational improvements plan, including future SG&A savings, contained in this presentation are forward-looking statements. In addition, forward looking statements may include statements regarding the Company’s expectations concerning management's plans for execution of a stock repurchase program, including the maximum amount, manner and duration of purchases of the Company’s common stock under its authorized stock repurchase program. 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; cybersecurity breaches and other disruptions to our IT systems; our recently announced leadership succession plan; 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 most recent Annual Report on Form 10-K, and in its other periodic reports filed with the SEC. In addition, the statements in this presentation are made as of August 29, 2019. 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 29, 2019. 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. Please see the Appendix to this presentation for a further discussion on these non-GAAP measures and a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures.

 

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3 Q1 Fiscal 2020 Highlights We are off to a strong start to fiscal 2020 with record Q1 results Net sales in Q1 2020 increased 8.9% to $847.2 million; Organic net sales growth of 3.4% Wallboard sales increased 7.5% (3.5% organic) Ceilings sales increased 11.4% (8.3% organic) Steel framing sales increased 2.1% (down 0.8% organic) Other product sales increased 13.6% (3.1% organic) Reported net income of $24.8 million, or $0.59 per diluted share Adjusted net income of $37.5 million, or $0.89 per diluted share (1) Adjusted EBITDA increased 11.0% to $83.6 million (1); Improved Adjusted EBITDA margin (1) by 20 basis points to 9.9% from 9.7% in Q1 2019 Completed the acquisition of Hart Acoustical and Drywall Supply with three locations in South Texas on June 3, 2019 Opened two greenfield locations: Manchester, NH and Wichita Falls, TX We see healthy end markets with solid demand in the US; Canadian single-family market remains soft For a reconciliation of Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA Margin to the most directly comparable GAAP metrics, see Appendix.

 

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4 Q1 Fiscal 2020 Performance Net Sales & Mix Organic net sales growth of 3.4% Wallboard: +3.5% organic (Volume ~+4%/Price <-1%) Ceilings: +8.3% organic (Volume ~+3%/Price ~+5%) Steel: -0.8% organic (Volume ~+5%/ Price & Mix ~-6%) Other: +3.1% organic Gross Profit & Margin Net Sales ($ mm) Gross Profit up 11.8% as a result of higher sales, both organically and from acquisitions, as well as $4.1 million of non-cash purchase accounting adjustments recorded in Q1 2019 Gross margin of 32.3% increased 80 bps from 31.5% last year due to net favorable price-cost dynamics, Titan purchasing synergies, and the prior year purchase accounting adjustments +8.9% YOY As of Q1 2020, organic net sales growth calculation modified to exclude net sales of acquired businesses until first anniversary of acquisition date and impact of foreign currency translation (see page 13 for presentation of prior years’ organic net sales growth under new methodology). $778.1 $847.2 $0 $300 $600 $900 Fiscal Q1 2019 Fiscal Q1 2020 41% 15% 16% 28% 40% 15% 16% 29% $244.8 $273.7 31.5% 32.3% 20.0% 20.5% 21.0% 21.5% 22.0% 22.5% 23.0% 23.5% 24.0% 24.5% 25.0% 25.5% 26.0% 26.5% 27.0% 27.5% 28.0% 28.5% 29.0% 29.5% 30.0% 30.5% 31.0% 31.5% 32.0% 32.5% 33.0% $0 $50 $100 $150 $200 $250 $300 Fiscal Q1 2019 Fiscal Q1 2020 Gross Profit Gross Margin

 

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5 SG&A and Adjusted SG&A (1) Q1 Fiscal 2020 Performance Reported SG&A was $194.6 million (23.0% of sales) in Q1 2020 and $185.4 million (23.8% of sales) in Q1 2019 Adjusted SG&A was $191.1 million (22.6% of sales) in Q1 2020 and $174.1 million (22.4% of sales) in Q1 2019 Adjusted SG&A as % of sales increased by 20 bps year over year as a result of investments in business initiatives, reduced operating leverage in Canada and inflationary cost pressures including those resulting from adverse weather conditions. These impacts were partially offset by increased cost efficiencies resulting from the Company’s cost reduction initiatives. Net Income, Adjusted Net Income & Adjusted EBITDA (1) Reported net income was $24.8 million in Q1 2020 and $8.7 million in Q1 2019 Adjusted net income was $37.5 million in Q1 2020 and $35.2 million in Q1 2019 Adjusted EBITDA of $83.6 million up 11.0% year over year Adjusted EBITDA margin up 20 bps year over year Adj. SG&A ($ mm) Adj. EBITDA ($ mm) 7.9% 9.4% For a reconciliation of Adjusted SG&A, Adjusted EBITDA, Adjusted Net Income and Adjusted EBITDA Margin to the most directly comparable GAAP metrics, see Appendix. +11.0% YOY $174.1 $191.1 22.4% 22.6% 20.0% 20.5% 21.0% 21.5% 22.0% 22.5% 23.0% $0 $50 $100 $150 $200 Fiscal Q1 2019 Fiscal Q1 2020 Adj. SG&A Adj. SG&A % $75.3 $83.6 9.7% 9.9% 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 8.0% 8.5% 9.0% 9.5% 10.0% 10.5% $0 $50 $100 Fiscal Q1 2019 Fiscal Q1 2020 Adj. EBITDA Adj. EBITDA Margin

 

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6 Cash Flow, Liquidity and Net Leverage Cash used in operating activities and free cash flow (1) of $(12.4) million and $(18.3) million, respectively, improved from $(47.8) million and $(51.6) million a year ago. Q1 typically results in a use of free cash flow Substantial liquidity, with $24.1 million of cash on hand and an additional $296.4 million available under our revolving credit facilities First Lien Term Loan at L+275 (~80% of total long term debt) matures 2025 Leverage Summary Net Debt / PF Adjusted EBITDA (2) For a reconciliation of free cash flow to cash used in operating activities, the most directly comparable GAAP metric, see Appendix. For a reconciliation Pro Forma Adjusted EBITDA to net income, the most directly comparable GAAP metric, see Appendix. Net of unamortized discount of $2.4mm, $2.3mm, $2.2mm, $2.1mm and $2.0mm as of July 31, 2018, October 31, 2018, January 31, 2019, April 30, 2019, and July 31, 2019 respectively. Net of deferred financing costs of $13.6mm, $13.1mm, $12.6mm, $12.1mm and $11.6 mm as of July 31, 2018, October 31, 2018, January 31, 2019, April 30, 2019, and July 31, 2019 respectively. Net of unamortized discount of $1.5mm, $1.4mm, $1.3mm, $1.2 mm and $1.1 mm as of July 31, 2018, October 31, 2018, January 31, 2019, April 30, 2019, and July 31, 2019 respectively. 4.2x 3.8x 3.8x 3.6x 3.7x 7/31/18 LTM 10/31/18 LTM 1/31/2019 LTM 4/30/2019 LTM 7/31/2019 LTM ($ mm) 7/31/18 10/31/18 1/31/19 4/30/19 7/31/19 LTM LTM LTM LTM LTM Cash and cash equivalents $37 $53 $74 $47 $24 Asset-Based Revolver $215 $153 $138 $44 $54 First Lien Term Loan (3)(4) 978 976 975 973 971 Capital Lease Obligations 94 100 105 109 114 Installment Notes & Other (5) 16 15 16 15 22 Total Debt $1,304 $1,245 $1,234 $1,141 $1,161 Total Net Debt $1,267 $1,192 $1,160 $1,094 $1,137 PF Adj. EBITDA (2) $304 $310 $305 $302 $305 Total Debt / PF Adj. EBITDA 4.3x 4.0x 4.0x 3.8x 3.8x Net Debt / PF Adj. EBITDA 4.2x 3.8x 3.8x 3.6x 3.7x

 

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7 Moving Forward We have a strong market position through our extensive North American network coupled with local expertise and teams focused on superior service delivery We remain focused on leveraging the foundation of our business and positioning GMS for long-term growth and profitability We are committed to advancing our next phase of growth and success We will seek to capitalize on significant growth opportunities across our existing platform We will continue to enhance and expand our geographic footprint through accretive acquisitions and greenfield operations balanced with our debt reduction priorities We will continue to leverage our scale and employ best practices to deliver further profit improvement

 

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8 Leading Specialty Distributor Poised for Continued Growth North American market leader in specialty distribution of interior construction products Significant scale combined with local expertise Differentiated Service Model Drives Market Leadership Multiple Levers to Drive Above-Market Growth – Organic Growth, 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 Proven track record of growth and cash flow generation Attractive capital structure and balanced approach to capital allocation

 

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Appendix

 

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10 Summary Quarterly Financials (In millions, except per share data) 1Q19 2Q19 3Q19 4Q19 FY19 1Q20 (Unaudited) Wallboard Volume (MSF) 985 1,025 912 993 3,915 1,064 Wallboard Price ($ / '000 Sq. Ft.) 323 $ 327 $ 326 $ 324 $ 325 $ 321 $ Wallboard 318 $ 335 $ 297 $ 322 $ 1,272 $ 342 $ Ceilings 116 118 105 112 452 129 Steel framing 129 136 117 125 507 132 Other products 215 245 204 221 885 245 Net sales 778 834 724 780 3,116 847 Cost of sales 533 566 490 523 2,112 574 Gross profit 245 268 234 257 1,004 274 Gross margin 31.5% 32.2% 32.4% 32.9% 32.2% 32.3% Operating expenses: Selling, general and administrative expenses 185 185 178 191 739 195 Depreciation and amortization 26 31 30 30 117 29 Total operating expenses 212 216 208 221 857 224 Operating income 33 52 26 36 147 50 Other (expense) income: Interest expense (16) (19) (20) (19) (74) (18) Change in fair value of financial instruments (6) (0) - - (6) - Other income, net 1 0 1 1 3 1 Total other expense, net (22) (19) (19) (18) (77) (17) Income from continuing operations, before tax 11 33 7 18 70 32 Income tax expense (benefit) 3 8 1 2 14 8 Net income 9 $ 25 $ 6 $ 17 $ 56 $ 25 $ Business Days 64 65 62 63 254 64 Net Sales by Business Day 12.2 $ 12.8 $ 11.7 $ 12.4 $ 12.3 $ 13.2 $ Beginning Branch Count 214 246 246 249 214 254 Added Branches 32 - 3 5 40 5 Ending Branch Count 246 246 249 254 254 259

 

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11 Quarterly Cash Flows Free cash flow is a non-GAAP financial measure defined as net cash provided by (used in) operations less capital expenditures. Differences may occur due to rounding. ($ in millions) (Unaudited) 1Q19 2Q19 3Q19 4Q19 FY19 1Q20 Net income $ 8.7 $ 24.9 $ 5.8 $ 16.6 $ 56.0 $ 24.8 Non-cash changes & other changes 7.1 45.3 19.8 47.0 119.3 (4.5) Changes in primary working capital components: Trade accounts and notes receivable (41.0) (4.4) 68.6 (36.8) (13.7) (23.2) Inventories (20.9) 16.4 (7.0) 16.7 5.2 0.0 Accounts payable (1.7) 11.2 (27.4) 44.7 26.8 (9.5) Cash provided by (used in) operating activities (47.8) 93.5 59.8 88.2 193.6 (12.4) Purchases of property and equipment (3.8) (5.4) (4.2) (5.4) (18.8) (5.9) Proceeds from sale of assets 0.3 0.4 0.3 0.3 1.2 0.2 Acquisitions of businesses, net of cash acquired (575.5) (3.4) (0.8) (3.4) (583.1) (10.6) Cash (used in) investing activities (579.0) (8.4) (4.8) (8.5) (600.7) (16.3) Cash provided by (used in) financing activities 627.3 (68.7) (33.9) (105.7) 419.0 5.3 Effect of exchange rates (0.0) (0.4) 0.4 (1.0) (1.0) 0.2 Increase (decrease) in cash and cash equivalents 0.4 16.0 21.5 (27.0) 10.9 (23.2) Balance, beginning of period 36.4 36.8 52.9 74.3 36.4 47.3 Balance, end of period $ 36.8 $ 52.9 $ 74.3 $ 47.3 $ 47.3 $ 24.1 Supplemental cash flow disclosures: Cash paid for income taxes $ 1.0 $ 9.5 $ 5.7 $ 3.2 $ 19.4 $ 18.8 Cash paid for interest $ 11.0 $ 20.0 $ 14.8 $ 20.7 $ 66.4 $ 17.0 Cash provided by (used in) operating activities $ (47.8) $ 93.5 $ 59.8 $ 88.2 $ 193.6 $ (12.4) Purchases of property and equipment (3.8) (5.4) (4.2) (5.4) (18.8) (5.9) Free cash flow (1) (51.6) 88.1 55.6 82.8 174.8 (18.3)

 

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12 Q1 Net Sales Organic net sales growth calculation modified to exclude net sales of acquired businesses until first anniversary of acquisition date and impact of foreign currency translation. ($ in millions) (Unaudited) FY19 FY20 Reported Organic (1) Organic (1) 778.1 $ 804.2 $ Acquisitions - 43.8 Fx Impact - (0.8) Total Net Sales 778.1 $ 847.2 $ 8.9% 3.4% Wallboard 317.7 $ 341.6 $ 7.5% 3.5% Ceilings 115.9 129.1 11.4% 8.3% Steel Framing 129.1 131.8 2.1% (0.8%) Other Products 215.4 244.6 13.6% 3.1% Total Net Sales 778.1 $ 847.2 $ 8.9% 3.4% Fiscal Q1 Variance

 

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13 Prior Period Organic Net Sales Calculation – Prior and Current Method Prior Method: Through FY 2019, organic net sales growth calculation excluded net sales of businesses acquired in the current fiscal year, prior fiscal year and three months prior to the start of the prior fiscal year. Current Method: At beginning of FY 2020, organic net sales growth calculation modified to exclude net sales of acquired businesses until first anniversary of acquisition date and impact of foreign currency translation. ($ in millions) (Unaudited) Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Prior Method (1) Prior Period Reported 549.8 591.8 562.5 615.0 2,319.1 642.2 648.0 585.5 635.9 2,511.6 Acq 6.0 30.8 52.0 56.9 145.7 - 6.1 6.5 8.5 21.1 Organic 543.8 561.1 510.5 558.1 2,173.5 642.2 641.9 579.0 627.4 2,490.4 Current Period Reported 642.2 648.0 585.5 635.9 2,511.6 778.1 833.8 723.9 780.2 3,116.1 Acq 56.0 58.4 59.1 66.5 239.9 96.9 136.0 106.7 109.2 448.8 Organic 586.2 589.6 526.4 569.4 2,271.7 681.3 697.8 617.2 671.0 2,667.3 Organic Growth % 7.8% 5.1% 2.9% 2.0% 4.5% 6.1% 8.7% 6.6% 7.0% 7.1% Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Current Method (2) Prior Period Reported 549.8 591.8 562.5 615.0 2,319.1 642.2 648.0 585.5 635.9 2,511.6 Acq - - - - - - - - - - Organic 549.8 591.8 562.5 615.0 2,319.1 642.2 648.0 585.5 635.9 2,511.6 Current Period Reported 642.2 648.0 585.5 635.9 2,511.6 778.1 833.8 723.9 780.2 3,116.1 Acq 49.7 30.9 7.6 8.5 96.6 96.9 129.6 100.7 101.7 428.8 Organic 592.5 617.1 578.0 627.4 2,415.0 681.3 704.2 623.2 678.6 2,687.3 Organic Growth % 7.8% 4.3% 2.7% 2.0% 4.1% 6.1% 8.7% 6.4% 6.7% 7.0% FY18 FY19

 

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14 Quarterly Net Income to Adjusted EBITDA Reconciliation Commentary Represents non-cash expense related to stock appreciation rights agreements Represents non-cash compensation expense related to changes in the values of noncontrolling interests Represents non-cash equity-based compensation expense related to the issuance of share-based awards Represents severance expenses and other costs permitted in calculations under the ABL Facility and the First Lien Facility Represents one-time costs related to acquisitions paid to third parties Represents the non-cash cost of sales impact of purchase accounting adjustments to increase inventory to its estimated fair value Represents mark-to-market adjustments for derivative financial instruments Represents expenses paid to third-party advisors related to debt refinancing activities ( $ in 000s) 1Q19 2Q19 3Q19 4Q19 FY19 1Q20 (Unaudited) Net Income 8,650 $ 24,912 $ 5,815 $ 16,625 $ 56,002 $ 24,820 $ Add: Interest Expense 16,188 19,182 19,526 18,781 73,677 18,277 Less: Interest Income (236) 203 (10) (23) (66) (12) Add: Income Tax Expense (Benefit) 2,836 8,059 1,442 1,702 14,039 7,590 Add: Depreciation Expense 10,610 11,538 11,919 12,389 46,456 12,422 Add: Amortization Expense 15,712 19,249 18,301 17,741 71,003 16,853 EBITDA 53,760 $ 83,143 $ 56,993 $ 67,215 $ 261,111 $ 79,950 $ Adjustments Stock appreciation rights expense (A) 334 649 442 1,305 2,730 60 Redeemable noncontrolling interests (B) 531 282 (35) 410 1,188 662 Equity-based compensation (C) 404 1,094 1,140 1,268 3,906 1,395 Severance and other permitted costs (D) 4,836 882 229 2,205 8,152 554 Transaction costs (acquisition and other) (E) 4,753 841 1,066 1,198 7,858 972 (Gain) loss on disposal of assets (121) (173) (118) (113) (525) (156) Effects of fair value adjustments to inventory (F) 4,129 - - 47 4,176 151 Change in fair value of financial instruments (G) 6,019 376 - - 6,395 - Debt transaction costs (H) 627 51 - - 678 - Total Add-Backs 21,512 $ 4,002 $ 2,724 $ 6,320 $ 34,558 $ 3,638 $ Adjusted EBITDA (as reported) 75,272 $ 87,145 $ 59,717 $ 73,535 $ 295,669 $ 83,588 $

 

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15 Net Income to Pro Forma Adjusted EBITDA Reconciliation Commentary Represents non-cash expense related to stock appreciation rights agreements Represents non-cash compensation expense related to changes in the values of noncontrolling interests Represents non-cash equity-based compensation expense related to the issuance of share-based awards Represents severance expenses 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 paid to third party advisors as well as costs related to the retirement of corporate stock appreciation rights Represents management fees paid to AEA, which were discontinued after the IPO Represents the non-cash cost of sales impact of purchase accounting adjustments to increase inventory to its estimated fair value Represents mark-to-market adjustments for derivative financial instruments Represents one-time costs related to our secondary offerings paid to third party advisors Represents expenses 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, including synergies ( $ in 000s) 1Q20 LTM 2019 2018 2017 2016 (Unaudited) Net Income 72,172 $ 56,002 $ 62,971 $ 48,886 $ $ 12,564 Add: Interest Expense 75,766 73,677 31,395 29,360 37,418 Add: Write off of debt discount and deferred financing fees - - 74 7,103 - Less: Interest Income 158 (66) (177) (152) (928) Add: Income Tax Expense 18,793 14,039 20,883 22,654 12,584 Add: Depreciation Expense 48,268 46,456 24,075 25,565 26,667 Add: Amortization Expense 72,144 71,003 41,455 43,675 37,548 EBITDA 287,301 $ 261,111 $ 180,676 $ 177,091 $ $ 125,853 Adjustments Stock appreciation rights expense (A) 2,456 2,730 2,318 148 1,988 Redeemable noncontrolling interests (B) 1,319 1,188 1,868 3,536 880 Equity-based compensation (C) 4,897 3,906 1,695 2,534 2,699 Severance and other permitted costs (D) 3,870 8,152 581 (157) 379 Transaction costs (acquisition and other) (E) 4,077 7,858 3,370 2,249 3,751 Gain on disposal of assets (560) (525) (509) (338) (645) AEA management fee (F) - - - 188 2,250 Effects of fair value adjustments to inventory (G) 198 4,176 324 946 1,009 Change in fair value of financial instruments (H) 376 6,395 6,125 382 - Secondary public offerings (I) - - 1,525 1,385 19 Debt transaction costs (J) 51 678 1,285 265 - Total Add-Backs 16,684 $ 34,558 $ 18,582 $ 11,138 $ 12,330 $ Adjusted EBITDA (as reported) 303,985 $ 295,669 $ 199,258 $ 188,229 $ 138,183 $ Contributions from acquisitions (K) 1,293 6,717 1,280 9,500 12,093 Pro Forma Adjusted EBITDA 305,278 $ 302,386 $ 200,538 $ 197,729 $ 150,276 $

 

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16 Reconciliation of Income Before Taxes to Adjusted Net Income Reconciliation Commentary 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. Normalized cash tax rate determined based on our estimated taxes for fiscal 2020 excluding the impact of purchase accounting and certain other deferred tax amounts. Includes the effect of 1.1 million shares of equity issued in connection with the acquisition of Titan that were exchangeable for the Company’s common stock as of April 30, 2019. ($ in 000s) 1Q20 1Q19 (Unaudited) Income before taxes 32,410 $ 11,486 $ EBITDA add-backs 3,638 21,512 Purchase accounting depreciation and amortization (A) 12,385 12,455 Adjusted pre-tax income 48,433 45,453 Adjusted income tax expense 10,897 10,227 Adjusted net income 37,536 35,226 Effective tax rate (B) 22.5% 22.5% Weighted average shares outstanding: Basic 41,001 41,094 Diluted (C) 42,148 43,203 Adjusted net income per share: Basic 0.92 $ 0.86 $ Diluted 0.89 $ 0.82 $

 

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17 Reported SG&A to Adjusted SG&A Reconciliation Commentary Represents non-cash expense related to stock appreciation rights agreements Represents non-cash compensation expense related to changes in the values of noncontrolling interests Represents non-cash equity-based compensation expense related to the issuance of share-based awards Represents severance expenses and other costs permitted in calculations under the ABL Facility and the First Lien Facility Represents one-time costs related to acquisitions paid to third parties. Represents expenses paid to third-party advisors related to debt refinancing activities (Unaudited) 1Q19 2Q19 3Q19 4Q19 FY2019 1Q20 ($ in millions) SG&A - Reported 185.4 $ 185.3 $ 178.2 $ 190.6 $ 739.5 $ 194.6 $ Adjustments Stock appreciation rights (expense) benefit (A) (0.3) (0.6) (0.4) (1.3) (2.7) (0.1) Redeemable noncontrolling interests (B) (0.5) (0.3) 0.0 (0.4) (1.2) (0.7) Equity-based compensation (C) (0.4) (1.1) (1.1) (1.3) (3.9) (1.4) Severance and other permitted costs (D) (4.8) (0.9) (0.2) (2.2) (8.2) (0.6) Transaction costs (acquisition and other) (E) (4.8) (0.8) (1.1) (1.2) (7.9) (1.0) Gain (loss) on disposal of assets 0.1 0.2 0.1 0.1 0.5 0.2 Debt Related Costs (F) (0.6) (0.1) - - (0.7) - SG&A - Adjusted 174.1 $ 181.6 $ 175.5 $ 184.3 $ 715.5 $ 191.1 $ % of net sales 22.4% 21.8% 24.2% 23.6% 23.0% 22.6%

 

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