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Section 1: 8-K (FORM 8-K)

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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): December 5, 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:

 

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

 

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

 

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

 

¨      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  ¨

 

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  ¨

 

 

 

 

 

 

Item 2.02. Results of Operations and Financial Condition.

 

On December 5, 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 and six months ended October 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 December 5, 2019 and may be used by GMS in various other presentations to investors on or after December 5, 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 December 5, 2019.
99.2* GMS Inc. presentation to investors.  
104 The cover page from this Current Report on Form 8-K, formatted in Inline XBRL.  

 

*Furnished herewith

 

 

 

 

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: December 5, 2019 By: /s/ Scott M. Deakin
    Name: Scott M. Deakin
    Title: Chief Financial Officer

 

 

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Section 2: EX-99.1 (EXHIBIT 99.1)

 

Exhibit 99.1

 

 

 

FOR IMMEDIATE RELEASE

 

GMS REPORTS SECOND QUARTER FISCAL 2020 RESULTS

Net Sales of $861.9 million up 3.4%; Organic Net Sales up 2.7%

Reported Net Income of $29.1 Million, or $0.68 per Diluted Share, up 17.0%

Adjusted Net Income of $42.7 Million, or $1.00 per Diluted Share, up 11.6%

Adjusted EBITDA of $89.9 million, or 10.4% of net sales

 

Tucker, Georgia, December 5, 2019. GMS Inc. (NYSE:GMS), a leading North American specialty distributor of interior building products, today reported financial results for the second quarter of fiscal 2020 ended October 31, 2019.

 

Second Quarter Fiscal 2020 Highlights

 

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

 

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

 

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

 

1

 

 

Second Quarter Fiscal 2020 Results

 

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

 

·Wallboard sales of $350.6 million increased 4.8% (4.0% on an organic basis) compared to the second quarter of fiscal 2019, driven primarily by higher organic volumes and acquisitions, partially offset by lower pricing/mix.
·Ceilings sales of $122.8 million increased 3.7% (1.7% on an organic basis) compared to the second quarter of fiscal 2019, primarily due to higher organic volumes and acquisitions, as well as slightly higher pricing/mix.
·Steel framing sales of $136.2 million increased 0.3% (down 0.6% on an organic basis) compared to the second quarter of fiscal 2019, driven by higher organic volumes and acquisitions, partially offset by lower pricing/mix.
·Other product sales of $252.3 million increased 3.0% (3.1% on an organic basis) compared to the second quarter of fiscal 2019, due to higher organic growth and acquisitions.

 

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

 

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

 

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

 

Balance Sheet

 

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

 

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

 

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

 

Platform Expansion Activity

 

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

 

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Conference Call and Webcast

 

GMS will host a conference call and webcast to discuss its results for the second quarter ended October 31, 2019 and other information related to its business at 8:30 a.m. Eastern Time on Thursday, December 5, 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 January 5, 2019 and can be accessed at 844-512-2921 (domestic) or 412-317-6671 (international) and entering the pass code 13697005.

 

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.

 

When calculating organic net sales growth, the Company excludes from the calculation (i) net sales of acquired businesses until the first anniversary of the acquisition date, and (ii) the impact of foreign currency translation.

 

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 December 5, 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 December 5, 2019.

 

Contact Information:

 

Investors:

Leslie H. Kratcoski

[email protected]

770-723-3306

 

Media:

[email protected]

770-723-3378

 

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GMS Inc.

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except per share data)

 

   Three Months Ended   Six Months Ended 
   October 31,   October 31, 
   2019   2018   2019   2018 
Net sales  $861,929   $833,837   $1,709,105   $1,611,981 
Cost of sales (exclusive of depreciation and amortization shown separately below)   577,436    565,687    1,150,958    1,099,015 
Gross profit   284,493    268,150    558,147    512,966 
Operating expenses:                    
Selling, general and administrative   200,457    185,268    395,088    370,703 
Depreciation and amortization   29,518    30,787    58,793    57,109 
Total operating expenses   229,975    216,055    453,881    427,812 
Operating income   54,518    52,095    104,266    85,154 
Other (expense) income:                    
Interest expense   (17,559)   (19,182)   (35,836)   (35,370)
Change in fair value of financial instruments       (376)       (6,395)
Write-off of debt discount and deferred financing fees   (707)       (707)    
Other income, net   813    434    1,752    1,068 
Total other expense, net   (17,453)   (19,124)   (34,791)   (40,697)
Income before taxes   37,065    32,971    69,475    44,457 
Provision for income taxes   7,927    8,059    15,517    10,895 
Net income  $29,138   $24,912   $53,958   $33,562 
Weighted average common shares outstanding:                    
Basic   41,761    41,149    41,382    41,121 
Diluted   42,635    41,918    42,126    41,996 
Net income per common share(1):                    
Basic  $0.70   $0.59   $1.30   $0.80 
Diluted  $0.68   $0.58   $1.27   $0.78 

 

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

 

   Three Months Ended   Six Months Ended 
   October 31,   October 31, 
   2019   2018   2019   2018 
   (in thousands, except per share data) 
Net income  $29,138   $24,912   $53,958   $33,562 
Less: Net income allocated to participating securities   -    665    342    751 
Net income attributable to common stockholders  $29,138   $24,247   $53,616   $32,811 
Basic earnings per common share:                    
Basic weighted average common shares outstanding   41,761    41,149    41,382    41,121 
Basic earnings per common share  $0.70   $0.59   $1.30   $0.80 
Diluted earnings per common share:                    
Basic weighted average common shares outstanding   41,761    41,149    41,382    41,121 
Add: Common Stock Equivalents   874    769    744    875 
Diluted weighted average common shares outstanding   42,635    41,918    42,126    41,996 
Diluted earnings per common share  $0.68   $0.58   $1.27   $0.78 

 

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GMS Inc.

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except per share data)

 

   October 31,   April 30, 
   2019   2019 
Assets        
Current assets:          
Cash and cash equivalents  $36,269   $47,338 
Trade accounts and notes receivable, net of allowances of $6,414 and $6,432, respectively   480,321    445,771 
Inventories, net   293,465    290,829 
Prepaid expenses and other current assets   19,621    18,368 
Total current assets   829,676    802,306 
Property and equipment, net of accumulated depreciation of $140,608 and $123,583, respectively   292,136    282,349 
Operating lease right-of-use assets   107,624     
Goodwill   621,916    617,327 
Intangible assets, net   401,909    429,313 
Deferred income taxes   10,199    4,676 
Other assets   17,890    13,583 
Total assets  $2,281,350   $2,149,554 
Liabilities and Stockholders’ Equity          
Current liabilities:          
Accounts payable  $168,768   $173,751 
Accrued compensation and employee benefits   49,981    62,858 
Other accrued expenses and current liabilities   80,034    79,848 
Current portion of long-term debt   45,963    42,118 
Current portion of operating lease liabilities   31,178     
Total current liabilities   375,924    358,575 
Non-current liabilities:          
Long-term debt, less current portion   1,054,085    1,099,077 
Long-term operating lease liabilities   81,896     
Deferred income taxes, net   10,382    10,226 
Other liabilities   63,024    52,500 
Total liabilities   1,585,311    1,520,378 
Commitments and contingencies          
Stockholders' equity:          
Common stock, par value $0.01 per share, 500,000 shares authorized; 42,169 and 40,375 shares issued and outstanding as of October 31, 2019 and April 30, 2019, respectively   422    404 
Preferred stock, par value $0.01 per share, 50,000 shares authorized; 0 shares issued and outstanding as of October 31, 2019 and April 30, 2019        
Exchangeable shares       29,639 
Additional paid-in capital   520,855    480,113 
Retained earnings   199,552    145,594 
Accumulated other comprehensive loss   (24,790)   (26,574)
Total stockholders' equity   696,039    629,176 
Total liabilities and stockholders' equity  $2,281,350   $2,149,554 

 

6

 

 

GMS Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

 

   Six Months Ended 
   October 31, 
   2019   2018 
Cash flows from operating activities:          
Net income  $53,958   $33,562 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization   58,793    57,109 
Write-off and amortization of debt discount and debt issuance costs   2,368    1,665 
Provision for losses on accounts and notes receivable   375    81 
Provision for obsolescence of inventory   195    229 
Effects of fair value adjustments to inventory   151    4,129 
Increase in fair value of contingent consideration   380    460 
Equity-based compensation   5,591    3,204 
Gain on sale and disposal of assets   (742)   (294)
Change in fair value of financial instruments       6,395 
Deferred income taxes   (2,380)   (5,145)
Changes in assets and liabilities net of effects of acquisitions:          
Trade accounts and notes receivable   (29,932)   (45,355)
Inventories   1,800    (4,553)
Prepaid expenses and other assets   1,573    (343)
Accounts payable   (5,486)   9,516 
Accrued compensation and employee benefits   (12,974)   (9,550)
Derivative liability       (10,778)
Other accrued expenses and liabilities   (3,743)   5,325 
Cash provided by operating activities   69,927    45,657 
Cash flows from investing activities:          
Purchases of property and equipment   (14,637)   (9,156)
Proceeds from sale of assets   1,056    638 
Acquisition of businesses, net of cash acquired   (10,633)   (578,917)
Cash used in investing activities   (24,214)   (587,435)
Cash flows from financing activities:          
Repayments on the revolving credit facility   (558,906)   (469,647)
Borrowings from the revolving credit facility   562,698    623,117 
Payments of principal on long-term debt   (54,984)   (4,984)
Payments of principal on finance lease obligations   (12,310)   (8,820)
Borrowings from term loan amendment       996,840 
Repayments from term loan amendment       (571,840)
Debt issuance costs   (1,286)   (7,933)
Proceeds from exercises of stock options   6,761    973 
Other financing activities   1,022    873 
Cash (used in) provided by financing activities   (57,005)   558,579 
Effect of exchange rates on cash and cash equivalents   223    (360)
(Decrease) increase in cash and cash equivalents   (11,069)   16,441 
Cash and cash equivalents, beginning of period   47,338    36,437 
Cash and cash equivalents, end of period  $36,269   $52,878 
Supplemental cash flow disclosures:          
Cash paid for income taxes  $25,642   $10,469 
Cash paid for interest   33,654    30,966 

 

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GMS Inc.

Net Sales by Product Group (Unaudited)

(dollars in thousands)

 

   Three Months Ended   Six Months Ended 
   October 31,   % of   October 31,   % of   October 31,   % of   October 31,   % of 
   2019   Total   2018   Total   2019   Total   2018   Total 
   (dollars in thousands) 
Wallboard  $350,618    40.7%  $334,688    40.1%  $692,213    40.5%  $652,423    40.5%
Ceilings   122,807    14.2%   118,376    14.2%   251,917    14.7%   234,231    14.5%
Steel framing   136,159    15.8%   135,760    16.3%   267,988    15.7%   264,872    16.4%
Other products   252,345    29.3%   245,013    29.4%   496,987    29.1%   460,455    28.6%
Total net sales  $861,929        $833,837        $1,709,105        $1,611,981      

 

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GMS Inc.

Reconciliation of Net Income to Adjusted EBITDA (Unaudited)

(in thousands)

 

   Three Months Ended   Six Months Ended 
   October 31,   October 31, 
   2019   2018   2019   2018 
Net income  $29,138   $24,912   $53,958   $33,562 
Interest expense   17,559    19,182    35,836    35,370 
Write-off of debt discount and deferred financing fees   707        707     
Interest income   (6)   203    (18)   (33)
Provision for income taxes   7,927    8,059    15,517    10,895 
Depreciation expense   12,592    11,538    25,014    22,148 
Amortization expense   16,926    19,249    33,779    34,961 
EBITDA  $84,843   $83,143   $164,793   $136,903 
Stock appreciation expense (a)   1,267    649    1,327    983 
Redeemable noncontrolling interests(b)   (18)   282    644    813 
Equity-based compensation(c)   2,315    1,094    3,710    1,498 
Severance and other permitted costs(d)   1,394    882    1,948    5,718 
Transaction costs (acquisitions and other)(e)   327    841    1,299    5,594 
Gain on disposal of assets   (586)   (173)   (742)   (294)
Effects of fair value adjustments to inventory(f)           151    4,129 
Change in fair value of financial instruments(g)       376        6,395 
Secondary public offering costs(h)   363        363     
Debt transaction costs(i)       51        678 
EBITDA add-backs   5,062    4,002    8,700    25,514 
Adjusted EBITDA  $89,905   $87,145   $173,493   $162,417 
                     
Net sales  $861,929   $833,837    1,709,105    1,611,981 
Adjusted EBITDA margin   10.4%   10.5%   10.2%   10.1%

 

 

(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 costs paid to third-party advisors related to secondary offerings of our common stock.

 

(i)Represents costs paid to third-party advisors related to debt refinancing activities.

 

9

 

 

 

GMS Inc.

Reconciliation of Cash Provided By Operating Activities to Free Cash Flow (Unaudited)

(in thousands)

 

   Three Months Ended   Six Months Ended 
   October 31,   October 31, 
   2019   2018   2019   2018 
Cash provided by operating activities  $82,367   $93,481   $69,927   $45,657 
Purchases of property and equipment   (8,746)   (5,363)   (14,637)   (9,156)
Free cash flow(a)  $73,621   $88,118   $55,290   $36,501 

 

 

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

 

GMS Inc.

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

(in thousands)

 

   Three Months Ended   Six Months Ended 
   October 31,   October 31, 
   2019   2018   2019   2018 
Selling, general and administrative expense  $200,457   $185,268   $395,088   $370,703 
                     
Adjustments                    
Stock appreciation expense (a)   (1,267)   (649)   (1,327)   (983)
Redeemable noncontrolling interests(b)   18    (282)   (644)   (813)
Equity-based compensation(c)   (2,315)   (1,094)   (3,710)   (1,498)
Severance and other permitted costs(d)   (1,394)   (882)   (1,948)   (5,718)
Transaction costs (acquisitions and other)(e)   (327)   (841)   (1,299)   (5,594)
Gain on disposal of assets   586    173    742    294 
Secondary public offering costs(f)   (363)       (363)    
Debt transaction costs(g)       (51)       (678)
Adjusted SG&A  $195,395   $181,642   $386,539   $355,713 
                     
Net sales  $861,929   $833,837   $1,709,105   $1,611,981 
Adjusted SG&A margin   22.7%   21.8%   22.6%   22.1%

 

 

(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 costs paid to third-party advisors related to secondary offerings of our common stock.

 

(g)Represents costs 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   Six Months Ended 
   October 31,   October 31, 
   2019   2018   2019   2018 
Income before taxes  $37,065   $32,971   $69,475   $44,457 
EBITDA add-backs   5,062    4,002    8,700    25,514 
Write-off of discount and deferred financing fees   707        707     
Purchase accounting depreciation and amortization (1)   12,276    12,399    24,661    24,854 
Adjusted pre-tax income   55,110    49,372    103,543    94,825 
Adjusted income tax expense   12,400    11,109    23,297    21,336 
Adjusted net income  $42,710   $38,263   $80,246   $73,489 
Effective tax rate (2)   22.5%   22.5%   22.5%   22.5%
                     
Weighted average shares outstanding:                    
Basic   41,761    41,149    41,382    41,121 
Diluted (3)   42,635    43,047    42,391    43,125 
Adjusted net income per share:                    
Basic  $1.02   $0.93   $1.94   $1.79 
Diluted  $1.00   $0.89   $1.89   $1.70 

 

 

(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 excluding the impact of purchase accounting and certain other deferred tax amounts.
(3)Diluted shares outstanding for periods prior to June 13, 2019 have been adjusted to include 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. On June 13, 2019, the holders exchanged all of the exchangeable shares for 1.1 million shares of the Company’s common stock.

 

11

 

(Back To Top)

Section 3: EX-99.2 (EXHIBIT 99.2)

 

Exhibit 99.2

December 5, 2019 Q2 FY 2020 Earnings Conference Call

 

 

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 “anticip ate,” “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 st rat egic growth priorities, and statements about growth potential across the Company’s business and the ability to deliver growth and value creation and cash generation co ntained in this presentation are forward - looking statements. The Company has based these forward - looking statements on its current expectations, assumptions, estimates a nd projections. While the Company believes these expectations, assumptions, estimates and projections are reasonable, such forward - looking statements are only pre dictions and involve known and unknown risks and uncertainties, many of which are beyond its control. Forward - looking statements involve risks and uncertaintie s, including, but not limited to, economic, competitive, governmental and technological factors outside of the Company’s control, that may cause its business, strategy o r a ctual 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 d isr uptions to our IT systems; our recently announced executive management transitions; variations in the performance of the financial markets, including the credit mark ets ; the risk that acquisitions will not be integrated successfully; the risk of customer attrition; our ability to efficiently manage and control our costs; and other f act ors 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 statem ents in this presentation are made as of December 5, 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 Comp any’s views as of any date subsequent to December 5, 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 perform anc e 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 und ers tanding 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 o f n et income, diluted earnings per share or net cash provided by (used in) operating activities prepared in accordance with generally accepted accounting principles in the U nit ed 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 dir ectly comparable GAAP measures.

 

 

3 Q2 Fiscal 2020 Highlights GMS delivered strong performance in its second quarter of fiscal 2020 Net sales in Q2 2020 increased 3.4% to $861.9 million; Organic net sales growth of 2.7% » Wallboard sales increased 4.8% (4.0% organic) » Ceilings sales increased 3.7% (1.7% organic) » Steel framing sales increased 0.3% (down 0.6% organic) » Other product sales increased 3.0% (3.1% organic) Reported net income of $29.1 million, or $0.68 per diluted share, up 17.0% Adjusted net income (1) of $42.7 million, or $1.00 per diluted share, up 11.6% Adjusted EBITDA (1) increased 3.2% to $89.9 million, or 10.4% of sales Results driven by strong volume in the US, where demand conditions remain solid, while managing softness in Canada We continue to see healthy end markets with favorable demand in the US; Canadian single - family market remains soft but showing signs of potential stabilization Opened one greenfield location in Wilsonville, Oregon; subsequent to quarter end, closed acquisition of Rigney Building Supplies LTD in Kingston, Ontario Reduced net leverage to 3.5 times through strong free cash flow (1) generation (1) For a reconciliation of Adjusted Net Income, Adjusted EBITDA, Adjusted EBITDA Margin and Free Cash Flow to the most directly com parable GAAP metrics, see Appendix.

 

 

4 Q2 Fiscal 2020 Performance Net Sales & Mix $833.8 $861.9 $0 $300 $600 $900 Fiscal Q2 2019 Fiscal Q2 2020 40% 14% 16% 30% ▪ Net sales growth of 3.4% ▪ Organic net sales growth of 2.7% ▪ Wallboard: + 4.0% organic (Volume + 6.4%/Price & Mix - 2.4%) ▪ Ceilings: + 1.7% organic (Volume + 1.4%/Price & Mix + 0.3%) ▪ Steel: - 0.6% organic (Volume + 10.3%/ Price & Mix - 10.9%) ▪ Other: + 3.1% organic ▪ ~ 4% organic sales growth in the US partially offset by ~ 6% organic sales decline in Canada Gross Profit & Margin Net Sales ($ mm) $268.2 $284.5 32.2% 33.0% 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% 33.5% 34.0% $0 $50 $100 $150 $200 $250 $300 Fiscal Q2 2019 Fiscal Q2 2020 Gross Profit Gross Margin ▪ Gross Profit up 6.1% as a result of higher sales, both organically and from acquisitions ▪ Gross margin of 33.0% increased 80 bps from last year due to net favorable price - cost dynamics, acquisition - related purchasing synergies and product mix 41% 14% 16% 29%

 

 

5 SG&A and Adjusted SG&A (1) Q2 Fiscal 2020 Performance ▪ Reported SG&A was $200.5 million (23.3% of sales) in Q2 2020 and $185.3 million (22.2% of sales) in Q2 2019 ▪ Adjusted SG&A was $195.4 million (22.7% of sales) in Q2 2020 and $181.6 million (21.8% of sales) in Q2 2019 ▪ Adjusted SG&A as % of sales increased by 90 bps year over year as a result of: ▪ Year - over - year decline in the selling price of certain products ▪ Continuing inflationary cost pressures ▪ Ongoing investments in greenfields and business initiatives Net Income, Adjusted Net Income & Adjusted EBITDA (1) ▪ Reported net income was $29.1 million in Q2 2020 and $24.9 million in Q2 2019 ▪ Adjusted net income was $42.7 million in Q2 2020 and $38.3 million in Q2 2019 ▪ Adjusted EBITDA of $89.9 million up 3.2% year over year ▪ Adjusted EBITDA margin of 10.4% compares to 10.5% a year ago Adj. SG&A ($ mm) Adj. EBITDA ($ mm) 7.9% 9.4% (1) For a reconciliation of Adjusted SG&A, Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA Margin to the most directly c omp arable GAAP metrics, see Appendix. $181.6 $195.4 21.8% 22.7% 20.0% 20.5% 21.0% 21.5% 22.0% 22.5% 23.0% $0 $50 $100 $150 $200 Fiscal Q2 2019 Fiscal Q2 2020 Adj. SG&A Adj. SG&A % $87.1 $89.9 10.5% 10.4% 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 8.0% 8.5% 9.0% 9.5% 10.0% 10.5% 11.0% $0 $50 $100 Fiscal Q2 2019 Fiscal Q2 2020 Adj. EBITDA Adj. EBITDA Margin

 

 

6 Cash Flow, Liquidity and Net Leverage ▪ YTD FY 2020 cash from operating activities and free cash flow (1) of $69.9 million and $55.3 million, respectively, increased 53.2% and 51.5%, respectively from YTD FY 2019. ▪ Amended ABL facility to increase commitments, extend maturity and improve rate structure ▪ Substantial liquidity, with $36.3 million of cash on hand and an additional $410.4 million available under our revolving credit facilities ▪ First Lien Term Loan represents ~85% of total long term debt and does not mature until 2025 Leverage Summary LTM Net Debt / PF Adjusted EBITDA (2) (1) For a reconciliation of free cash flow to cash provided by operating activities, the most directly comparable GAAP metric, se e A ppendix. (2) For a reconciliation Pro Forma Adjusted EBITDA to net income, the most directly comparable GAAP metric, see Appendix. (3) Net of unamortized discount of $2.3mm, $2.2mm, $2.1mm, $2.0mm and $1.9mm as of October 31, 2018, January 31, 2019, April 30, 201 9, July 31, 2019 and October 31, 2019 respectively. (4) Net of deferred financing costs of $13.1mm, $12.6mm, $12.1mm, $11.6mm and $10.5mm as of October 31, 2018, January 31, 2019, Apri l 30, 2019, July 31, 2019 and October 31, 2019, respectively. (5) Net of unamortized discount of $1.4mm, $1.3mm, $1.2 mm, $1.1mm and $1.3mm as of October 31, 2018, January 31, 2019, April 30, 20 19, July 31, 2019 and October 31, 2019, respectively. Cash from Operations and Free Cash Flow (1) $45.7 $69.9 $36.5 $55.3 0 10 20 30 40 50 60 70 80 YTD 2019 YTD 2020 Cash From Operations Free Cash Flow 3.8 x 3.8 x 3.6 x 3.7 x 3.5 x 10/31/18 1/31/19 4/30/19 7/31/19 10/31/19 ($ mm) 10/31/18 1/31/19 4/30/19 7/31/19 10/31/19 LTM LTM LTM LTM LTM Cash and cash equivalents $53 $74 $47 $24 $36 Asset-Based Revolver $153 $138 $44 $54 $48 First Lien Term Loan (3)(4) 976 975 973 971 920 Capital Lease Obligations 100 105 109 114 117 Installment Notes & Other (5) 15 16 15 22 16 Total Debt $1,245 $1,234 $1,141 $1,161 $1,100 Total Net Debt $1,192 $1,160 $1,094 $1,137 $1,064 PF Adj. EBITDA (2) $310 $305 $302 $305 $308 Total Debt / PF Adj. EBITDA 4.0x 4.0x 3.8x 3.8x 3.6x Net Debt / PF Adj. EBITDA 3.8x 3.8x 3.6x 3.7x 3.5x

 

 

7 Expand Share in Core Products Grow Other Products Platform Expansion Capitalize on existing fixed investment in locations and equipment where we’re underpenetrated or below expected share Grow select “Other Product” opportunities outside of core products to diversify and profitably expand our product offering Expand the platform through accretive acquisition and greenfield opportunities, balanced with debt reduction priorities Strategic Growth Priorities Profitability/Productivity Leverage our scale and employ technology and best practices to deliver further margin expansion

 

 

8 Investment Rationale • A North American market leader in specialty distribution of interior construction products • Significant scale combined with local expertise • Differentiated service model • Multiple levers to drive above - market growth • Capitalizing on large, diverse end markets poised for continued long - term growth • Entrepreneurial culture with dedicated employees and experienced leadership driving superior execution • Proven track record of growth and cash generation • Attractive capital structure and balanced approach to capital allocation

 

 

Appendix

 

 

10 Summary Quarterly Financials (In millions, except per share data) 1Q19 2Q19 3Q19 4Q19 FY19 1Q20 2Q20 (Unaudited) Wallboard Volume (MSF) 985 1,025 912 993 3,915 1,064 1,103 Wallboard Price ($ / '000 Sq. Ft.) 323$ 327$ 326$ 324$ 325$ 321$ 318$ Wallboard 318$ 335$ 297$ 322$ 1,272$ 342$ 351$ Ceilings 116 118 105 112 452 129 123 Steel framing 129 136 117 125 507 132 136 Other products 215 245 204 221 885 245 252 Net sales 778 834 724 780 3,116 847 862 Cost of sales 533 566 490 523 2,112 574 577 Gross profit 245 268 234 257 1,004 274 284 Gross margin 31.5% 32.2% 32.4% 32.9% 32.2% 32.3% 33.0% Operating expenses: Selling, general and administrative expenses 185 185 178 191 739 195 200 Depreciation and amortization 26 31 30 30 117 29 30 Total operating expenses 212 216 208 221 857 224 230 Operating income 33 52 26 36 147 50 55 Other (expense) income: Interest expense (16) (19) (20) (19) (74) (18) (18) Change in fair value of financial instruments (6) (0) - - (6) - - Write-off of discount and deferred financing costs - - - - - - (1) Other income, net 1 0 1 1 3 1 1 Total other expense, net (22) (19) (19) (18) (77) (17) (17) Income from continuing operations, before tax 11 33 7 18 70 32 37 Income tax expense 3 8 1 2 14 8 8 Net income 9$ 25$ 6$ 17$ 56$ 25$ 29$ Business Days 64 65 62 63 254 64 65 Net Sales by Business Day 12.2$ 12.8$ 11.7$ 12.4$ 12.3$ 13.2$ 13.3$ Beginning Branch Count 214 246 246 249 214 254 259 Added Branches 32 - 3 5 40 5 - Ending Branch Count 246 246 249 254 254 259 259

 

 

11 Quarterly Cash Flows (1) Free cash flow is a non - GAAP financial measure defined as net cash provided by (used in) operations less capital expenditures. D ifferences may occur due to rounding. ($ in millions) (Unaudited) 1Q19 2Q19 3Q19 4Q19 FY19 1Q20 2Q20 Net income $ 8.7 $ 24.9 $ 5.8 $ 16.6 $ 56.0 $ 24.8 $ 29.1 Non-cash changes & other changes 7.1 45.3 19.8 47.0 119.3 (4.5) 54.1 Changes in primary working capital components: Trade accounts and notes receivable (41.0) (4.4) 68.6 (36.8) (13.7) (23.2) (6.7) Inventories (20.9) 16.4 (7.0) 16.7 5.2 0.0 1.8 Accounts payable (1.7) 11.2 (27.4) 44.7 26.8 (9.5) 4.0 Cash provided by (used in) operating activities (47.8) 93.5 59.8 88.2 193.6 (12.4) 82.4 Purchases of property and equipment (3.8) (5.4) (4.2) (5.4) (18.8) (5.9) (8.7) Proceeds from sale of assets 0.3 0.4 0.3 0.3 1.2 0.2 0.8 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) (7.9) Cash provided by (used in) financing activities 627.3 (68.7) (33.9) (105.7) 419.0 5.3 (62.4) Effect of exchange rates (0.0) (0.4) 0.4 (1.0) (1.0) 0.2 0.1 Increase (decrease) in cash and cash equivalents 0.4 16.0 21.5 (27.0) 10.9 (23.2) 12.1 Balance, beginning of period 36.4 36.8 52.9 74.3 36.4 47.3 24.1 Balance, end of period $ 36.8 $ 52.9 $ 74.3 $ 47.3 $ 47.3 $ 24.1 $ 36.3 Supplemental cash flow disclosures: Cash paid for income taxes $ 1.0 $ 9.5 $ 5.7 $ 3.2 $ 19.4 $ 18.8 $ 6.9 Cash paid for interest $ 11.0 $ 20.0 $ 14.8 $ 20.7 $ 66.4 $ 17.0 $ 16.6 Cash provided by (used in) operating activities $ (47.8) $ 93.5 $ 59.8 $ 88.2 $ 193.6 $ (12.4) $ 82.4 Purchases of property and equipment (3.8) (5.4) (4.2) (5.4) (18.8) (5.9) (8.7) Free cash flow (1) (51.6) 88.1 55.6 82.8 174.8 (18.3) 73.6

 

 

12 Q2 Net Sales (1) Organic net sales growth calculation modified to exclude net sales of acquired businesses until first anniversary of acquisit ion date and impact of foreign currency translation. ($ in millions) (Unaudited) FY20 FY19 Reported Organic (1) Organic (1) 856.0$ 833.8$ Acquisitions 8.3 - Fx Impact (2.3) - Total Net Sales 861.9$ 833.8$ 3.4% 2.7% Wallboard 350.6$ 334.7$ 4.8% 4.0% Ceilings 122.8 118.4 3.7% 1.7% Steel Framing 136.2 135.8 0.3% (0.6%) Other Products 252.3 245.0 3.0% 3.1% Total Net Sales 861.9$ 833.8$ 3.4% 2.7% Fiscal Q2 Variance

 

 

13 Quarterly Net Income to Adjusted EBITDA Reconciliation Commentary 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 one - time 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 mark - to - market adjustments for derivative financial instruments H. Represents one - time costs related to our secondary offerings paid to third party advisors I. Represents expenses paid to third - party advisors related to debt refinancing activities ( $ in 000s) 1Q19 2Q19 3Q19 4Q19 FY19 1Q20 2Q20 (Unaudited) Net Income 8,650$ 24,912$ 5,815$ 16,625$ 56,002$ 24,820$ 29,138$ Add: Interest Expense 16,188 19,182 19,526 18,781 73,677 18,277 17,559 Add: Write off of debt discount and deferred financing fees - - - - - - 707 Less: Interest Income (236) 203 (10) (23) (66) (12) (6) Add: Income Tax Expense 2,836 8,059 1,442 1,702 14,039 7,590 7,927 Add: Depreciation Expense 10,610 11,538 11,919 12,389 46,456 12,422 12,592 Add: Amortization Expense 15,712 19,249 18,301 17,741 71,003 16,853 16,926 EBITDA 53,760$ 83,143$ 56,993$ 67,215$ 261,111$ 79,950$ 84,843$ Adjustments Stock appreciation rights expense (A) 334 649 442 1,305 2,730 60 1,267 Redeemable noncontrolling interests (B) 531 282 (35) 410 1,188 662 (18) Equity-based compensation (C) 404 1,094 1,140 1,268 3,906 1,395 2,315 Severance and other permitted costs (D) 4,836 882 229 2,205 8,152 554 1,394 Transaction costs (acquisition and other) (E) 4,753 841 1,066 1,198 7,858 972 327 (Gain) loss on disposal of assets (121) (173) (118) (113) (525) (156) (586) 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 - - Secondary public offerings (H) - - - - - - 363 Debt transaction costs (I) 627 51 - - 678 - - Total Add-Backs 21,512$ 4,002$ 2,724$ 6,320$ 34,558$ 3,638$ 5,062$ Adjusted EBITDA (as reported) 75,272$ 87,145$ 59,717$ 73,535$ 295,669$ 83,588$ 89,905$

 

 

14 Net Income to Pro Forma Adjusted EBITDA Reconciliation Commentary 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 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 F. Represents management fees paid to AEA, which were discontinued after the IPO G. Represents the non - cash cost of sales impact of purchase accounting adjustments to increase inventory to its estimated fair value H. Represents mark - to - market adjustments for derivative financial instruments I. Represents one - time costs related to our secondary offerings paid to third party advisors J. Represents expenses paid to third party advisors related to debt refinancing activities K. Pro forma impact of earnings from acquisitions from the beginning of the LTM period to the date of acquisition, including synergies ( $ in 000s) 2Q20 LTM 2019 2018 2017 2016 (Unaudited) Net Income 76,398$ 56,002$ 62,971$ 48,886$ $ 12,564 Add: Interest Expense 74,143 73,677 31,395 29,360 37,418 Add: Write off of debt discount and deferred financing fees 707 - 74 7,103 - Less: Interest Income (51) (66) (177) (152) (928) Add: Income Tax Expense 18,661 14,039 20,883 22,654 12,584 Add: Depreciation Expense 49,322 46,456 24,075 25,565 26,667 Add: Amortization Expense 69,821 71,003 41,455 43,675 37,548 EBITDA 289,001$ 261,111$ 180,676$ 177,091$ $ 125,853 Adjustments Stock appreciation rights expense (A) 3,074 2,730 2,318 148 1,988 Redeemable noncontrolling interests (B) 1,019 1,188 1,868 3,536 880 Equity-based compensation (C) 6,118 3,906 1,695 2,534 2,699 Severance and other permitted costs (D) 4,382 8,152 581 (157) 379 Transaction costs (acquisition and other) (E) 3,563 7,858 3,370 2,249 3,751 Gain on disposal of assets (973) (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) - 6,395 6,125 382 - Secondary public offerings (I) 363 - 1,525 1,385 19 Debt transaction costs (J) - 678 1,285 265 - Total Add-Backs 17,744$ 34,558$ 18,582$ 11,138$ 12,330$ Adjusted EBITDA (as reported) 306,745$ 295,669$ 199,258$ 188,229$ 138,183$ Contributions from acquisitions (K) 905 6,717 1,280 9,500 12,093 Pro Forma Adjusted EBITDA 307,650$ 302,386$ 200,538$ 197,729$ 150,276$

 

 

15 Reconciliation of Income Before Taxes to Adjusted Net Income Reconciliation Commentary A. 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. B. Normalized cash tax rate determined based on our estimated taxes excluding the impact of purchase accounting and certain other deferred tax amounts. C. Diluted shares outstanding for periods prior to June 13, 2019 have been adjusted to include 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. On June 13, 2019, the holders exchanged all of the exchangeable shares for 1.1 million shares of the Company’s common stock. ($ in 000s) 2Q20 2Q19 FY20 FY19 (Unaudited) Income before taxes 37,065$ 32,971$ 69,475$ 44,457$ EBITDA add-backs 5,062 4,002 8,700 25,514 Write-off of debt discount and deferred financing fees 707 - 707 - Purchase accounting depreciation and amortization (A) 12,276 12,399 24,661 24,854 Adjusted pre-tax income 55,110 49,372 103,543 94,825 Adjusted income tax expense 12,400 11,109 23,297 21,336 Adjusted net income 42,710$ 38,263$ 80,245$ 73,490$ Effective tax rate (B) 22.5% 22.5% 22.5% 22.5% Weighted average shares outstanding: Basic 41,761 41,149 41,382 41,121 Diluted (C) 42,635 43,047 42,391 43,125 Adjusted net income per share: Basic 1.02$ 0.93$ 1.94$ 1.79$ Diluted 1.00$ 0.89$ 1.89$ 1.70$

 

 

16 Reported SG&A to Adjusted SG&A Reconciliation Commentary 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 one - time costs related to acquisitions paid to third parties. F. Represents one - time costs related to our secondary offerings paid to third party advisors G. Represents expenses paid to third - party advisors related to debt refinancing activities (Unaudited) 1Q19 2Q19 3Q19 4Q19 FY2019 1Q20 2Q20 ($ in millions) SG&A - Reported 185.4$ 185.3$ 178.2$ 190.6$ 739.5$ 194.6$ 200.5$ Adjustments Stock appreciation rights expense (A) (0.3) (0.6) (0.4) (1.3) (2.7) (0.1) (1.3) Redeemable noncontrolling interests (B) (0.5) (0.3) 0.0 (0.4) (1.2) (0.7) 0.0 Equity-based compensation (C) (0.4) (1.1) (1.1) (1.3) (3.9) (1.4) (2.3) Severance and other permitted costs (D) (4.8) (0.9) (0.2) (2.2) (8.2) (0.6) (1.4) Transaction costs (acquisition and other) (E) (4.8) (0.8) (1.1) (1.2) (7.9) (1.0) (0.3) Gain on disposal of assets 0.1 0.2 0.1 0.1 0.5 0.2 0.6 Secondary public offerings (F) - - - - - - (0.4) Debt transaction costs (G) (0.6) (0.1) - - (0.7) - - SG&A - Adjusted 174.1$ 181.6$ 175.5$ 184.3$ 715.5$ 191.1$ 195.4$ % of net sales 22.4% 21.8% 24.2% 23.6% 23.0% 22.6% 22.7%

 

 

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