GMS GMS Inc

- Net Sales Increased 29.2% with Double-Digit Gains in All Product Groups -

- Net Income Increased Significantly to $17.2 Million -

- Adjusted EBITDA Rose 42.3% to $49.5 Million -

GMS Inc. (NYSE:GMS), a leading North American distributor of wallboard and suspended ceilings systems, today reported financial results for the second quarter of fiscal 2017 ended October 31, 2016.

Second Quarter Fiscal 2017 Highlights Compared to Second Quarter Fiscal 2016

• Net sales increased 29.2% to $591.8 million; base business net sales up 10.8%
• Wallboard unit volume grew 27.2% to 891 million square feet
• Gross margin expanded 120 basis points to 32.6%
• Net income increased to $17.2 million, or $0.42 per share, compared to $2.8 million, or $0.09 per share
• Adjusted EBITDA margin improved 80 basis points to 8.4% as a percentage of net sales
• Completed four acquisitions, adding ten branches in Pennsylvania, Florida, Ohio and Michigan
• Opened three greenfield branches in Arizona, Maryland and South Carolina

Mike Callahan, President and CEO of GMS, stated, “Our strong track record of executing profitable growth continued into the second quarter of fiscal 2017 with Adjusted EBITDA up 42.3% to $49.5 million. We increased net sales by 29.2%, which reflects our multi-faceted approach to delivering above market revenue growth and earnings expansion for our shareholders. While acquisitions contributed approximately two-thirds of our sales growth, the growth in our base business operations was also strong, with net sales up in each product group. In particular, we capitalized on stronger residential activity in wallboard and other products. In the commercial markets, end market demand was healthy resulting in higher ceilings and steel framing volumes. On this positive sales momentum, we delivered a 120 basis point increase in gross margin to 32.6%, which is in line with our longer-term margin expectation. As we look to the balance of fiscal 2017, we are encouraged by our bright outlook for positive sales momentum, strong gross margins and our robust acquisition pipeline.”

Second Quarter Fiscal 2017 Results

Net sales for the second quarter of fiscal 2017 ended October 31, 2016 were $591.8 million, compared to $458.1 million for the second quarter of fiscal 2016 ended October 31, 2015.

• Wallboard sales of $270.0 million increased 26.0%, compared to the second quarter of fiscal 2016. Wallboard unit volume grew 27.2% million to 891 million square feet, helped by greater end market demand, primarily in residential markets, and the positive contribution from acquisitions.
• Ceilings sales of $85.4 million rose 14.5%, compared to the second quarter of fiscal 2016, mainly due to improved pricing, higher ceiling grid volumes, and the positive impact from acquisitions.
• Steel framing sales of $96.1 million grew 36.7%, compared to the second quarter of fiscal 2016, due to greater commercial activity and modest price gains, along with the benefit from acquisitions.
• Other product sales of $140.4 million were up 42.0%, compared to the second quarter of fiscal 2016, as a result of stronger cross-selling activity, acquisitions, price gains and greater end market demand.

Gross profit of $193.2 million grew 34.3%, compared to $143.9 million in the second quarter of fiscal 2016. Gross margin of 32.6% expanded by 120 basis points, compared to 31.4% in the second quarter of fiscal 2016 mainly attributable to increased product margins.

Net income of $17.2 million, or $0.42 per share, increased $14.4 million, compared to $2.8 million, or $0.09 per share, in the second quarter of fiscal 2016. Adjusted net income of $19.0 million, or $0.46 per diluted share, grew $6.4 million, compared to $12.6 million, or $0.38 per diluted share, in the first quarter of fiscal 2016.

Adjusted EBITDA of $49.5 million rose 42.3%, compared to $34.8 million in the second quarter of fiscal 2016. Adjusted EBITDA margin was 8.4% as a percentage of net sales for the second quarter of fiscal 2017, compared to 7.6% in the second quarter of fiscal 2016, largely reflecting a higher gross margin.

Capital Resources

In September 2016, the Company closed on the refinancing of its existing term loan. The new borrowings consist of a $481.2 million term loan facility due in 2021. Borrowings under the new term loan will bear interest at a floating rate based on LIBOR, with a 1.00% floor, plus 3.50%, compared to the previous term loan which had a floating rate based on LIBOR, with a 1.00% floor, plus 3.75%. Net proceeds plus cash on hand were used to repay its existing first lien term loan of $381.0 million and will be applied to repay approximately $99.0 million of loans under its asset based revolving credit facility.

At October 31, 2016, GMS had cash of $16.4 million and total debt of $644.5 million, as compared to cash of $19.1 million and total debt of $644.6 million at April, 30, 2016.

Subsequent to October 31, 2016, GMS amended its existing ABL Credit Agreement. Under the agreement, the ABL Facility has, among other things, expanded to $345 million from $300 million, lowered the applicable rate per annum by 0.25%, reduced the unused line fees and extended the term until November 2021.

Acquisition Activity

During the second quarter of fiscal 2017, the Company completed four acquisitions, of Steven F. Kempf Building Materials, Inc., or SKBM, Olympia Building Supplies, LLC, or Olympia, United Building Materials, Inc., or UBM, and Ryan Building Materials Inc., or RBM, for a purchase price in the aggregate amount of approximately $118.2 million. SKBM, Olympia, UBM and RBM distribute wallboard and related building materials in Pennsylvania, Florida, Ohio and Michigan, respectively, from a total of ten locations. For the twelve months ended October 31, 2016, the acquired companies generated approximately $156.7 million in net sales and the earnings of these entities would have contributed approximately $17.6 million to Adjusted EBITDA for that period, including operating synergies.

Subsequent to October 31, 2016, the Company acquired Interior Products Supply, or IPS. IPS distributes wallboard and related building materials from a single location in Indiana. For the twelve months ended October 31, 2016, IPS generated approximately $12.3 million in net sales.

Conference Call and Webcast

GMS will host a conference call and webcast to discuss its results for the second quarter ended October 31, 2016 at 10:00 a.m. Eastern Time on December 13, 2016. Investors who wish to participate in the call should dial 888-221-9554 (domestic) or 913-981-5556 (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 Company’s second quarter results available on that page of the website as well. Replays of the call will be available through January 13, 2017 and can be accessed at 877-870-5176 (domestic) or 858-384-5517 (international) and entering the pass code 5717037.

About GMS Inc.

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

Use of Non-GAAP Financial Measures

GMS reports its financial results in accordance with GAAP. However, it presents Adjusted net income, Adjusted EBITDA, Adjusted EBITDA margin and base business growth, which are not recognized financial measures under GAAP. GMS believes that Adjusted net income, Adjusted EBITDA and Adjusted EBITDA margin assist investors and analysts in comparing its operating performance across reporting periods on a consistent basis by excluding items that the Company does not believe are indicative of its core operating performance. The Company’s management believes Adjusted net income, Adjusted EBITDA, Adjusted EBITDA margin and base business growth are helpful in highlighting trends in its operating results, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital investments. In addition, the Company utilizes Adjusted EBITDA in certain calculations under its senior secured asset based revolving credit facility and its senior secured first lien term loan facility.

You are encouraged to evaluate each adjustment and the reasons GMS considers it appropriate for supplemental analysis. In addition, in evaluating Adjusted net income and Adjusted EBITDA, you should be aware that in the future, the Company may incur expenses similar to the adjustments in the presentation of Adjusted net income and Adjusted EBITDA. The Company’s presentation of Adjusted net income and Adjusted EBITDA should not be construed as an inference that its future results will be unaffected by unusual or non-recurring items. In addition, Adjusted net income and Adjusted EBITDA may not be comparable to similarly titled measures used by other companies in GMS’s industry or across different industries.

Forward-Looking Statements and Information:

This press release includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. You can generally identify forward-looking statements by the Company’s use of forward-looking terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “seek,” or “should,” or the negative thereof or other variations thereon or comparable terminology. In particular, statements about the markets in which GMS operates, including the potential for growth in the commercial, residential and repair and remodeling, or R&R, markets, statements about its expectations, beliefs, plans, strategies, objectives, prospects, assumptions or future events or performance, statements related to net sales, gross profit and capital expenditures, as well as non-GAAP financial measures such as Adjusted EBITDA, Adjusted net income and base business growth and statements regarding potential acquisitions and future greenfield locations contained in this press release are forward-looking statements. The Company has based these forward-looking statements on its current expectations, assumptions, estimates and projections. While the Company believes these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond its control. Forward-looking statements involve risks and uncertainties, including, but not limited to, economic, competitive, governmental and technological factors outside of the Company’s control, that may cause its business, strategy or actual results to differ materially from the forward-looking statements. These risks and uncertainties may include, among other things: changes in the prices, supply, and/or demand for products which GMS distributes; general economic and business conditions in the United States; the activities of competitors; changes in significant operating expenses; changes in the availability of capital and interest rates; adverse weather patterns or conditions; acts of cyber intrusion; variations in the performance of the financial markets, including the credit markets; and other factors described in the “Risk Factors” section in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2016, and in its other periodic reports filed with the SEC. In addition, the statements in this release are made as of December 13, 2016. 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 13, 2016.

               

GMS Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)

Three and Six Months Ended October 31, 2016 and 2015

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

  Three Months Ended Six Months Ended October 31, October 31, 2016 2015   2016 2015 Net sales $ 591,846 $ 458,077 $ 1,141,646 $ 910,518

Cost of sales (exclusive of depreciation and amortization shownseparately below)

  398,622   314,164   769,837   625,717 Gross profit   193,224   143,913   371,809   284,801 Operating expenses: Selling, general and administrative 149,798 114,352 284,856 224,562 Depreciation and amortization   17,368   15,262   33,163   31,327 Total operating expenses   167,166   129,614   318,019   255,889 Operating income 26,058 14,299 53,790 28,912 Other (expense) income: Interest expense (7,154) (9,260) (14,731) (18,517) Write-off of debt discount and deferred financing fees (1,466) — (6,892) — Other income, net   496   409   1,089   919 Total other (expense), net   (8,124)   (8,851)   (20,534)   (17,598) Income before taxes 17,934 5,448 33,256 11,314 Provision for income taxes   710   2,623   6,869   5,478 Net income $ 17,224 $ 2,825 $ 26,387 $ 5,836 Weighted average shares outstanding: Basic 40,942,905 32,737,956 39,579,244 32,707,297 Diluted 41,319,651 32,898,075 39,955,990 32,915,871 Net income per share: Basic $ 0.42 $ 0.09 $ 0.67 $ 0.18 Diluted $ 0.42 $ 0.09 $ 0.66 $ 0.18 Comprehensive income: Net income $ 17,224 $ 2,825 $ 26,387 $ 5,836

Increase (decrease) in fair value of financial instrument, net oftax

  100   (524)   12   (705) Comprehensive income $ 17,324 $ 2,301 $ 26,399 $ 5,131          

GMS Inc.

Condensed Consolidated Balance Sheets (Unaudited)

October 31, 2016 and April 30, 2016

(in thousands of dollars, except share data)

  October 31, April 30, 2016 2016 Assets Current assets: Cash and cash equivalents $ 16,387 $ 19,072 Trade accounts and notes receivable, net of allowances of $10,119 and $8,607, respectively 324,622 270,257 Inventories, net 192,422 165,766 Prepaid expenses and other current assets   20,523   16,548 Total current assets   553,954   471,643 Property and equipment, net of accumulated depreciation of $64,103 and $54,377, respectively 157,995 153,260 Goodwill 423,735 386,306 Intangible assets, net 271,879 221,790 Other assets   7,150   7,815 Total assets $ 1,414,713 $ 1,240,814 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 106,889 $ 91,500 Accrued compensation and employee benefits 39,420 51,680 Other accrued expenses and current liabilities 42,174 41,814 Current portion of long-term debt 11,168 8,667 Revolving credit facility   —   26,914 Total current liabilities   199,651   220,575 Non-current liabilities: Long-term debt, less current portion 633,325 609,029 Deferred income taxes, net 34,662 41,203 Other liabilities 34,758 33,600 Liabilities to noncontrolling interest holders, less current portion   22,063   25,247 Total liabilities   924,459   929,654 Commitments and contingencies Stockholders’ equity:

Common stock, par value $0.01 per share, authorized 500,000,000 shares; 40,942,905 and32,892,905 shares issued at October 31, 2016 and April 30, 2016, respectively

409 329

Preferred stock, par value $0.01 per share, authorized 50,000,000 shares; 0 shares issued atOctober 31, 2016 and April 30, 2016, respectively

— — Additional paid-in capital 486,859 334,244 Retained earnings (accumulated deficit) 4,122 (22,265) Accumulated other comprehensive loss   (1,136)   (1,148) Total stockholders’ equity   490,254   311,160 Total liabilities and stockholders’ equity $ 1,414,713 $ 1,240,814          

GMS Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

Six Months Ended October 31, 2016 and 2015

(in thousands of dollars)

  Six Months Ended October 31, 2016 2015 Cash flows from operating activities: Net income $ 26,387 $ 5,836 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization of property and equipment 12,930 13,749 Accretion and amortization of debt discount and deferred financing fees 8,264 1,708 Amortization of intangible assets 20,233 17,589 Provision for losses on accounts and notes receivable (230) 328 Provision for obsolescence of inventory (85) 39 Equity-based compensation 1,499 2,669 Net (gain) loss on sale or impairment of assets (130) 281 Deferred income tax benefit (12,373) (11,089) Prepaid expenses and other assets (3,105) (4,484) Accrued compensation and employee benefits (13,783) (18,170) Other accrued expenses and liabilities 3,851 8,366 Liabilities to noncontrolling interest holders 907 1,030 Income tax receivable / payable   (11,520)   2,562 32,845 20,414 Changes in primary working capital components, net of acquisitions: Trade accounts and notes receivable (19,316) (23,969) Inventories (13,444) (247) Accounts payable   606   1,475 Cash provided by (used in) operating activities   691   (2,327) Cash flows from investing activities: Purchases of property and equipment (5,024) (2,670) Proceeds from sale of assets 1,319 6,089 Acquisition of businesses, net of cash acquired   (135,613)   (859) Cash (used in) provided by investing activities   (139,318)   2,560 Cash flows from financing activities: Repayments on the revolving credit facility (635,732) (305,358) Borrowings from the revolving credit facility 686,216 309,902 Payments of principal on long-term debt (2,178) (1,981) Principal repayments of capital lease obligations (2,492) (2,096) Proceeds from issuance of common stock in initial public offering, net of underwriting discounts 156,941 — Repayment of term loan (160,000) — Proceeds from term loan amendment 481,225 — Repayments on term loan amendment (381,225) — Debt issuance costs on term loan amendment (2,487) — Stock repurchases — (5,827) Exercise of stock options — 5,412 Payments of contingent consideration   (4,326)   (3,149) Cash provided by (used in) financing activities   135,942   (3,097) Decrease in cash and cash equivalents (2,685) (2,864) Balance, beginning of period   19,072   12,284 Balance, end of period $ 16,387 $ 9,420 Supplemental cash flow disclosures: Cash paid for income taxes $ 30,790 $ 14,219 Cash paid for interest 13,163 16,570 Supplemental schedule of noncash activities: Assets acquired under capital lease $ 5,180 $ 3,191 Change in fair value of derivative instrument (187) 1,097 Issuance of installment notes associated with equity-based compensation liability awards 5,353 1,157 Increase (decrease) in insurance claims payable and insurance recoverable 2,106 (25,350)                                  

GMS Inc.

Net Sales by Product Group (Unaudited)

Three and Six Months Ended October 31, 2016 and 2015

(in thousands of dollars)

  Three Months Ended Six Months Ended October 31, % of October 31, % of October 31, % of October 31, % of 2016 Total   2015 Total 2016 Total 2015 Total (dollars in thousands) (dollars in thousands) Wallboard $ 269,975 45.6 % $ 214,254 46.8 % $ 521,271 45.7 % $ 425,177 46.7 % Ceilings 85,400 14.4 % 74,613 16.3 % 171,749 15.0 % 153,581 16.9 % Steel framing 96,075 16.2 % 70,307 15.3 % 180,417 15.8 % 137,639 15.1 % Other products   140,396 23.7 %   98,903 21.6 %   268,209 23.5 %   194,121 21.3 % Total net sales $ 591,846 $ 458,077 $ 1,141,646 $ 910,518            

GMS Inc.

Reconciliation of Net Income to Adjusted EBITDA (Unaudited)

Three and Six Months Ended October 31, 2016 and 2015

(in thousands of dollars)

  Three Months Ended Six Months Ended October 31, October 31, 2016 2015 2016 2015 (dollars in thousands) (dollars in thousands)   Net income $ 17,224 $ 2,825 $ 26,387 $ 5,836 Interest expense 8,620 9,260 21,623 18,517 Interest income (35) (208) (78) (438) Income tax expense 710 2,623 6,869 5,478 Depreciation expense 6,548 6,465 12,930 13,738 Amortization expense   10,820   8,797   20,233   17,589 EBITDA $ 43,887 $ 29,762 $ 87,964 $ 60,720 Stock appreciation rights expense(a) $ (144) $ 692 $ (236) $ 1,286 Redeemable noncontrolling interests(b) 2,531 451 2,823 1,005 Equity-based compensation(c) 686 863 1,359 1,361 Severance and other permitted costs(d) 118 824 258 1,381 Transaction costs (acquisitions and other)(e) 1,827 1,340 2,481 1,755 Loss (gain) on disposal of assets 68 305 (130) 280 Management fee to related party(f) — 563 188 1,125 Effects of fair value adjustments to inventory(g) 457 — 621 — Interest rate cap mark-to-market(h)   89   —   132   — EBITDA add-backs   5,632   5,038   7,496   8,193 Adjusted EBITDA $ 49,519 $ 34,800 $ 95,460 $ 68,913 Adjusted EBITDA margin 8.4 % 7.6 % 8.4 % 7.6 %  

(a) Represents non-cash compensation expense related to stock appreciation rights agreements(b) Represents non-cash compensation expense related to changes in the fair values of noncontrolling interests(c) Represents non-cash equity-based compensation expense related to the issuance of stock options(d) Represents severance and other costs permitted in calculations under the ABL Facility and the Term Loan Facilities(e) Represents one-time costs related to the IPO and acquisitions paid to third party advisors(f) Represents management fees paid to AEA, which were discontinued after the IPO(g) Represents 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 certain financial instruments

           

GMS Inc.

Reconciliation of Net Income to Adjusted Net Income (Unaudited)

Three and Six Months Ended October 31, 2016 and 2015

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

  Three Months Ended Six Months Ended October 31, October 31, 2016 2015 2016 2015 (dollars in thousands) (dollars in thousands) Income before taxes $ 17,934 $ 5,448 $ 33,256 $ 11,314 EBITDA add-backs 5,632 5,038 7,496 8,193 Write-off of debt discount and deferred financing fees 1,466 — 6,892 — Purchase accounting depreciation & amortization (1)   7,650   11,230   15,649   21,675 Adjusted pre-tax income 32,682 21,716 63,293 41,182 Adjusted income tax expense 13,694 9,099 26,520 17,255 Adjusted net income $ 18,988 $ 12,617 $ 36,773 $ 23,927 Effective tax rate (2) 41.9 % 41.9 % 41.9 % 41.9 %   Weighted average shares outstanding: Basic 40,942,905 32,737,956 39,579,244 32,707,297 Diluted 41,319,651 32,898,075 39,955,990 32,915,871 Adjusted net income per share: Basic $ 0.46 $ 0.39 $ 0.93 $ 0.73 Diluted $ 0.46 $ 0.38 $ 0.92 $ 0.73   (1)   Depreciation and amortization from the increase in value of certain long-term assets associated with the April 1, 2014 acquisition of the predecessor company. Full year projected amounts are $29.6 million and $21.8 million for FY17 and FY18, respectively. (2) Normalized effective tax rate excluding the impact of purchase accounting and certain other deferred tax amounts.

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GMS Inc.Investor Relations:678-353-2883ir@gms.comorMedia Relations:770-723-3378marketing@gms.com