UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~July~~October 31, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________.

COMMISSION FILE NUMBER: 001-37784

GMS INC.

(Exact name of registrant as specified in its charter)


Delaware		46-2931287
(State or other jurisdiction of incorporation		(IRS Employer Identification No.)
or organization)

100 Crescent Centre Parkway, Suite 800
Tucker,	Georgia	30084
(Address of principal executive offices)		(ZIP Code)

(800) 392-4619

(Registrant’s telephone number, including area code)

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 (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

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. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

There were ~~43,148,444~~43,055,969 shares of the registrant’s common stock, par value $0.01 per share, outstanding as of ~~August 31,~~November 30, 2021.

FORM 10-Q

TABLE OF CONTENTS



		Page
Cautionary Note Regarding Forward-Looking Statements		3

PART I	Financial Information	5
Item 1	Financial Statements	5
	Condensed Consolidated Balance Sheets (Unaudited)	5
	Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)	6
	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)	7
	Condensed Consolidated Statements of Cash Flows (Unaudited)	8
	Notes to Condensed Consolidated Financial Statements (Unaudited)	9
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2426
Item 3	Quantitative and Qualitative Disclosures About Market Risk	3337
Item 4	Controls and Procedures	3337

PART II	Other Information	3438
Item 1	Legal Proceedings	3438
Item 1A	Risk Factors	3438
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	3438
Item 3	Defaults Upon Senior Securities	3439
Item 4	Mine Safety Disclosures	3539
Item 5	Other Information	3539
Item 6	Exhibits	3640
Signatures		3741

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). You can generally identify forward-looking statements by our 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 growth of our various markets, and statements about our expectations, beliefs, plans, strategies, objectives, prospects, assumptions or future events or performance contained in this Quarterly Report on Form 10-Q are forward-looking statements.

We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe 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 our control. These and other important factors, including those discussed under the heading “Risk Factors” in Part 1, Item 1A of our Annual Report on Form 10-K for the fiscal year ended April 30, 2021, filed with the U.S. Securities and Exchange Commission (the “SEC”), may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. Some of the factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include:

•the negative impact of the COVID-19 pandemic (which, among other things, may exacerbate each of the risks listed below);

•general economic and financial conditions;

•our dependency upon the commercial and residential construction and residential repair and remodeling, or R&R, markets;

•competition in our highly fragmented industry and the markets in which we operate;

•the fluctuations in prices and mix of the products we distribute and our ability to pass on price increases to our customers, including as a result of inflationary and deflationary pressures;

•the consolidation of our industry;

•our ability to successfully implement our strategic initiatives, which include pursuing growth through acquisitions and greenfield branch expansion, as well as cost reduction and productivity initiatives;

•our ability to expand into new geographic markets;

•product shortages, other disruptions in our supply chain or distribution network and potential loss of relationships with key suppliers;

•the seasonality of the commercial and residential construction markets;

•the potential loss of any significant customers and the reduction of the quantity of products our customers purchase;

•exposure to product liability and various other claims and litigation, and the adequacy of insurance related thereto;

•operating hazards that may cause personal injury or property damage;

•our ability to attract and retain key employees;

•rising health care and labor costs and the impact of labor and trucking shortages;

•the credit risk from our customers;

•our ability to renew leases for our facilities on favorable terms or identify new facilities;

•our ability to effectively manage our inventory as our sales volume or the prices of the products we distribute fluctuate;

•the impact of federal, state, provincial and local regulations, including potential changes in our effective tax rate;

•the cost of compliance with environmental, health and safety laws and other regulations;

•significant fluctuations in fuel costs or shortages in the supply of fuel;

•a cybersecurity breach, including misappropriation of our customers’, employees’ or suppliers’ confidential information, and the potential costs related thereto;

•a disruption in our IT systems and costs necessary to maintain and update our IT systems;

•natural or man-made disruptions to our facilities;

•the risk of our Canadian operations, including currency rate fluctuations;

•the imposition of tariffs and other trade barriers, and the effect of retaliatory trade measures;

•our inability to engage in activities that may be in our best long-term interests because of restrictions in our debt agreements;

•our current level of indebtedness and our potential to incur additional indebtedness; and

•our ability to obtain additional financing on acceptable terms, if at all.

Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements contained in this Quarterly Report on Form 10-Q are not guarantees of future performance and actual results and events may differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q.

Any forward-looking statement that we make in this Quarterly Report on Form 10-Q speaks only as of the date of such statement. Except as required by law, we do not undertake any obligation to update or revise, or to publicly announce any update or revision to, any of the forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this Quarterly Report on Form 10-Q. You should review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of the filing of this Quarterly Report on Form 10-Q.

PART I – Financial Information

Item 1. Financial Statements

GMS Inc.

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except per share data)


		July 31, 2021		April 30, 2021			October 31, 2021		April 30, 2021
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	43,590	$	167,012	Cash and cash equivalents	$	59,310	$	167,012
Trade accounts and notes receivable, net of allowances of $6,989 and $6,282, respectively		656,878		558,661
Trade accounts and notes receivable, net of allowances of $7,374 and $6,282, respectively						Trade accounts and notes receivable, net of allowances of $7,374 and $6,282, respectively	732,272		558,661
Inventories, net	Inventories, net	470,249		357,054		Inventories, net	552,180		357,054
Prepaid expenses and other current assets	Prepaid expenses and other current assets	21,812		19,525		Prepaid expenses and other current assets	21,331		19,525
Total current assets	Total current assets	1,192,529		1,102,252		Total current assets	1,365,093		1,102,252
Property and equipment, net of accumulated depreciation of $201,441 and $193,364, respectively		323,967		311,326
Property and equipment, net of accumulated depreciation of $211,543 and $193,364, respectively						Property and equipment, net of accumulated depreciation of $211,543 and $193,364, respectively	326,490		311,326
Operating lease right-of-use assets	Operating lease right-of-use assets	138,279		118,413		Operating lease right-of-use assets	133,052		118,413
Goodwill	Goodwill	587,331		576,330		Goodwill	589,561		576,330
Intangible assets, net	Intangible assets, net	395,647		350,869		Intangible assets, net	382,332		350,869
Deferred income taxes	Deferred income taxes	17,584		15,715		Deferred income taxes	19,206		15,715
Other assets	Other assets	8,744		8,993		Other assets	9,249		8,993
Total assets	Total assets	$	2,664,081	$	2,483,898	Total assets	$	2,824,983	$	2,483,898
Liabilities and Stockholders’ Equity	Liabilities and Stockholders’ Equity					Liabilities and Stockholders’ Equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	329,452	$	322,965	Accounts payable	$	351,226	$	322,965
Accrued compensation and employee benefits	Accrued compensation and employee benefits	48,589		72,906		Accrued compensation and employee benefits	69,298		72,906
Other accrued expenses and current liabilities	Other accrued expenses and current liabilities	117,107		87,138		Other accrued expenses and current liabilities	133,795		87,138
Current portion of long-term debt	Current portion of long-term debt	46,687		46,018		Current portion of long-term debt	46,082		46,018
Current portion of operating lease liabilities	Current portion of operating lease liabilities	36,437		33,474		Current portion of operating lease liabilities	36,174		33,474
Total current liabilities	Total current liabilities	578,272		562,501		Total current liabilities	636,575		562,501
Non-current liabilities:	Non-current liabilities:					Non-current liabilities:
Long-term debt, less current portion	Long-term debt, less current portion	1,016,036		932,409		Long-term debt, less current portion	1,062,291		932,409
Long-term operating lease liabilities	Long-term operating lease liabilities	102,196		90,290		Long-term operating lease liabilities	97,341		90,290
Deferred income taxes, net	Deferred income taxes, net	15,055		12,728		Deferred income taxes, net	17,184		12,728
Other liabilities	Other liabilities	75,279		63,508		Other liabilities	60,241		63,508
Total liabilities	Total liabilities	1,786,838		1,661,436		Total liabilities	1,873,632		1,661,436
Commitments and contingencies	Commitments and contingencies	0		0		Commitments and contingencies	0		0
Stockholders' equity:	Stockholders' equity:					Stockholders' equity:
Common stock, par value $0.01 per share, 500,000 shares authorized; 43,083 and 43,073 shares issued and outstanding as of July 31, 2021 and April 30, 2021, respectively		431		431
Preferred stock, par value $0.01 per share, 50,000 shares authorized; 0 shares issued and outstanding as of July 31, 2021 and April 30, 2021		—		—
Common stock, par value $0.01 per share, 500,000 shares authorized; 43,052 and 43,073 shares issued and outstanding as of October 31, 2021 and April 30, 2021, respectively						Common stock, par value $0.01 per share, 500,000 shares authorized; 43,052 and 43,073 shares issued and outstanding as of October 31, 2021 and April 30, 2021, respectively	431		431
Preferred stock, par value $0.01 per share, 50,000 shares authorized; 0 shares issued and outstanding as of October 31, 2021 and April 30, 2021						Preferred stock, par value $0.01 per share, 50,000 shares authorized; 0 shares issued and outstanding as of October 31, 2021 and April 30, 2021	—		—
Additional paid-in capital	Additional paid-in capital	542,587		542,737		Additional paid-in capital	534,931		542,737
Retained earnings	Retained earnings	335,737		274,535		Retained earnings	410,098		274,535
Accumulated other comprehensive (loss) income		(1,512)		4,759
Accumulated other comprehensive income						Accumulated other comprehensive income	5,891		4,759
Total stockholders' equity	Total stockholders' equity	877,243		822,462		Total stockholders' equity	951,351		822,462
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	2,664,081	$	2,483,898	Total liabilities and stockholders' equity	$	2,824,983	$	2,483,898

The accompanying notes are an integral part of these condensed consolidated financial statements.

GMS Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)

(in thousands, except per share data)


		Three Months Ended July 31,				Three Months Ended October 31,				Six Months Ended October 31,
		2021		2020				2021		2020		2021		2020
Net sales	Net sales	$	1,042,076	$	802,573		Net sales	$	1,150,551	$	812,856	$	2,192,627	$	1,615,429
Cost of sales (exclusive of depreciation and amortization shown separately below)	Cost of sales (exclusive of depreciation and amortization shown separately below)	706,243		542,115			Cost of sales (exclusive of depreciation and amortization shown separately below)	778,681		547,785		1,484,924		1,089,900
Gross profit	Gross profit	335,833		260,458			Gross profit	371,870		265,071		707,703		525,529
Operating expenses:	Operating expenses:						Operating expenses:
Selling, general and administrative	Selling, general and administrative	214,081		183,112			Selling, general and administrative	230,531		188,352		444,612		371,464
Depreciation and amortization	Depreciation and amortization	27,714		27,097			Depreciation and amortization	29,403		27,245		57,117		54,342
Total operating expenses	Total operating expenses	241,795		210,209			Total operating expenses	259,934		215,597		501,729		425,806
Operating income	Operating income	94,038		50,249			Operating income	111,936		49,474		205,974		99,723
Other (expense) income:	Other (expense) income:						Other (expense) income:
Interest expense	Interest expense	(13,657)		(14,081)			Interest expense	(14,744)		(13,525)		(28,401)		(27,606)

Other income, net	Other income, net	792		655			Other income, net	938		797		1,730		1,452
Total other expense, net	Total other expense, net	(12,865)		(13,426)			Total other expense, net	(13,806)		(12,728)		(26,671)		(26,154)
Income before taxes	Income before taxes	81,173		36,823			Income before taxes	98,130		36,746		179,303		73,569
Provision for income taxes	Provision for income taxes	19,971		9,604			Provision for income taxes	23,769		8,277		43,740		17,881
Net income	Net income	$	61,202	$	27,219		Net income	$	74,361	$	28,469	$	135,563	$	55,688
Weighted average common shares outstanding:	Weighted average common shares outstanding:						Weighted average common shares outstanding:
Basic	Basic	43,089		42,624			Basic	43,135		42,723		43,112		42,674
Diluted	Diluted	43,972		43,017			Diluted	43,894		43,174		43,933		43,096
Net income per common share:	Net income per common share:						Net income per common share:
Basic	Basic	$	1.42	$	0.64		Basic	$	1.72	$	0.67	$	3.14	$	1.30
Diluted	Diluted	$	1.39	$	0.63		Diluted	$	1.69	$	0.66	$	3.09	$	1.29
Comprehensive income	Comprehensive income						Comprehensive income
Net income	Net income	$	61,202	$	27,219		Net income	$	74,361	$	28,469	$	135,563	$	55,688
Foreign currency translation (loss) income		(8,233)		16,281
Foreign currency translation income (loss)							Foreign currency translation income (loss)	4,114		3,159		(4,119)		19,440
Changes in other comprehensive income, net of tax	Changes in other comprehensive income, net of tax	1,962		959			Changes in other comprehensive income, net of tax	3,289		2,844		5,251		3,803
Comprehensive income	Comprehensive income	$	54,931	$	44,459		Comprehensive income	$	81,764	$	34,472	$	136,695	$	78,931

The accompanying notes are an integral part of these condensed consolidated financial statements.

GMS Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

(in thousands)


		Common Stock			Additional Paid-in Capital				Retained Earnings			Accumulated Other Comprehensive Income (Loss)				Total Stockholders' Equity				Common Stock						Additional Paid-in Capital				Retained Earnings				Accumulated Other Comprehensive Income (Loss)				Total Stockholders' Equity
		Shares	Amount								Shares								Amount
Balances as of April 30, 2021	Balances as of April 30, 2021	43,073	$	431			$	542,737						$	274,535			$	4,759		$	822,462	Balances as of April 30, 2021		43,073			$	431			$	542,737			$	274,535			$	4,759	$	822,462
Net income	Net income	—	—		—				61,202			—				61,202			Net income	—			—				—				61,202				—				61,202
Repurchase and retirement of common stock	Repurchase and retirement of common stock	(85)	(1)		(3,854)				—			—				(3,855)			Repurchase and retirement of common stock	(85)			(1)			(3,854)				—				—				(3,855)
Foreign currency translation adjustments	Foreign currency translation adjustments	—	—		—				—			(8,233)				(8,233)			Foreign currency translation adjustments	—			—			—				—				(8,233)				(8,233)
Other comprehensive income, net of tax	Other comprehensive income, net of tax	—	—		—				—			1,962				1,962			Other comprehensive income, net of tax	—			—			—				—				1,962				1,962
Equity-based compensation	Equity-based compensation	—	—		1,958				—			—				1,958			Equity-based compensation	—			—			1,958				—				—				1,958
Exercise of stock options	Exercise of stock options	44	1		862				—			—				863			Exercise of stock options	44			1			862				—				—				863
Vesting of restricted stock units	Vesting of restricted stock units	8	—		—				—			—				—			Vesting of restricted stock units	8			—			—				—				—				—
Tax withholding related to net share settlements of equity awards	Tax withholding related to net share settlements of equity awards	—	—		(256)				—			—				(256)			Tax withholding related to net share settlements of equity awards	—			—			(256)				—				—				(256)
Issuance of common stock pursuant to employee stock purchase plan	Issuance of common stock pursuant to employee stock purchase plan	43	—		1,140				—			—				1,140			Issuance of common stock pursuant to employee stock purchase plan	43			—			1,140				—				—				1,140
Balances as of July 31, 2021	Balances as of July 31, 2021	43,083	$	431	$	542,587			$	335,737		$	(1,512)			$	877,243		Balances as of July 31, 2021	43,083			431			542,587				335,737				(1,512)				877,243
Net income																			Net income	—			—			—				74,361				—				74,361
Repurchase and retirement of common stock																			Repurchase and retirement of common stock	(195)			(2)			(9,267)				—				—				(9,269)
Foreign currency translation adjustments																			Foreign currency translation adjustments	—			—			—				—				4,114				4,114
Other comprehensive income, net of tax																			Other comprehensive income, net of tax	—			—			—				—				3,289				3,289
Equity-based compensation																			Equity-based compensation	—			—			3,215				—				—				3,215
Exercise of stock options																			Exercise of stock options	52			1			976				—				—				977
Vesting of restricted stock units																			Vesting of restricted stock units	112			1			(1)				—				—				—
Tax withholding related to net share settlements of equity awards																			Tax withholding related to net share settlements of equity awards	—			—			(2,579)				—				—				(2,579)
Balances as of October 31, 2021																			Balances as of October 31, 2021	43,052			$	431		$	534,931			$	410,098			$	5,891			$	951,351


		Common Stock			Additional Paid-in Capital				Retained Earnings			Accumulated Other Comprehensive Loss				Total Stockholders' Equity				Common Stock						Additional Paid-in Capital				Retained Earnings				Accumulated Other Comprehensive Loss				Total Stockholders' Equity
		Shares	Amount								Shares								Amount
Balances as of April 30, 2020	Balances as of April 30, 2020	42,554	$	426			$	529,662						$	168,975			$	(65,082)		$	633,981	Balances as of April 30, 2020		42,554			$	426			$	529,662			$	168,975			$	(65,082)	$	633,981
Net income	Net income	—	—		—				27,219			—				27,219			Net income	—			—				—				27,219				—				27,219
Foreign currency translation adjustments	Foreign currency translation adjustments	—	—		—				—			16,281				16,281			Foreign currency translation adjustments	—			—			—				—				16,281				16,281
Other comprehensive income, net of tax	Other comprehensive income, net of tax	—	—		—				—			959				959			Other comprehensive income, net of tax	—			—			—				—				959				959
Equity-based compensation	Equity-based compensation	—	—		1,575				—			—				1,575			Equity-based compensation	—			—			1,575				—				—				1,575
Exercise of stock options	Exercise of stock options	54	—		691				—			—				691			Exercise of stock options	54			—			691				—				—				691
Vesting of restricted stock units	Vesting of restricted stock units	7	—		—				—			—				—			Vesting of restricted stock units	7			—			—				—				—				—
Tax withholding related to net share settlements of equity awards	Tax withholding related to net share settlements of equity awards	—	—		(105)				—			—				(105)			Tax withholding related to net share settlements of equity awards	—			—			(105)				—				—				(105)
Issuance of common stock pursuant to employee stock purchase plan	Issuance of common stock pursuant to employee stock purchase plan	58	1		1,269				—			—				1,270			Issuance of common stock pursuant to employee stock purchase plan	58			1			1,269				—				—				1,270
Balances as of July 31, 2020	Balances as of July 31, 2020	42,673	$	427	$	533,092			$	196,194		$	(47,842)			$	681,871		Balances as of July 31, 2020	42,673			427			533,092				196,194				(47,842)				681,871
Net income																			Net income	—			—			—				28,469				—				28,469
Repurchase and retirement of common stock																			Repurchase and retirement of common stock	(50)			(1)			(1,221)				—				—				(1,222)
Foreign currency translation adjustments																			Foreign currency translation adjustments	—			—			—				—				3,159				3,159
Other comprehensive loss, net of tax																			Other comprehensive loss, net of tax	—			—			—				—				2,844				2,844
Equity-based compensation																			Equity-based compensation	—			—			3,253				—				—				3,253
Exercise of stock options																			Exercise of stock options	5			—			172				—				—				172
Vesting of restricted stock units																			Vesting of restricted stock units	62			1			(1)				—				—				—
Tax withholding related to net share settlements of equity awards																			Tax withholding related to net share settlements of equity awards	—			—			(649)				—				—				(649)
Balances as of October 31, 2020																			Balances as of October 31, 2020	42,690			$	427		$	534,646			$	224,663			$	(41,839)			$	717,897

The accompanying notes are an integral part of these condensed consolidated financial statements.

GMS Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)


		Three Months Ended July 31,					Six Months Ended October 31,
		2021		2020			2021		2020
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	61,202	$	27,219	Net income	$	135,563	$	55,688
Adjustments to reconcile net income to net cash used in operating activities:
Adjustments to reconcile net income to net cash (used in) provided by operating activities:						Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization	Depreciation and amortization	27,714		27,097		Depreciation and amortization	57,117		54,342
Amortization of debt discount and debt issuance costs	Amortization of debt discount and debt issuance costs	642		753		Amortization of debt discount and debt issuance costs	1,392		1,505
Equity-based compensation	Equity-based compensation	3,160		2,619		Equity-based compensation	7,951		6,370
(Gain) loss on disposal and impairment of assets	(Gain) loss on disposal and impairment of assets	(78)		394		(Gain) loss on disposal and impairment of assets	(222)		875
Deferred income taxes	Deferred income taxes	(140)		(5,241)		Deferred income taxes	(718)		(9,296)
Other items, net	Other items, net	1,573		247		Other items, net	1,682		(1,057)
Changes in assets and liabilities net of effects of acquisitions:	Changes in assets and liabilities net of effects of acquisitions:					Changes in assets and liabilities net of effects of acquisitions:
Trade accounts and notes receivable	Trade accounts and notes receivable	(73,479)		(23,013)		Trade accounts and notes receivable	(147,359)		(57,106)
Inventories	Inventories	(87,313)		14,008		Inventories	(168,519)		(950)
Prepaid expenses and other assets	Prepaid expenses and other assets	(1,491)		(3,782)		Prepaid expenses and other assets	(216)		(4,776)
Accounts payable	Accounts payable	(4,265)		(33,887)		Accounts payable	16,608		(19,898)
Accrued compensation and employee benefits	Accrued compensation and employee benefits	(24,219)		(36,062)		Accrued compensation and employee benefits	(3,561)		(23,889)
Other accrued expenses and liabilities	Other accrued expenses and liabilities	21,617		13,937		Other accrued expenses and liabilities	23,187		22,240
Cash used in operating activities		(75,077)		(15,711)
Cash (used in) provided by operating activities						Cash (used in) provided by operating activities	(77,095)		24,048
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Purchases of property and equipment	Purchases of property and equipment	(6,814)		(4,745)		Purchases of property and equipment	(16,119)		(11,845)
Proceeds from sale of assets	Proceeds from sale of assets	287		342		Proceeds from sale of assets	466		720
Acquisition of businesses, net of cash acquired	Acquisition of businesses, net of cash acquired	(123,049)		(210)		Acquisition of businesses, net of cash acquired	(124,976)		(51)
Cash used in investing activities	Cash used in investing activities	(129,576)		(4,613)		Cash used in investing activities	(140,629)		(11,176)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Repayments on revolving credit facilities	Repayments on revolving credit facilities	(102,872)		(58,083)		Repayments on revolving credit facilities	(442,442)		(102,189)
Borrowings from revolving credit facilities	Borrowings from revolving credit facilities	195,049		14,421		Borrowings from revolving credit facilities	583,233		14,750
Payments of principal on long-term debt	Payments of principal on long-term debt	(1,278)		(2,492)		Payments of principal on long-term debt	(2,555)		(4,984)
Payments of principal on finance lease obligations	Payments of principal on finance lease obligations	(7,397)		(7,521)		Payments of principal on finance lease obligations	(15,154)		(14,629)
Repurchases of common stock	Repurchases of common stock	(3,855)		—		Repurchases of common stock	(13,124)		(1,222)
Proceeds from exercises of stock options	Proceeds from exercises of stock options	863		691		Proceeds from exercises of stock options	1,840		863
Payments for taxes related to net share settlement of equity awards	Payments for taxes related to net share settlement of equity awards	(256)		(105)		Payments for taxes related to net share settlement of equity awards	(2,835)		(754)
Other financing activities	Other financing activities	1,140		1,270		Other financing activities	1,140		1,270
Cash provided by (used in) financing activities	Cash provided by (used in) financing activities	81,394		(51,819)		Cash provided by (used in) financing activities	110,103		(106,895)
Effect of exchange rates on cash and cash equivalents	Effect of exchange rates on cash and cash equivalents	(163)		943		Effect of exchange rates on cash and cash equivalents	(81)		1,282
Decrease in cash and cash equivalents	Decrease in cash and cash equivalents	(123,422)		(71,200)		Decrease in cash and cash equivalents	(107,702)		(92,741)
Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period	167,012		210,909		Cash and cash equivalents, beginning of period	167,012		210,909
Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	$	43,590	$	139,709	Cash and cash equivalents, end of period	$	59,310	$	118,168
Supplemental cash flow disclosures:	Supplemental cash flow disclosures:					Supplemental cash flow disclosures:
Cash paid for income taxes	Cash paid for income taxes	$	1,007	$	3,478	Cash paid for income taxes	$	37,784	$	20,224
Cash paid for interest	Cash paid for interest	8,616		13,115		Cash paid for interest	17,596		25,726

The accompanying notes are an integral part of these condensed consolidated financial statements.

GMS Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Business, Basis of Presentation and Summary of Significant Accounting Policies

Business

Founded in 1971, GMS Inc. (“we,” “our,” “us,” or the “Company”), through its wholly-owned operating subsidiaries, is a distributor of specialty building products including wallboard, suspended ceilings systems, or ceilings, steel framing and other complementary building products. We purchase products from many manufacturers and then distribute these goods to a customer base consisting of wallboard and ceilings contractors and homebuilders and, to a lesser extent, general contractors and individuals. We operate a network of more than 280 distribution centers across the United States and Canada.

Basis of Presentation

The condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) that permit reduced disclosure for interim periods. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all normal and recurring adjustments necessary for a fair presentation of the results of operations, financial position and cash flows. All adjustments are of a normal recurring nature unless otherwise disclosed. The results of operations for interim periods are not necessarily indicative of results for any other interim period or the entire fiscal year. ~~As a result, the~~The unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended April 30, 2021.

Principles of Consolidation

The condensed consolidated financial statements present the results of operations, financial position, stockholders’ equity and cash flows of the Company and its subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. The results of operations of businesses acquired are included from their respective dates of acquisition.

Use of Estimates

The preparation of financial statements in conformity with Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Foreign Currency Translation

Assets and liabilities of the Company’s Canadian subsidiaries are translated at the exchange rate prevailing at the balance sheet date, while income and expenses are translated at average rates for the period. Translation gains and losses are reported as a separate component of stockholders’ equity and other comprehensive income (loss). Gains and losses on foreign currency transactions are recognized in the Condensed Consolidated Statements of Operations and Comprehensive Income within other ~~(expense)~~ income, net.

Insurance Liabilities

The Company is self-insured for certain losses related to medical claims. The Company has stop-loss coverage to limit the exposure arising from medical claims. In addition, the Company has deductible-based insurance policies for certain losses related to general liability, automobile and workers’ compensation and automobile. The coverage consists of a deductible layer, a primary layer, a self-insured buffer layer, a lead umbrella layer and excess layers. The deductible amount per incident is $0.5 million, $1.0 million and $2.5 million for general liability, workers’ compensation and automobile, respectively. The primary layer of coverage is from $0.3 million, $0.5 million and $1.0 million for general liability, workers’ compensation, and automobile liability, respectively, to $5.0 million. The Company self-insures a buffer layer from $5.0 million to $10.0 million. The umbrella and excess layers cover claims from $10.0 million to $100.0 million.compensation. The expected ultimate cost for claims incurred as of the balance sheet date is not discounted and is recognized as a liability. Insurance losses for claims filed and claims incurred but not reported are accrued based upon estimates of the aggregate liability for uninsured claims using historical loss development factors and actuarial assumptions followed in the insurance industry.

~~GMS Inc.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)~~

The following table presents the Company’s aggregate liabilities for medical self-insurance, reserves for general liability, automobile and workers’ compensation and the expected recoveries for medical self-insurance, general liability, automobile and workers’ compensation. Liabilities for medical self-insurance are included in other accrued expenses and current liabilities. Reserves for general liability, automobile and workers’ compensation are included in other accrued expenses

GMS Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

and current liabilities and other liabilities. Expected recoveries for insurance liabilities are included in prepaid expenses and other current assets and other assets in the Condensed Consolidated Balance Sheets.


		July 31, 2021		April 30, 2021			October 31, 2021		April 30, 2021
		(in thousands)					(in thousands)
Medical self‑insurance	Medical self‑insurance	$	3,736	$	3,852	Medical self‑insurance	$	3,526	$	3,852
General liability, automobile and workers’ compensation	General liability, automobile and workers’ compensation	18,146		19,807		General liability, automobile and workers’ compensation	19,145		19,807
Expected recoveries for insurance liabilities	Expected recoveries for insurance liabilities	(3,208)		(3,209)		Expected recoveries for insurance liabilities	(5,048)		(3,209)

Revenue Recognition

Revenue is recognized upon transfer of control of promised goods to customers at an amount that reflects the consideration the Company expects to receive in exchange for those goods. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. The Company includes shipping and handling costs billed to customers in net sales. These costs are recognized as a component of selling, general and administrative expenses.

See Note 13, “Segments,” for information regarding disaggregation of revenue, including revenue by product and by geographic area.

Income Taxes

The Company considers each interim period an integral part of the annual period and measures tax expense (benefit) using an estimated annual effective income tax rate. Estimates of the annual effective income tax rate at the end of interim periods are, out of necessity, based on evaluation of possible future events and transactions and may be subject to subsequent refinement or revision. The Company forecasts its estimated annual effective income tax rate and then applies that rate to its year-to-date pre-tax ordinary income (loss), subject to certain loss limitation provisions. In addition, certain specific transactions are excluded from the Company’s estimated annual effective tax rate computation, but are discretely recognized within income tax expense (benefit) in their respective interim period. Future changes in the forecasted annual income (loss) projections, tax rate changes, or discrete tax items could result in significant adjustments to quarterly income tax expense (benefit) in future periods.

The Company evaluates its deferred tax assets quarterly to determine if valuation allowances are required. In this evaluation, the Company considers both positive and negative evidence in determining whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The primary negative evidence considered includes the cumulative operating losses generated in prior periods. The primary positive evidence considered includes the reversal of deferred tax liabilities primarily related to depreciation and amortization that would occur within the same jurisdiction and during the carryforward period necessary to absorb the federal and state net operating losses and other deferred tax assets.

Deferred tax assets and liabilities are computed by applying the federal, provincial and state income tax rates in effect to the gross amounts of temporary differences and other tax attributes, such as net operating loss carry-forwards. In assessing if the deferred tax assets will be realized, the Company considers whether it is more likely than not that some or all of these deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which these deductible temporary differences reverse.

Earnings Per Share

Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of outstanding shares of common stock for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock, including stock options and restricted stock units (collectively “Common Stock Equivalents”), were exercised or converted into common stock. The dilutive effect of outstanding stock options and restricted stock units is reflected in diluted earnings per share by application of the treasury stock method. In

~~GMS Inc.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)~~

applying the treasury stock method for stock-based compensation arrangements, the assumed proceeds are computed as the sum of the amount the employee must pay upon exercise and the amount of compensation cost attributed to future services and not yet recognized. Diluted earnings per share is computed by increasing the weighted-average number of outstanding shares of

GMS Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

common stock computed in basic earnings per share to include the dilutive effect of Common Stock Equivalents for the period. In periods of net loss, the number of shares used to calculate diluted loss per share is the same as basic net loss per share.

Reclassifications

Certain amounts in the prior period financial statements have been reclassified to conform to the current year presentation.

Recently Issued Accounting Pronouncements

Reference Rate Reform– In March 2020, the Financial Accounting Standards Board ~~("FASB"~~(“FASB”) issued new guidance to temporarily ease the potential burden in accounting for reference rate reform. The guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rates that are expected to be discontinued, such as the London Interbank Offered Rate ~~("LIBOR"~~(“LIBOR”). The guidance was effective upon issuance and generally can be applied through December 31, 2022. ~~The Company expects~~However, the new guidance is not applicable to ~~elect optional expedients~~contract modifications made, and ~~exceptions provided by the guidance, as needed, related to its debt instruments, which include interest rates based on a LIBOR rate.~~hedging relationships entered into or evaluated after, December 31, 2022. The Company will ~~evaluate and disclose the impact of~~adopt this guidance inwhen its relevant contracts are modified upon transition to alternative reference rates. The Company does not expect the ~~period of election, as well as the nature and reason for doing so.~~adoption to have a material impact on its consolidated financial statements.

2. Business Combinations

The Company accounts for business combinations by recognizing the assets acquired and liabilities assumed at the acquisition date fair value. In valuing certain acquired assets and liabilities, fair value estimates use Level 3 inputs, including future expected cash flows and discount rates. Goodwill is measured as the excess of consideration transferred over the fair values of the assets acquired and the liabilities assumed. While the Company uses its best estimates and assumptions to value assets acquired and liabilities assumed at the acquisition date, the Company’s estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments arising from new facts and circumstances are recorded to the Consolidated Statements of Operations and Comprehensive Income. The results of operations of acquisitions are reflected in the Company’s Consolidated Financial Statements from the date of acquisition.

Westside Acquisition

On July 1, 2021, the Company acquired substantially all the assets of Westside Building Material ~~("Westside"~~(“Westside”), one of the largest independent distributors of interior building products in the U.S., for preliminary consideration of $139.6 million. Westside is a leading supplier of steel framing, wallboard, acoustical ceilings, insulation and related building products serving commercial and residential markets. Westside’s distribution network comprises 10 locations, including 9 across California (Anaheim, Hesperia, Oakland, Chatsworth, Fresno, Lancaster, Santa Maria, San Diego and National City) and 1 in Las Vegas, Nevada. The primary purpose of the transaction was to expand the geographical coverage of the Company and grow the business.

The assets acquired and liabilities assumed were recognized at their acquisition date fair values. Due to the limited amount of time since the acquisition of Westside, the acquisition accounting is subject to change as the Company obtains additional information during the measurement period about the facts and circumstances that existed as of the acquisition date. The primary areas of the preliminary acquisition accounting that are not yet finalized relate to working capital adjustments, the finalization of preliminary fair value estimates and residual goodwill.

GMS Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

The following table summarizes the components of the preliminary consideration:


	(in thousands)
Cash consideration	$	122,635
Holdback liability	17,000
Total preliminary consideration transferred	$	139,635

Included in the total preliminary consideration is a $17.0 million holdback liability, of which $3.5 million is for working capital adjustments that will be settled 150 days after the acquisition date and $13.5 million is for general representations and warranties of the sellers that will be settled 15 months after the acquisition date.

The following table summarizes the preliminary acquisition accounting for this acquisition based on currently available information:


	Preliminary Acquisition Accounting
	(in thousands)
Trade accounts and notes receivable	$	27,081
Inventories	28,900
Prepaid and other current assets	228
Property and equipment	~~17,136~~16,687
Operating lease right-of-use assets	20,782
Customer relationships	51,500
Tradenames	11,300
Goodwill	~~12,902~~13,351
Accounts payable and accrued expenses	(14,375)
Operating lease liabilities	(15,819)
Fair value of consideration transferred	$	139,635

Goodwill recognized is attributable to synergies achieved through the streamlining of operations combined with improved margins attainable through increased market presence and is all attributable to the Company's geographic divisions reportable segment. Goodwill is expected to be deductible for U.S. federal income tax purposes. The estimated useful life for the customer relationships is 12 years and the estimated useful life for the tradenames is 15 years. The pro forma impact of this acquisition is not presented as it is not considered material to the Company's Consolidated Financial Statements.

Other ~~Acquisition~~Acquisitions

On June 3, 2021, the Company acquired the assets of Architectural Coatings Distributors, Inc. (“Architectural Coating”). Architectural Coating is an interior building products distributor in Cleveland, Ohio. The impact of this acquisition is not material to the Company’s Consolidated Financial Statements.

On August 2, 2021, the Company acquired certain assets of DK&B Construction Specialties, Inc. (“DK&B”). DK&B is a distributor of External Insulation and Finishing Systems (“EIFS”) and stucco products through one location in Omaha, Nebraska. The impact of this acquisition is not material to the Company’s Consolidated Financial Statements.

GMS Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

3. Accounts Receivable

The Company’s trade accounts and notes receivable consisted of the following:


		July 31, 2021		April 30, 2021			October 31, 2021		April 30, 2021
		(in thousands)					(in thousands)
Trade receivables	Trade receivables	$	563,604	$	488,002	Trade receivables	$	614,309	$	488,002
Other receivables	Other receivables	100,263		76,941		Other receivables	125,337		76,941
Allowance for expected credit losses	Allowance for expected credit losses	(3,345)		(3,254)		Allowance for expected credit losses	(3,403)		(3,254)
Other allowances	Other allowances	(3,644)		(3,028)		Other allowances	(3,971)		(3,028)
Trade accounts and notes receivable	Trade accounts and notes receivable	$	656,878	$	558,661	Trade accounts and notes receivable	$	732,272	$	558,661

~~GMS Inc.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)~~

The following table presents the change in the allowance for expected credit losses during the ~~three~~six months ended ~~July~~October 31, 2021:


	(in thousands)
Balance as of April 30, 2021	$	3,254
Provision	53213
Other	38 (64)
Balance as of ~~July~~October 31, 2021	$	~~3,345~~3,403

Receivables from contracts with customers, net of allowances, were ~~$556.6~~$606.9 million and $481.7 million as of ~~July~~October 31, 2021 and April 30, 2021, respectively. The Company did not have material amounts of contract assets or liabilities as of ~~July~~October 31, 2021 or April 30, 2021.

4. Goodwill and Intangible Assets

Goodwill

The following table presents changes in the carrying amount of goodwill:


		Gross		Accumulated		Net			Gross		Accumulated		Net
		Carrying Amount		Impairment Loss		Carrying Amount			Carrying Amount		Impairment Loss		Carrying Amount
		(in thousands)							(in thousands)
Balance as of April 30, 2021	Balance as of April 30, 2021	$	645,377	$	(69,047)	$	576,330	Balance as of April 30, 2021	$	645,377	$	(69,047)	$	576,330
Goodwill recognized from acquisitions	Goodwill recognized from acquisitions	13,057		—		13,057		Goodwill recognized from acquisitions	14,839		—		14,839
Acquisition accounting adjustments								Acquisition accounting adjustments	(476)		—		(476)
Translation adjustment	Translation adjustment	(2,949)		893		(2,056)		Translation adjustment	(1,617)		485		(1,132)
Balance as of July 31, 2021		$	655,485	$	(68,154)	$	587,331
Balance as of October 31, 2021								Balance as of October 31, 2021	$	658,123	$	(68,562)	$	589,561

~~Intangible Assets~~

~~The following tables present the components of the Company’s definite-lived intangible assets:~~

Estimated
Useful
Lives
(years) Weighted
Average
Amortization
Period July 31, 2021
Gross
Carrying
Amount Accumulated
Amortization Net
Carrying
Value
(dollars in thousands)
Customer relationships 5 - 16 12.7 $ 616,241 $ (342,161) $ 274,080
Definite-lived tradenames 5 - 20 15.8 72,820 (15,803) 57,017
Vendor agreements 8 - 10 8.3 6,644 (5,574) 1,070
Developed technology 5 4.9 5,608 (3,612) 1,996
Other 3 - 5 3.2 4,243 (4,126) 117
Totals $ 705,556 $ (371,276) $ 334,280

GMS Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

Estimated
Useful
Lives
(years) Weighted
Average
Amortization
Period April 30, 2021
Gross
Carrying
Amount Accumulated
Amortization Net
Carrying
Value
(dollars in thousands)
Customer relationships 5 - 16 13.3 $ 569,255 $ (330,880) $ 238,375
Definite-lived tradenames 5 - 20 16.8 62,084 (14,842) 47,242
Vendor agreements 8 - 10 8.3 6,644 (5,372) 1,272
Developed technology 5 4.9 5,699 (3,381) 2,318
Other 3 - 5 3.3 4,291 (3,996) 295
Totals $ 647,973 $ (358,471) $ 289,502
Intangible Assets

The following tables present the components of the Company’s definite-lived intangible assets:


	Estimated Useful Lives (years)	Weighted Average Amortization Period	October 31, 2021
			Gross Carrying Amount		Accumulated Amortization		Net Carrying Value
	(dollars in thousands)
Customer relationships	5-16	12.7	$	619,335	$	(357,083)	$	262,252
Definite-lived tradenames	5-20	15.8	73,078		(17,049)		56,029
Vendor agreements	8-10	8.3	6,644		(5,775)		869
Developed technology	5	4.9	5,649		(3,925)		1,724
Other	3-5	3.8	1,278		(1,187)		91
Totals			$	705,984	$	(385,019)	$	320,965


	Estimated Useful Lives (years)	Weighted Average Amortization Period	April 30, 2021
			Gross Carrying Amount		Accumulated Amortization		Net Carrying Value
	(dollars in thousands)
Customer relationships	5-16	13.3	$	569,255	$	(330,880)	$	238,375
Definite-lived tradenames	5-20	16.8	62,084		(14,842)		47,242
Vendor agreements	8-10	8.3	6,644		(5,372)		1,272
Developed technology	5	4.9	5,699		(3,381)		2,318
Other	3-5	3.3	4,291		(3,996)		295
Totals			$	647,973	$	(358,471)	$	289,502

Amortization expense related to definite-lived intangible assets was ~~$14.8~~$15.7 million and ~~$14.3~~$14.5 million for the three months ended ~~July~~October 31, 2021 and 2020, respectively, and $30.5 million and $28.8 million for the six months ended October 31, 2021 and 2020, respectively.

The following table summarizes the estimated future amortization expense for definite-lived intangible assets. Actual amortization expense to be reported in future periods could differ materially from these estimates as a result of acquisitions, changes in useful lives, foreign currency exchange rate fluctuations and other relevant factors.


Year Ending April 30,	Year Ending April 30,	(in thousands)		Year Ending April 30,	(in thousands)
2022 (remaining nine months)		$	45,822
2022 (remaining six months)				2022 (remaining six months)	$	29,806
2023	2023	54,035		2023	53,692
2024	2024	44,582		2024	44,225
2025	2025	36,900		2025	36,566
2026	2026	31,037		2026	30,728
Thereafter	Thereafter	121,904		Thereafter	125,948
Total	Total	$	334,280	Total	$	320,965

The Company’s indefinite-lived intangible assets consist of tradenames that had a carrying amount of $61.4 million as of ~~July~~October 31, 2021 and April 30, 2021.

~~5. Long-Term Debt~~

~~The Company’s long-term debt consisted of the following:~~

July 31,
2021 April 30,
2021
(in thousands)
Term Loan Facility $ 508,445 $ 509,722
Unamortized discount and deferred financing costs on Term Loan Facility (4,444) (4,735)
Senior Notes 350,000 350,000
Unamortized discount and deferred financing costs on Senior Notes (5,324) (5,485)
ABL Facility 87,100 —
Finance lease obligations 112,906 117,948
Installment notes at fixed rates up to 5.0%, due in monthly and annual installments through 2025 9,723 11,716
Unamortized discount on installment notes (647) (739)
Canadian Facility 4,964 —
Carrying value of debt 1,062,723 978,427
Less current portion 46,687 46,018
Long-term debt $ 1,016,036 $ 932,409

GMS Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

5. Long-Term Debt

The Company’s long-term debt consisted of the following:


	October 31, 2021		April 30, 2021
	(in thousands)
Term Loan Facility	$	507,168	$	509,722
Unamortized discount and deferred financing costs on Term Loan Facility	(4,152)		(4,735)
Senior Notes	350,000		350,000
Unamortized discount and deferred financing costs on Senior Notes	(5,152)		(5,485)
ABL Facility	140,600		—
Finance lease obligations	112,274		117,948
Installment notes at fixed rates up to 5.0%, due in monthly and annual installments through 2025	8,188		11,716
Unamortized discount on installment notes	(553)		(739)

Carrying value of debt	1,108,373		978,427
Less current portion	46,082		46,018
Long-term debt	$	1,062,291	$	932,409

Term Loan Facility

The Company has a senior secured first lien term loan facility (the “Term Loan Facility”). The Company is required to make scheduled quarterly payments of $1.3 million, or 0.25% of the aggregate principal amount of the Term Loan Facility, with the balance due in June 2025. The Term Loan Facility bears interest at a floating rate based on LIBOR plus 2.50%, with a 0% floor. As of ~~July~~October 31, 2021, the applicable rate of interest was 2.59%.

Senior Notes

The Company has senior unsecured notes due May 2029 (the "Senior Notes"). The Senior Notes bear interest at 4.625% per annum and mature on May 1, 2029. Interest is payable semi-annually in arrears on May 1 and November 1.

Asset Based Lending Facility

The Company has an asset based revolving credit facility (the “ABL Facility”) that ~~provides~~provided for aggregate revolving commitments of $445.0 million ~~(including same day swing line borrowings~~as of ~~$44.5 million).~~October 31, 2021. Extensions of credit under the ABL Facility are limited by a borrowing base calculated periodically based on specified percentages of the value of eligible inventory and eligible accounts receivable, subject to certain reserves and other adjustments.

AtAs of October 31, 2021, at the Company’s option, the interest rates applicable to the loans under the ABL Facility ~~are~~were based on LIBOR or base rate plus, in each case, an applicable margin. The margins applicable for each elected interest rate are subject to a pricing grid, as defined in the ABL Facility agreement, based on average daily availability for the most recent fiscal quarter. The ABL Facility also contains an unused commitment fee. As of ~~July~~October 31, 2021, the applicable base rate of interest was 3.50%.

As of ~~July~~October 31, 2021, the Company had available borrowing capacity of approximately ~~$335.5~~$278.0 million under the ABL Facility. The ABL Facility matures on September 30, 2024 unless the individual affected lenders agree to extend the maturity of their respective loans under the ABL Facility upon the Company’s request and without the consent of any other lender. The ABL Facility contains a cross default provision with the Term Loan Facility.

Debt Covenants

The Term Loan Facility ~~contains~~and the indenture governing the Senior Notes contain a number of covenants that limit our ability and the ability of our restricted subsidiaries, as described in the respective credit agreement and the indenture, to: incur more indebtedness; pay dividends, redeem or repurchase stock or make other distributions; make investments; create restrictions on the ability of our restricted subsidiaries to pay dividends to us or make other intercompany transfers; create liens

GMS Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

securing indebtedness; transfer or sell assets; merge or consolidate; enter into certain transactions with our affiliates; and prepay or amend the terms of certain indebtedness. Such covenants are subject to several important exceptions and qualifications set forth in the Term Loan Facility and the indenture governing the Senior Notes. The Company was in compliance with all covenants contained in the Term Loan Facility ~~as of July 31, 2021.~~

~~The Senior Notes contains certain covenants that, among other things, limit the Company’s ability~~ and the ability of its restricted subsidiaries to incur additional indebtedness, make certain dividends, repurchase Company stock or make other distributions, make certain investments, create liens, transfer or sell assets, merge or consolidate, and enter into transactions with the Company’s affiliates. Such covenants are subject to a number of important exceptions and qualifications set forth in the related indenture. The Company was in compliance with all covenants contained inindenture governing the Senior Notes as of ~~July~~October 31, 2021.

The ABL Facility contains certain affirmative covenants, including financial and other reporting requirements. The Company was in compliance with all such covenants as of ~~July~~October 31, 2021.

Canadian Revolving Credit Facility

Through its WSB Titan (“Titan”) subsidiary, the Company has a revolving credit facility (the “Canadian Facility”) that provides for aggregate revolving commitments of ~~$24.0~~$24.2 million ($30.0 million Canadian dollars). The Canadian Facility bears interest at the Canadian prime rate plus a marginal rate based on the level determined by Titan’s total debt to EBITDA ratio at the end of the most recently completed fiscal quarter or year. As of ~~July~~October 31, 2021, the Company had available borrowing capacity of approximately ~~$19.1~~$24.2 million under the Canadian Facility. The Canadian Facility matures on January 12, 2026. ~~As of July 31, 2021, the applicable rate of interest was 2.83%.~~

~~GMS Inc.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)~~

Debt Maturities

As of ~~July~~October 31, 2021, the maturities of long-term debt were as follows


		Term Loan Facility		Senior Notes		ABL Facility		Finance Leases		Installment Notes		Canadian Facility		Total			Term Loan Facility		Senior Notes		ABL Facility		Finance Leases		Installment Notes		Total
Year Ending April 30,	Year Ending April 30,	(in thousands)														Year Ending April 30,	(in thousands)
2022 (remaining nine months)		$	3,833	$	—	$	—	$	28,263	$	2,464	$	—	$	34,560
2022 (remaining six months)																2022 (remaining six months)	$	2,556	$	—	$	—	$	19,844	$	857	$	23,257
2023	2023	5,110		—		—		32,050		4,505		—		41,665		2023	5,110		—		—		33,479		4,505		43,094
2024	2024	5,110		—		—		25,234		1,881		—		32,225		2024	5,110		—		—		26,763		1,881		33,754
2025	2025	5,110		—		87,100		15,397		873		—		108,480		2025	5,110		—		140,600		17,028		921		163,659
2026	2026	489,282		—		—		8,207		—		4,964		502,453		2026	489,282		—		—		9,823		24		499,129
Thereafter	Thereafter	—		350,000		—		3,755		—		—		353,755		Thereafter	—		350,000		—		5,337		—		355,337
		$	508,445	$	350,000	$	87,100	$	112,906	$	9,723	$	4,964	$	1,073,138		$	507,168	$	350,000	$	140,600	$	112,274	$	8,188	$	1,118,230

6. Leases

The components of lease expense were as follows:


		Three Months Ended July 31,					Three Months Ended October 31,				Six Months Ended October 31,
		2021		2020					2021		2020		2021		2020
		(in thousands)				(in thousands)
Finance lease cost:	Finance lease cost:							Finance lease cost:
Amortization of right-of-use assets	Amortization of right-of-use assets	$	5,592	$	6,139			Amortization of right-of-use assets	$	5,564	$	5,960	$	11,156	$	12,099
Interest on lease liabilities	Interest on lease liabilities	2,301		3,062				Interest on lease liabilities	2,123		2,863		4,424		5,925
Operating lease cost	Operating lease cost	11,012		10,620				Operating lease cost	11,314		10,630		22,327		21,329
Variable lease cost	Variable lease cost	3,861		2,999				Variable lease cost	4,629		3,157		8,552		6,132
Total lease cost	Total lease cost	$	22,766	$	22,820			Total lease cost	$	23,630	$	22,610	$	46,459	$	45,485

~~Supplemental cash flow information related to leases was as follows:~~

Three Months Ended
July 31,
2021 2020
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases $ 11,189 $ 10,648
Operating cash flows from finance leases 2,301 3,062
Financing cash flows from finance leases 7,397 7,521
Right-of-use assets obtained in exchange for lease obligations
Operating leases 24,210 6,843
Finance leases 4,076 3,935

GMS Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

Supplemental cash flow information related to leases was as follows:


	Six Months Ended October 31,
	2021		2020
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	22,727	$	21,479
Operating cash flows from finance leases	4,424		5,925
Financing cash flows from finance leases	15,154		14,629
Right-of-use assets obtained in exchange for lease obligations
Operating leases	29,145		17,216
Finance leases	13,034		12,342

Other information related to leases was as follows:


		July 31, 2021			April 30, 2021				October 31, 2021			April 30, 2021
		(in thousands)							(in thousands)
Finance leases included in property and equipment	Finance leases included in property and equipment							Finance leases included in property and equipment
Property and equipment	Property and equipment	$	175,852		$	176,591		Property and equipment	$	179,682		$	176,591
Accumulated depreciation	Accumulated depreciation	(53,609)			(51,869)			Accumulated depreciation	(56,127)			(51,869)
Property and equipment, net	Property and equipment, net	$	122,243		$	124,722		Property and equipment, net	$	123,555		$	124,722
Weighted-average remaining lease term (years)	Weighted-average remaining lease term (years)							Weighted-average remaining lease term (years)
Operating leases	Operating leases	4.7			4.7			Operating leases	4.6			4.7
Finance leases	Finance leases	3.5			3.5			Finance leases	3.2			3.5
Weighted-average discount rate	Weighted-average discount rate							Weighted-average discount rate
Operating leases	Operating leases	5.2		%	5.5		%	Operating leases	5.1		%	5.5		%
Finance leases	Finance leases	4.6		%	4.6		%	Finance leases	4.5		%	4.6		%

Future minimum lease payments under non-cancellable leases as of ~~July~~October 31, 2021 were as follows:


		Finance		Operating			Finance		Operating
Year Ending April 30,	Year Ending April 30,	(in thousands)				Year Ending April 30,	(in thousands)
2022 (remaining nine months)		$	33,640	$	32,773
2022 (remaining six months)						2022 (remaining six months)	$	23,303	$	21,974
2023	2023	36,159		38,059		2023	37,836		39,457
2024	2024	26,971		32,185		2024	28,700		33,557
2025	2025	16,060		22,412		2025	17,840		23,528
2026	2026	8,415		12,584		2026	10,126		13,513
Thereafter	Thereafter	3,792		19,161		Thereafter	5,420		18,738
Total lease payments	Total lease payments	125,037		157,174		Total lease payments	123,225		150,767
Less imputed interest	Less imputed interest	12,131		18,541		Less imputed interest	10,951		17,252
Total	Total	$	112,906	$	138,633	Total	$	112,274	$	133,515

GMS Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

7. Income Taxes

General. The Company’s effective income tax rate on continuing operations was ~~24.6%~~24.4% and ~~26.1%~~24.3% for the ~~three~~six months ended ~~July~~October 31, 2021 and 2020, respectively. The difference in the effective income tax rate over the U.S. federal statutory rate of 21.0% for the ~~three~~six months ended ~~July~~October 31, 2021 was primarily due to the impact of state and foreign ~~taxes.~~taxes, as well as equity compensation. The difference in the effective income tax rate over the U.S. federal statutory rate for the ~~three~~six months ended ~~July~~October 31, 2020 was primarily due to the impact of state taxes, foreign tax rates and a change in the valuation allowance.

Valuation allowance. The Company had a valuation allowance of ~~$11.9~~$12.2 million and $11.8 million against its deferred tax assets related to certain U.S. tax jurisdictions as of ~~July~~October 31, 2021 and April 30, 2021, respectively. To the extent the Company generates sufficient taxable income in the future to utilize the tax benefits of the net deferred tax assets on which a valuation allowance is recorded, the effective tax rate may decrease as the valuation allowance is reversed.

Uncertain tax positions. The Company had no reserve for uncertain tax positions as of ~~July~~October 31, 2021 or April 30, 2021.

8. Stockholders’ Equity

The Company's Board of Directors has authorized a common stock repurchase program to repurchase up to $75.0 million of outstanding common stock. The Company may conduct repurchases under the share repurchase program through open market transactions, under trading plans in accordance with SEC Rule 10b5-1 and/or in privately negotiated transactions, in compliance with Rule 10b-18 under the Exchange Act of 1934, as amended. These repurchases are subject to a variety of factors, including, but not limited to, our liquidity, credit availability, general business and market conditions, our debt covenant

~~GMS Inc.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)~~

restrictions and the availability of alternative investment opportunities. The share repurchase program does not obligate the Company to acquire any particular amount of common stock, and it may be suspended or terminated at any time at the Company’s discretion.

The Company repurchased approximately ~~85,000~~280,000 shares of its common stock for ~~$3.9~~$13.1 million during the ~~three~~six months ended ~~July~~October 31, 2021. The Company ~~did not repurchase any~~repurchased approximately 50,000 shares of its common stock for $1.2 million during the ~~three~~six months ended ~~July~~October 31, 2020. As of ~~July~~October 31, 2021, the Company had ~~$50.5~~$41.2 million of remaining repurchase authorization under the stock repurchase program.

Accumulated Other Comprehensive Income

The following table sets forth the changes to accumulated other comprehensive income (loss), net of tax, by component for the ~~three~~six months ended ~~July~~October 31, 2021:

Foreign
Currency
Translation Derivative
Financial
Instruments Accumulated
Other
Comprehensive
Income (Loss)
(in thousands)
Balance as of April 30, 2021 $ 20,764 $ (16,005) $ 4,759
Other comprehensive loss before reclassification (8,233) (287) (8,520)
Reclassification to earnings from accumulated other comprehensive income (loss) — 2,249 2,249
Balance as of July 31, 2021 $ 12,531 $ (14,043) $ (1,512)


	Foreign Currency Translation		Derivative Financial Instruments		Accumulated Other Comprehensive Income
	(in thousands)
Balance as of April 30, 2021	$	20,764	$	(16,005)	$	4,759
Other comprehensive (loss) income before reclassification	(4,119)		738		(3,381)
Reclassification to earnings from accumulated other comprehensive income	—		4,513		4,513
Balance as of October 31, 2021	$	16,645	$	(10,754)	$	5,891

Other comprehensive ~~loss~~income on derivative instruments for the ~~three~~six months ended ~~July~~October 31, 2021 is net of ~~$0.1~~$0.2 million of ~~tax and reclassification~~tax. Reclassification to earnings from accumulated other comprehensive income ~~(loss)~~ is net of ~~$0.7~~$1.5 million of tax.

GMS Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

9. Equity-Based Compensation

General

Equity-based compensation expense related to stock options and restricted stock units was ~~$1.7~~$4.8 million and ~~$1.4~~$4.6 million during the ~~three~~six months ended ~~July~~October 31, 2021 and 2020, respectively, and is included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations and Comprehensive Income.

Stock Option Awards

The following table presents stock option activity for the ~~three~~six months ended ~~July~~October 31, 2021:


		Number of Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value			Number of Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value
		(shares and dollars in thousands)							(shares and dollars in thousands)
Outstanding as of April 30, 2021	Outstanding as of April 30, 2021	1,289	$	20.86	6.8	$	29,465	Outstanding as of April 30, 2021	1,289	$	20.86	6.8	$	29,465

Options granted								Options granted	188	49.13
Options exercised	Options exercised	(44)	19.75					Options exercised	(96)	19.37
Options forfeited	Options forfeited	(3)	23.31					Options forfeited	(12)	23.06
Outstanding as of July 31, 2021		1,242	$	20.89	6.5	$	35,084
Exercisable as of July 31, 2021		661	$	18.90	5.0	$	19,981
Vested and Expected to vest as of July 31, 2021		1,239	$	20.89	6.5	$	34,992
Outstanding as of October 31, 2021								Outstanding as of October 31, 2021	1,369	$	24.84	6.8	$	33,798
Exercisable as of October 31, 2021								Exercisable as of October 31, 2021	856	$	20.27	5.6	$	25,055
Vested and Expected to vest as of October 31, 2021								Vested and Expected to vest as of October 31, 2021	1,364	$	24.81	6.8	$	33,723

The aggregate intrinsic value represents the excess of the Company’s closing stock price on the last trading day of the period over the weighted average exercise price multiplied by the number of options outstanding, exercisable or expected to vest. Options expected to vest are unvested shares net of expected forfeitures. The total intrinsic value of options exercised during the ~~three~~six months ended ~~July~~October 31, 2021 and 2020 was ~~$1.2~~$2.8 million and $0.3 million, respectively. As of ~~July~~October 31, 2021, there was ~~$3.2~~$5.9 million of total unrecognized compensation cost related to stock options. That cost is expected to be recognized over a weighted-average period of 2.2 years.

The fair value of stock options granted during the six months ended October 31, 2021 and 2020 was estimated using the Black-Scholes option-pricing model with the following assumptions and resulting weighted average grant date fair value:


	Six Months Ended October 31,
	2021			2020
Volatility	42.42		%	51.28		%
Expected life (years)	6.0			6.0
Risk-free interest rate	0.85		%	0.30		%
Dividend yield	—		%	—		%
Grant date fair value	$	20.24		$	11.13

The expected volatility was based on historical and implied volatility. The expected life of stock options was based on previous history of exercises. The risk-free rate was based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the stock option. The expected dividend yield was 0% as we have not declared any common stock dividends to date and do not expect to declare common stock dividends in the near future. The fair value of the underlying common stock at the date of grant was determined based on the value of the Company’s closing stock price on the date of the grant.

1819

GMS Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

~~over a weighted-average period of 1.6 years. There were no stock options granted during the three months ended July 31, 2021 or 2020.~~

Restricted Stock Units

The following table presents restricted stock unit activity for the ~~three~~six months ended ~~July~~October 31, 2021:


		Number of Restricted Stock Units	Weighted Average Grant Date Fair Value			Number of Restricted Stock Units	Weighted Average Grant Date Fair Value
		(shares in thousands)				(shares in thousands)
Outstanding as of April 30, 2021	Outstanding as of April 30, 2021	361	$	22.92	Outstanding as of April 30, 2021	361	$	22.92

Granted					Granted	155	49.13
Vested	Vested	(14)	18.04		Vested	(179)	23.05
Forfeited	Forfeited	(2)	23.21		Forfeited	(6)	23.02
Outstanding as of July 31, 2021		345	$	23.11
Outstanding as of October 31, 2021					Outstanding as of October 31, 2021	331	$	35.12

As of ~~July~~October 31, 2021, there was ~~$3.2~~$8.6 million of total unrecognized compensation cost related to nonvested restricted stock units. That cost is expected to be recognized over a weighted-average period of ~~1.6~~2.1 years.

Employee Stock Purchase Plan

The Company has an employee stock purchase plan (“ESPP”), the terms of which allow for qualified employees to participate in the purchase of shares of the Company’s common stock at a price equal to 90% of the lower of the closing price at the beginning or end of the purchase period, which is a six-month period ending on December 31 and June 30 of each year. During the ~~three~~six months ended ~~July~~October 31, 2021, 43,000 shares of the Company’s common stock were purchased under the ESPP at a price of $26.36 per share. During the ~~three~~six months ended ~~July~~October 31, 2020, 58,000 shares of the Company’s common stock were purchased under the ESPP at a price of $22.13 per share. The Company recognized ~~$0.2~~$0.4 million and ~~$0.2~~$0.3 million of stock-based compensation expense during the ~~three~~six months ended ~~July~~October 31, 2021 and 2020, respectively, related to the ESPP.

10. Stock Appreciation Rights, Deferred Compensation and Redeemable Noncontrolling Interests

The following table presents a summary of changes to the liabilities for stock appreciation rights, deferred compensation and redeemable noncontrolling interests:


		Stock Appreciation Rights		Deferred Compensation		Redeemable Noncontrolling Interests			Stock Appreciation Rights		Deferred Compensation		Redeemable Noncontrolling Interests
		(in thousands)							(in thousands)
Balance as of April 30, 2021	Balance as of April 30, 2021	$	26,795	$	1,875	$	9,373	Balance as of April 30, 2021	$	26,795	$	1,875	$	9,373
Amounts redeemed	Amounts redeemed	—		—		—		Amounts redeemed	(320)		—		—
Change in fair value	Change in fair value	892		51		259		Change in fair value	1,875		123		780
Balance as of July 31, 2021		$	27,687	$	1,926	$	9,632
Balance as of October 31, 2021								Balance as of October 31, 2021	$	28,350	$	1,998	$	10,153

Classified as current as of April 30, 2021	Classified as current as of April 30, 2021	$	1,305	$	—	$	—	Classified as current as of April 30, 2021	$	1,305	$	—	$	—
Classified as long-term as of April 30, 2021	Classified as long-term as of April 30, 2021	25,490		1,875		9,373		Classified as long-term as of April 30, 2021	25,490		1,875		9,373

Classified as current as of July 31, 2021		$	1,521	$	—	$	—
Classified as long-term as of July 31, 2021		26,166		1,926		9,632
Classified as current as of October 31, 2021								Classified as current as of October 31, 2021	$	1,248	$	—	$	—
Classified as long-term as of October 31, 2021								Classified as long-term as of October 31, 2021	27,102		1,998		10,153

Total expense related to these instruments was ~~$1.2~~$2.8 million and ~~$1.0~~$1.5 million during the ~~three~~six months ended ~~July~~October 31, 2021 and 2020, respectively, and was included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations and Comprehensive Income. Current and long-term liabilities for stock appreciation rights, deferred compensation and redeemable noncontrolling interests are included in other accrued expenses and liabilities and other liabilities, respectively, in the Condensed Consolidated Balance Sheets. See Note 13, "Stock Appreciation Rights, Deferred Compensation and Redeemable Noncontrolling Interests," in the Company's Annual Report on Form 10-K for the year ended

~~GMS Inc.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)~~

April 30, 2021 for more information regarding stock appreciation rights, deferred compensation and redeemable noncontrolling interests.

GMS Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

11. Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents the estimated carrying amount and fair value of the Company’s liabilities measured at fair value on a recurring basis:

July 31,
2021 April 30,
2021
(in thousands)
Interest rate swaps (Level 2) $ 18,405 $ 21,004


	October 31, 2021		April 30, 2021
	(in thousands)
Interest rate swaps (Level 2)	$	14,049	$	21,004

The Company has interest rate swap agreements with a notional amount of $500.0 million to convert the variable interest rate on a portion of its Term Loan Facility to a fixed 1-month LIBOR interest rate of 2.46%. The contracts were effective on February 28, 2019 and terminate on February 28, 2023. The objective of the interest rate swap agreements is to eliminate the variability of interest payment cash flows associated with variable interest rates. The Company believes there have been no material changes in the creditworthiness of the counterparty to this interest rate swap and believes the risk of nonperformance by such party is minimal. The Company designated the interest rate swaps as a cash flow hedges.

As of ~~July~~October 31, 2021, ~~$11.9~~$11.2 million of the interest rate swap liability was classified in other accrued expenses and current liabilities and ~~$6.5~~$2.9 million was classified in other liabilities in the Condensed Consolidated Balance Sheet. The Company recognized losses, net of tax, of ~~$2.2~~$2.3 million and ~~$2.1~~$2.2 million in earnings during the three months ended ~~July~~October 31, 2021 and 2020, respectively, related to its interest rate ~~swaps.~~swaps, and $4.5 million and $4.3 million during the six months ended October 31, 2021 and 2020, respectively. These losses are included in interest expense in the Condensed Consolidated Statements of Operations and Comprehensive Income and within cash flows from operating activities within the Condensed Consolidated Statements of Cash Flows. As of ~~July~~October 31, 2021, the Company expects that approximately ~~$11.9~~$11.2 million of pre-tax net losses will be reclassified from accumulated other comprehensive income (loss) into earnings during the next twelve months.

The fair value of interest rate swaps is determined using Level 2 inputs. Generally, the Company obtains the Level 2 inputs from its counterparties. Substantially all of the inputs throughout the full term of the instruments can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. The fair value of the Company’s interest rate swap was determined using widely accepted valuation techniques including a discounted cash flow analysis on the expected cash flows of the derivative. This analysis reflected the contractual terms of the derivatives, including the period to maturity, and used observable market-based inputs, including interest rate curves and implied volatilities.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Disclosures are required for certain assets and liabilities that are measured at fair value on a nonrecurring basis in periods subsequent to initial recognition. Such measurements of fair value relate primarily to assets and liabilities measured at fair value in connection with business combinations and long-lived asset impairments. For more information on business combinations, see Note 2, “Business Combinations.” There were no material long-lived asset impairments during the ~~three~~six months ended ~~July~~October 31, 2021 or 2020.

~~GMS Inc.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)~~

Fair Value of Debt

The estimated fair value of the Company’s Senior Notes was determined based on Level 2 input using observable market prices in less active markets. The carrying amount of the Company’s Term Loan Facility and ABL Facility approximates its fair value as the interest rates are variable and reflective of market rates. The following table presents the carrying value and fair value of the Company’s Senior Notes:

July 31, 2021 April 30, 2021
Carrying Amount Fair Value Carrying Amount Fair Value
(in thousands)
Senior Notes $ 350,000 $ 355,250 $ 350,000 $ 350,000


	October 31, 2021				April 30, 2021
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(in thousands)
Senior Notes	$	350,000	$	347,375	$	350,000	$	350,000

GMS Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

12. Commitments and Contingencies

~~General~~

The Company is a defendant in various lawsuits and administrative actions associated with personal injuries, property damage, product liability claims, claims of former employees and other events arising in the normal course of business. As discussed in Note 1 “—Insurance Liabilities”, the Company records liabilities for these claims, and assets for amounts recoverable from the insurer, for claims covered by insurance.

13. Segments

There have been no changes to the Company's reportable segments during the ~~three~~six months ended ~~July~~October 31, 2021. For more information regarding the Company's reportable segments, see Note 17, "Segments," in the Company's Annual Report on Form 10-K for the year ended April 30, 2021.

Segment Results

The following tables present segment results:


		Three Months Ended July 31, 2021									Three Months Ended October 31, 2021
		Net Sales		Gross Profit		Depreciation and Amortization		Adjusted EBITDA			Net Sales		Gross Profit		Depreciation and Amortization		Adjusted EBITDA
		(in thousands)									(in thousands)
Geographic divisions	Geographic divisions	$	1,032,388	$	332,685	$	27,428	$	127,017	Geographic divisions	$	1,140,652	$	367,920	$	28,990	$	147,923
Other	Other	9,688		3,148		88		1,062		Other	9,899		3,950		88		1,616
Corporate	Corporate	—		—		198		—		Corporate	—		—		325		—
		$	1,042,076	$	335,833	$	27,714	$	128,079		$	1,150,551	$	371,870	$	29,403	$	149,539


		Three Months Ended July 31, 2020									Three Months Ended October 31, 2020
		Net Sales		Gross Profit		Depreciation and Amortization		Adjusted EBITDA			Net Sales		Gross Profit		Depreciation and Amortization		Adjusted EBITDA
		(in thousands)									(in thousands)
Geographic divisions	Geographic divisions	$	794,472	$	257,838	$	26,782	$	82,503	Geographic divisions	$	805,074	$	262,534	$	26,783	$	82,169
Other	Other	8,101		2,620		91		551		Other	7,782		2,537		91		353
Corporate	Corporate	—		—		224		—		Corporate	—		—		371		—
		$	802,573	$	260,458	$	27,097	$	83,054		$	812,856	$	265,071	$	27,245	$	82,522


	Six Months Ended October 31, 2021
	Net Sales		Gross Profit		Depreciation and Amortization		Adjusted EBITDA
	(in thousands)
Geographic divisions	$	2,173,040	$	700,605	$	56,418	$	274,940
Other	19,587		7,098		176		2,678
Corporate	—		—		523		—
	$	2,192,627	$	707,703	$	57,117	$	277,618


	Six Months Ended October 31, 2020
	Net Sales		Gross Profit		Depreciation and Amortization		Adjusted EBITDA
	(in thousands)
Geographic divisions	$	1,599,546	$	520,372	$	53,565	$	164,673
Other	15,883		5,157		182		903
Corporate	—		—		595		—
	$	1,615,429	$	525,529	$	54,342	$	165,576

2122

GMS Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

The following table presents a reconciliation of Adjusted EBITDA to net income:


		Three Months Ended July 31,					Three Months Ended October 31,				Six Months Ended October 31,
		2021		2020					2021		2020		2021		2020
		(in thousands)				(in thousands)
Net income	Net income	$	61,202	$	27,219			Net income	$	74,361	$	28,469	$	135,563	$	55,688
Interest expense	Interest expense	13,657		14,081				Interest expense	14,744		13,525		28,401		27,606
Interest income	Interest income	—		(37)				Interest income	(27)		(14)		(27)		(51)
Provision for income taxes	Provision for income taxes	19,971		9,604				Provision for income taxes	23,769		8,277		43,740		17,881
Depreciation expense	Depreciation expense	12,925		12,827				Depreciation expense	13,703		12,710		26,628		25,537
Amortization expense	Amortization expense	14,789		14,270				Amortization expense	15,700		14,535		30,489		28,805
Stock appreciation rights(a)	Stock appreciation rights(a)	892		792				Stock appreciation rights(a)	983		314		1,875		1,106
Redeemable noncontrolling interests(b)	Redeemable noncontrolling interests(b)	310		252				Redeemable noncontrolling interests(b)	593		186		903		438
Equity-based compensation(c)	Equity-based compensation(c)	1,958		1,605				Equity-based compensation(c)	3,215		3,252		5,173		4,857
Severance and other permitted costs(d)	Severance and other permitted costs(d)	147		1,947				Severance and other permitted costs(d)	249		762		396		2,709
Transaction costs (acquisitions and other)(e)	Transaction costs (acquisitions and other)(e)	575		100				Transaction costs (acquisitions and other)(e)	2,393		25		2,968		125
(Gain) loss on disposal and impairment of assets(f)	(Gain) loss on disposal and impairment of assets(f)	(78)		394				(Gain) loss on disposal and impairment of assets(f)	(144)		481		(222)		875
Effects of fair value adjustments to inventory(g)	Effects of fair value adjustments to inventory(g)	1,731		—				Effects of fair value adjustments to inventory(g)	—		—		1,731		—
Adjusted EBITDA	Adjusted EBITDA	$	128,079	$	83,054			Adjusted EBITDA	$	149,539	$	82,522	$	277,618	$	165,576

(a)Represents changes in the fair value of stock appreciation rights.

(b)Represents changes in the fair 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 the calculation of Adjusted EBITDA under the ABL Facility and the Term Loan Facility, including certain unusual, nonrecurring costs and credits due to COVID-19.

(e)Represents costs related to acquisitions paid to third parties.

(f)Includes gains from the sale of assets and impairment of assets resulting from restructuring plans to close certain facilities.

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

Revenues by Product

The following table presents the Company’s net sales to external customers by main product lines:


		Three Months Ended July 31,					Three Months Ended October 31,				Six Months Ended October 31,
		2021		2020					2021		2020		2021		2020
		(in thousands)				(in thousands)
Wallboard	Wallboard	$	390,135	$	328,085			Wallboard	$	414,522	$	330,515	$	804,657	$	658,600
Ceilings	Ceilings	138,071		114,643				Ceilings	140,866		112,126		278,937		226,769
Steel framing	Steel framing	196,276		110,532				Steel framing	272,000		111,293		468,276		221,825
Complementary products	Complementary products	317,594		249,313				Complementary products	323,163		258,922		640,757		508,235
Total net sales	Total net sales	$	1,042,076	$	802,573			Total net sales	$	1,150,551	$	812,856	$	2,192,627	$	1,615,429

2223

GMS Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

Geographic Information

The following table presents the Company’s net sales by major geographic area:


		Three Months Ended July 31,					Three Months Ended October 31,				Six Months Ended October 31,
		2021		2020					2021		2020		2021		2020
		(in thousands)				(in thousands)
United States	United States	$	862,790	$	679,321			United States	$	988,103	$	684,131	$	1,850,893	$	1,363,452
Canada	Canada	179,286		123,252				Canada	162,448		128,725		341,734		251,977
Total net sales	Total net sales	$	1,042,076	$	802,573			Total net sales	$	1,150,551	$	812,856	$	2,192,627	$	1,615,429

The following table presents the Company’s property and equipment, net, by major geographic area:

July 31,
2021 April 30,
2021
(in thousands)
United States $ 284,177 $ 271,346
Canada 39,790 39,980
Total property and equipment, net $ 323,967 $ 311,326


	October 31, 2021		April 30, 2021
	(in thousands)
United States	$	284,763	$	271,346
Canada	41,727		39,980
Total property and equipment, net	$	326,490	$	311,326

14. Earnings Per Common Share

The following table sets forth the computation of basic and diluted earnings per share of common stock:


		Three Months Ended July 31,				Three Months Ended October 31,				Six Months Ended October 31,
		2021		2020				2021		2020		2021		2020
								(in thousands, except per share data)
Net income	Net income	$	61,202	$	27,219		Net income	$	74,361	$	28,469	$	135,563	$	55,688
Basic earnings per common share:	Basic earnings per common share:						Basic earnings per common share:
Basic weighted average common shares outstanding	Basic weighted average common shares outstanding	43,089		42,624			Basic weighted average common shares outstanding	43,135		42,723		43,112		42,674
Basic earnings per common share	Basic earnings per common share	$	1.42	$	0.64		Basic earnings per common share	$	1.72	$	0.67	$	3.14	$	1.30
Diluted earnings per common share:	Diluted earnings per common share:						Diluted earnings per common share:
Basic weighted average common shares outstanding	Basic weighted average common shares outstanding	43,089		42,624			Basic weighted average common shares outstanding	43,135		42,723		43,112		42,674
Add: Common Stock Equivalents	Add: Common Stock Equivalents	883		393			Add: Common Stock Equivalents	759		451		821		422
Diluted weighted average common shares outstanding	Diluted weighted average common shares outstanding	43,972		43,017			Diluted weighted average common shares outstanding	43,894		43,174		43,933		43,096
Diluted earnings per common share	Diluted earnings per common share	$	1.39	$	0.63		Diluted earnings per common share	$	1.69	$	0.66	$	3.09	$	1.29

During the three and six months ended ~~July~~October 31, 2021, no Common Stock Equivalents were excluded from the calculation of diluted earnings per share because their effect would have been anti-dilutive. During the three and six months ended October 31, 2020, approximately 0.5 million and 0.4 million, respectively, Common Stock Equivalents were excluded from the calculation of diluted earnings per share because their effect would have been anti-dilutive. Anti-dilutive securities could be dilutive in future periods.

GMS Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

15. Subsequent ~~Event~~Events

On ~~August~~December 1, 2021, the Company acquired ~~certain~~AMES Taping Tools Holding LLC (“AMES”) for a preliminary purchase price of $212.5 million in cash. AMES is the leading provider of automatic taping and finishing (“ATF”) tools and related products to the professional drywall finishing industry. The acquisition of AMES was primarily funded with borrowings under the Company's ABL Facility.

Also on December 1, 2021, the Company acquired the assets of ~~DK&B Construction Specialties, Inc., Inc.~~Kimco Supply Company (“~~DK&B”~~Kimco”). ~~DK&B~~Kimco is aan interior building products distributor through two locations in the Tampa, Florida area.

On November 30, 2021, the Company amended its ABL Facility to, among other things, increase the commitments thereunder by $100.0 million from $445.0 million to $545.0 million and change the LIBOR interest rate provisions to SOFR interest rate provisions. After giving effect to the amendment to the ABL Facility and borrowings under the ABL Facility to finance the acquisition of ~~External Insulation and Finishing Systems (EIFS) and stucco products through one location in Omaha, Nebraska.~~

AMES, the Company had available borrowing capacity of approximately $149.5 million as of December 1, 2021 under the ABL Facility.

2325

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following information should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q. The following discussion may contain forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those factors discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in “Cautionary Note Regarding Forward-Looking Statements,” and discussed in the section entitled “Risk Factors” included in our Annual Report on Form 10-K for the year ended April 30, 2021.

Overview

Founded in 1971, GMS Inc. (“we,” “our,” “us” or the “Company”) is a distributor of specialty building products including wallboard, suspended ceilings systems, or ceilings, steel framing and other complementary specialty building products. We purchase products from many manufacturers and then distribute these goods to a customer base consisting of wallboard and ceilings contractors and homebuilders and, to a lesser extent, general contractors and individuals. We operate a network of more than 280 distribution centers across the United States and Canada.

Business Strategy

Our business strategy includes an emphasis on organic growth through expanding market share in our core products (wallboard, ceilings and steel framing) and growing our complementary product lines (insulation, lumber, ready-mix joint compound, tools, fasteners and various other construction products). Our growth strategy also includes the pursuit of greenfield branch openings and strategic acquisitions as we seek to further broaden our geographic platform. We expect to continue to capture profitable market share in our existing footprint by delivering industry-leading customer service. Our strategy for opening new branches is to further penetrate markets that are adjacent to our existing operations. Typically, we have pre-existing customer relationships in these markets but need a new location to fully capitalize on those relationships. In addition, we will continue to pursue acquisitions. Due to the large, highly-fragmented nature of our markets and our reputation throughout the industry, we believe we have the potential to access a robust acquisition pipeline that will continue to supplement our organic growth. We use a rigorous targeting process to identify acquisition candidates that we believe will fit our culture and business model and we have built an experienced team of professionals to manage the acquisition and integration processes. As a result of our scale, purchasing power and ability to improve operations through implementing best practices, we believe we can continue to achieve substantial synergies and drive earnings accretion from our acquisition strategy. Finally, our growth strategy also entails a heightened focus on enhanced productivity and profitability across the organization, seeking to leverage our scale and employ both technology and other best practices to deliver further margin expansion and earnings growth.

COVID-19 Update

We continue to monitor the COVID-19 pandemic ~~("COVID-19"~~(“COVID-19”) and its impact on macroeconomic and local economic conditions. We will continue to implement, as deemed necessary or advisable, procedures and processes to protect the health and safety of our employees, customers, partners and suppliers.

We may take further actions that alter our business operations if required by federal, state, provincial or local authorities or that we determine are in the best interests of our employees, customers, suppliers and stockholders. Furthermore, while COVID-19 had a limited impact on our financial results and operations during the ~~three~~six months ended ~~July~~October 31, 2021, there is no guarantee that COVID-19 will not have a material impact on our future financial results or operations. See Item 1A, “Risk Factors,” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the fiscal year ended April 30, 2021 for a discussion of risks which could have a material adverse effect on our operations and financial results and for more information regarding the impact of COVID-19 and our response.

2426

Highlights

Key highlights in our business during the ~~three~~six months ended ~~July~~October 31, 2021 are described below:

•Generated net sales of ~~$1,042.1~~$2,192.6 million during the ~~three~~six months ended ~~July~~October 31, 2021, a ~~29.8%~~35.7% increase from the prior year period primarily due to ~~continued strength~~inflationary pricing, healthy residential end markets, growth in complementary products sales, acquisitions over the ~~residential market, price inflation in the current~~past year ~~period~~ and the negative impacts of COVID-19 in the prior year period.

•Generated net income of ~~$61.2~~$135.6 million during the ~~three~~six months ended ~~July~~October 31, 2021, a ~~124.9%~~143.4% increase compared to the prior year primarily due to the increase in net sales as noted above, partially offset by an increase in the provision for income taxes. Supply chain dynamics have led to all-time high levels of product inflation, which have been the principal driver of both sales growth and incremental profitability.

•Generated Adjusted EBITDA (a non-GAAP measure, see “Non-GAAP Financial Measures” in this Item 2) of ~~$128.1~~$277.6 million during the ~~three~~six months ended ~~July~~October 31, 2021, a ~~54.2%~~67.7% increase compared to the prior year primarily due to the increase in net sales noted above. Adjusted EBITDA as a percentage of net sales increased to ~~12.3%~~12.7% for the ~~three~~six months ended ~~July~~October 31, 2021 compared to ~~10.3%~~10.2% for the ~~three~~six months ended ~~July~~October 31, 2020 primarily due to better operating leverage, as product price inflation on sales outpaced operating cost inflation.

Recent Developments

Acquisitions

On July 1, 2021, we acquired substantially all the assets of Westside Building Material ~~("Westside"~~(“Westside”), one of the largest independent distributors of interior building products in the U.S., for preliminary consideration of $139.6 million. Westside is a leading supplier of steel framing, wallboard, acoustical ceilings, insulation and related building products serving commercial and residential markets. Westside’s distribution network comprises ten locations, including nine across California (Anaheim, Hesperia, Oakland, Chatsworth, Fresno, Lancaster, Santa Maria, San Diego and National City) and one in Las Vegas, Nevada. For more information regarding our acquisition of Westside, see Note 2 of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

On June 3, 2021, we acquired the assets of Architectural Coatings Distributors, Inc. (“Architectural Coating”). Architectural Coating is an interior building products distributor in Cleveland, Ohio.

On August 1,2, 2021, we acquired certain assets of DK&B Construction Specialties, ~~Inc.,~~ Inc. (“DK&B”). DK&B is a distributor of External Insulation and Finishing Systems ~~(EIFS)~~(“EIFS”) and stucco products through one location in Omaha, Nebraska.

Subsequent to the quarter on December 1, 2021, we acquired AMES Taping Tools Holding LLC (“AMES”) for a preliminary purchase price of $212.5 million in cash. AMES is the leading provider of automatic taping and finishing (“ATF”) tools and related products to the professional drywall finishing industry. The acquisition of AMES was primarily funded with borrowings under our ABL Facility.

Also on December 1, 2021, we acquired the assets of Kimco Supply Company (“Kimco”). Kimco is an interior building products distributor through two locations in the Tampa, Florida area.

Greenfields

During the ~~three~~six months ended ~~July~~October 31, 2021, we opened ~~five~~six new greenfield locations. In May 2021, we opened a ~~new~~ greenfield location in Hickory, North Carolina. In June 2021, we opened a ~~new~~ greenfield location in Scarborough, Ontario. In July 2021, we opened greenfield locations in Denver, Colorado, Jackson, Mississippi and Wilmington, Delaware. In August 2021, we opened a greenfield location in Johnson City, Tennessee.

2527

Results of Operations

The following table summarizes key components of our results of operations for the three and six months ended ~~July~~October 31, 2021 and 2020:


		Three Months Ended July 31,							Three Months Ended October 31,					Six Months Ended October 31,
		2021			2020						2021			2020			2021			2020
		(dollars in thousands)						(dollars in thousands)
Statement of operations data:	Statement of operations data:									Statement of operations data:
Net sales	Net sales	$	1,042,076		$	802,573				Net sales	$	1,150,551		$	812,856		$	2,192,627		$	1,615,429
Cost of sales (exclusive of depreciation and amortization shown separately below)	Cost of sales (exclusive of depreciation and amortization shown separately below)	706,243			542,115					Cost of sales (exclusive of depreciation and amortization shown separately below)	778,681			547,785			1,484,924			1,089,900
Gross profit	Gross profit	335,833			260,458					Gross profit	371,870			265,071			707,703			525,529
Operating expenses:	Operating expenses:									Operating expenses:
Selling, general and administrative expenses	Selling, general and administrative expenses	214,081			183,112					Selling, general and administrative expenses	230,531			188,352			444,612			371,464
Depreciation and amortization	Depreciation and amortization	27,714			27,097					Depreciation and amortization	29,403			27,245			57,117			54,342
Total operating expenses	Total operating expenses	241,795			210,209					Total operating expenses	259,934			215,597			501,729			425,806
Operating income	Operating income	94,038			50,249					Operating income	111,936			49,474			205,974			99,723
Other (expense) income:	Other (expense) income:									Other (expense) income:
Interest expense	Interest expense	(13,657)			(14,081)					Interest expense	(14,744)			(13,525)			(28,401)			(27,606)
Other income, net	Other income, net	792			655					Other income, net	938			797			1,730			1,452
Total other expense, net	Total other expense, net	(12,865)			(13,426)					Total other expense, net	(13,806)			(12,728)			(26,671)			(26,154)
Income before taxes	Income before taxes	81,173			36,823					Income before taxes	98,130			36,746			179,303			73,569
Provision for income taxes	Provision for income taxes	19,971			9,604					Provision for income taxes	23,769			8,277			43,740			17,881
Net income	Net income	$	61,202		$	27,219				Net income	$	74,361		$	28,469		$	135,563		$	55,688
Non-GAAP measures:	Non-GAAP measures:									Non-GAAP measures:
Adjusted EBITDA(1)	Adjusted EBITDA(1)	$	128,079		$	83,054				Adjusted EBITDA(1)	$	149,539		$	82,522		$	277,618		$	165,576
Adjusted EBITDA margin(1)(2)	Adjusted EBITDA margin(1)(2)	12.3		%	10.3		%			Adjusted EBITDA margin(1)(2)	13.0		%	10.2		%	12.7		%	10.2		%

(1)Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures. See “—Non-GAAP Financial Measures—Adjusted EBITDA,” for how we define and calculate Adjusted EBITDA and Adjusted EBITDA margin, reconciliations thereof to net income and a description of why we believe these measures are useful.

(2)Adjusted EBITDA margin is Adjusted EBITDA as a percentage of net sales.

Three Months Ended October 31, 2021 and 2020

Net Sales


		Three Months Ended July 31,				Change					Three Months Ended October 31,				Change
		2021		2020		Dollar		Percent			2021		2020		Dollar		Percent
		(dollars in thousands)									(dollars in thousands)
Wallboard	Wallboard	$	390,135	$	328,085	$	62,050	18.9	%	Wallboard	$	414,522	$	330,515	$	84,007	25.4	%
Ceilings	Ceilings	138,071		114,643		23,428		20.4	%	Ceilings	140,866		112,126		28,740		25.6	%
Steel framing	Steel framing	196,276		110,532		85,744		77.6	%	Steel framing	272,000		111,293		160,707		144.4	%
Complementary products	Complementary products	317,594		249,313		68,281		27.4	%	Complementary products	323,163		258,922		64,241		24.8	%
Total net sales	Total net sales	$	1,042,076	$	802,573	$	239,503	29.8	%	Total net sales	$	1,150,551	$	812,856	$	337,695	41.5	%

We generate net sales by providing a comprehensive product offering of wallboard, ceilings, steel framing and complementary construction products. The increase in net sales during the three months ended ~~July~~October 31, 2021 compared to the prior year period was primarily due to ~~continued strength in the~~inflationary pricing, healthy residential ~~market, price inflation in the current year period,~~end markets, growth in complementary

products sales and the negative impacts of COVID-19 in the prior year period. Also contributing to the increase were acquisitions ~~and new greenfield openings~~ over the past year. ~~These increases were partially offset by one less~~

~~selling day during the three months ended July 31, 2021 compared to the prior year period.~~ The increase consisted of the following:

•an increase in wallboard sales, which are impacted by both commercial and residential construction activity, primarily due to an increase in price/product mix and slightly higher ~~volume;~~volume driven by acquisitions;

•an increase in ceilings sales, which is principally impacted by commercial construction activity, primarily due to an increase in price/product mix and slightly higher ~~volume;~~volume driven by acquisitions;

•an increase in steel framing sales, which is principally impacted by commercial construction activity, primarily due to an increase in price/product mix and higher volume; and

•an increase in complementary products sales, which include insulation, joint treatment, tools, lumber and various other specialty building products, primarily due to an increase in pricing in certain product categories, the execution of growth initiatives to increase other products sales and positive contributions from acquisitions.

The following table breaks out our net sales into organic, or base business, net sales and recently acquired net sales for the three months ended ~~July~~October 31, 2021 and 2020. When calculating organic sales growth, we exclude the net sales of acquired businesses until the first anniversary of the acquisition date. In addition, we exclude the impact of foreign currency translation in our calculation of organic net sales growth.


		Three Months Ended July 31,				Change					Three Months Ended October 31,				Change
		2021		2020		Dollar		Percent			2021		2020		Dollar		Percent
		(dollars in thousands)									(dollars in thousands)
Net sales	Net sales	$	1,042,076	$	802,573					Net sales	$	1,150,551	$	812,856
Recently acquired net sales (1)	Recently acquired net sales (1)	(34,893)		—						Recently acquired net sales (1)	(75,964)		—
Impact of foreign currency (2)	Impact of foreign currency (2)	(18,437)		—						Impact of foreign currency (2)	(8,505)		—
Base business net sales (3)	Base business net sales (3)	$	988,746	$	802,573	$	186,173	23.2	%	Base business net sales (3)	$	1,066,082	$	812,856	$	253,226	31.2	%

(1)Represents net sales of branches acquired by us until the first anniversary of the acquisition date. For the three months ended ~~July~~October 31, 2021, this includes net sales of ~~D. L.~~D.L. Building Materials, which was acquired on February 1, ~~2021, net sales of Architectural Coating, which was acquired on June 3,~~ 2021 and net sales of Westside, which was acquired on July 1, 2021. Our acquisitions of Architectural Coatings and DK&B have been treated as new greenfield branches and are included in base business net sales.

(2)Represents the impact of foreign currency translation on net sales.

(3)Represents net sales of existing branches and branches that were opened by us during the period presented.

The increase in organic net sales was primarily driven by ~~continued strength in the~~inflationary pricing, healthy residential ~~market, price inflation in the current year period,~~end markets, growth in complementary products sales and the negative impacts of COVID-19 in the prior year ~~period, partially offset by one less selling day during the current year period compared to the prior year~~ period.

Gross Profit and Gross Margin


		Three Months Ended July 31,						Change					Three Months Ended October 31,						Change
		2021			2020			Dollar		Percent			2021			2020			Dollar		Percent
		(dollars in thousands)											(dollars in thousands)
Gross profit	Gross profit	$	335,833		$	260,458		$	75,375	28.9	%	Gross profit	$	371,870		$	265,071		$	106,799	40.3	%
Gross margin	Gross margin	32.2		%	32.5		%					Gross margin	32.3		%	32.6		%

The increase in gross profit during the three months ended ~~July~~October 31, 2021 compared to the prior year period was primarily due to continued strength in the residential market, incremental gross profit from acquisitions and the negative impacts of COVID-19 in the prior year period. The decrease in gross margin on net sales for the three months ended ~~July~~October 31, 2021 compared to the prior year period was primarily due to ~~challenging~~ price-cost dynamics ~~for certain product categories. Included~~related to the timing of the implementation of price actions in cost of sales for the three months ended July 31, 2021 was a $1.7 million non-cash cost of sales charge to increase inventory acquired in the Westside acquisition to its estimated fair value. This adjustment had a negative effect on gross margin as the related inventory was sold.wallboard.

2729

Selling, General and Administrative Expenses


		Three Months Ended July 31,						Change					Three Months Ended October 31,						Change
		2021			2020			Dollar		Percent			2021			2020			Dollar		Percent
		(dollars in thousands)											(dollars in thousands)
Selling, general and administrative expenses	Selling, general and administrative expenses	$	214,081		$	183,112		$	30,969	16.9	%	Selling, general and administrative expenses	$	230,531		$	188,352		$	42,179	22.4	%
% of net sales	% of net sales	20.5		%	22.8		%					% of net sales	20.0		%	23.2		%

Selling, general and administrative expenses consist of warehouse, delivery and general and administrative expenses. Selling, general and administrative expenses increased during the three months ended ~~July~~October 31, 2021 compared to the prior year period primarily due to increases in payroll and payroll related costs, fuel costs, travel costs and facilities costs, which were driven by increased sales ~~volume and organic growth.~~volume. Also contributing to the increase was an increase in transaction costs due to the increase in acquisition activity. Selling, general and administrative expenses as a percent of our net sales decreased during the three months ended ~~July~~October 31, 2021 compared to the prior year period primarily due to the impact of inflationary market pricing on sales.

Depreciation and Amortization Expense


		Three Months Ended July 31,				Change					Three Months Ended October 31,				Change
		2021		2020		Dollar		Percent			2021		2020		Dollar		Percent
		(dollars in thousands)									(dollars in thousands)
Depreciation	Depreciation	$	12,925	$	12,827	$	98	0.8	%	Depreciation	$	13,703	$	12,710	$	993	7.8	%
Amortization	Amortization	14,789		14,270		519		3.6	%	Amortization	15,700		14,535		1,165		8.0	%
Depreciation and amortization	Depreciation and amortization	$	27,714	$	27,097	$	617	2.3	%	Depreciation and amortization	$	29,403	$	27,245	$	2,158	7.9	%

Depreciation and amortization expense includes depreciation of property and equipment and amortization of definite-lived intangible assets acquired in purchases of businesses. The increase in depreciation expense during the three months ended ~~July~~October 31, 2021 compared to the prior year period was primarily due to incremental expense resulting from property and equipment obtained in the acquisition of ~~Westside, partially offset by assets becoming fully depreciated during the period.~~Westside. The increase in amortization expense during the three months ended ~~July~~October 31, 2021 was primarily due to incremental expense resulting from definite-lived intangible assets obtained in the acquisition of Westside and D.L. Building Materials, partially offset by time-based progression of our use of the accelerated method of amortization for acquired customer relationships.

Interest Expense

Three Months Ended
July 31, Change
2021 2020 Dollar Percent
(dollars in thousands)
Interest expense $ (13,657) $ (14,081) $ (424) (3.0) %


	Three Months Ended October 31,				Change
	2021		2020		Dollar		Percent
	(dollars in thousands)
Interest expense	$	(14,744)	$	(13,525)	$	1,219	9.0	%

Interest expense consists primarily of interest expense incurred on our debt and finance leases and amortization of deferred financing fees and debt discounts. The ~~decrease~~increase in interest expense during the three months ended ~~July~~October 31, 2021 compared to the prior year period was primarily due to ~~a decrease~~an increase in average debt outstanding during the comparable periods and ~~a decrease~~an increase in interest rates.

2830

Income Taxes


		Three Months Ended July 31,						Change					Three Months Ended October 31,						Change
		2021			2020			Dollar		Percent			2021			2020			Dollar		Percent
		(dollars in thousands)											(dollars in thousands)
Provision for income taxes	Provision for income taxes	$	19,971		$	9,604		$	10,367	107.9	%	Provision for income taxes	$	23,769		$	8,277		$	15,492	187.2	%
Effective tax rate	Effective tax rate	24.6		%	26.1		%					Effective tax rate	24.2		%	22.5		%

The change in the effective income tax rate during the three months ended ~~July~~October 31, 2021 compared to the prior year period was primarily due to the impact of a change in valuation allowance, foreign taxes and stock-based compensation.

Six Months Ended October 31, 2021 and 2020

Net Sales


	Six Months Ended October 31,				Change
	2021		2020		Dollar		Percent
	(dollars in thousands)
Wallboard	$	804,657	$	658,600	$	146,057	22.2	%
Ceilings	278,937		226,769		52,168		23.0	%
Steel framing	468,276		221,825		246,451		111.1	%
Complementary products	640,757		508,235		132,522		26.1	%
Total net sales	$	2,192,627	$	1,615,429	$	577,198	35.7	%

The increase in net sales during the six months ended October 31, 2021 compared to the prior year period was primarily due to inflationary pricing, healthy residential end markets, growth in complementary products sales and the negative impacts of COVID-19 in the prior year period. Also contributing to the increase were acquisitions over the past year. These increases were partially offset by one less selling day during the six months ended October 31, 2021 compared to the prior year period. The increase consisted of the following:

•an increase in wallboard sales, which are impacted by both commercial and residential construction activity, primarily due to an increase in price/product mix and slightly higher volume;

•an increase in ceilings sales, which is principally impacted by commercial construction activity, primarily due to an increase in price/product mix and slightly higher volume driven by acquisitions;

•an increase in steel framing sales, which is principally impacted by commercial construction activity, primarily due to an increase in price/product mix and higher volume; and

The following table breaks out our net sales into organic, or base business, net sales and recently acquired net sales for the six months ended October 31, 2021 and 2020. When calculating organic sales growth, we exclude the net sales of acquired businesses until the first anniversary of the acquisition date. In addition, we exclude the impact of foreign currency translation in our calculation of organic net sales growth.


	Six Months Ended October 31,				Change
	2021		2020		Dollar		Percent
	(dollars in thousands)
Net sales	$	2,192,627	$	1,615,429
Recently acquired net sales (1)	(110,857)		—
Impact of foreign currency (2)	(26,942)		—
Base business net sales (3)	$	2,054,828	$	1,615,429	$	439,399	27.2	%

(1)Represents net sales of branches acquired by us until the first anniversary of the acquisition date. For the six months ended October 31, 2021, this includes net sales of D.L. Building Materials, which was acquired on February 1, 2021 and net sales of Westside, which was acquired on July 1, 2021. Our acquisitions of Architectural Coatings and DK&B have been treated as new greenfield branches and are included in base business net sales.

(2)Represents the impact of foreign currency translation on net sales.

(3)Represents net sales of existing branches and branches that were opened by us during the period presented.

The increase in organic net sales was primarily driven by inflationary pricing, healthy residential end markets, growth in complementary products sales and the negative impacts of COVID-19 in the prior year period, partially offset by one less selling day during the current year period compared to the prior year period.

Gross Profit and Gross Margin


	Six Months Ended October 31,						Change
	2021			2020			Dollar		Percent
	(dollars in thousands)
Gross profit	$	707,703		$	525,529		$	182,174	34.7	%
Gross margin	32.3		%	32.5		%

The increase in gross profit during the six months ended October 31, 2021 compared to the prior year period was primarily due to continued strength in the residential market, incremental gross profit from acquisitions and the negative impacts of COVID-19 in the prior year period. The decrease in gross margin on net sales for the six months ended October 31, 2021 compared to the prior year period was primarily due to challenging price-cost dynamics for certain product categories. Included in cost of sales for the six months ended October 31, 2021 was a $1.7 million non-cash cost of sales charge to increase inventory acquired in the Westside acquisition to its estimated fair value. This adjustment had a negative effect on gross margin as the related inventory was sold.

Selling, General and Administrative Expenses


	Six Months Ended October 31,						Change
	2021			2020			Dollar		Percent
	(dollars in thousands)
Selling, general and administrative expenses	$	444,612		$	371,464		$	73,148	19.7	%
% of net sales	20.3		%	23.0		%

Selling, general and administrative expenses increased during the six months ended October 31, 2021 compared to the prior year period primarily due to increases in payroll and payroll related costs, fuel costs, travel costs and facilities costs, which were driven by increased sales volume. Also contributing to the increase was an increase in transaction costs due to increase in

acquisition activity. Selling, general and administrative expenses as a percent of our net sales decreased during the six months ended October 31, 2021 compared to the prior year period primarily due to the impact of inflationary market pricing on sales.

Depreciation and Amortization Expense


	Six Months Ended October 31,				Change
	2021		2020		Dollar		Percent
	(dollars in thousands)
Depreciation	$	26,628	$	25,537	$	1,091	4.3	%
Amortization	30,489		28,805		1,684		5.8	%
Depreciation and amortization	$	57,117	$	54,342	$	2,775	5.1	%

The increase in depreciation expense during the six months ended October 31, 2021 compared to the prior year period was primarily due to incremental expense resulting from property and equipment obtained in the acquisition of Westside, partially offset by assets becoming fully depreciated during the period. The increase in amortization expense during the six months ended October 31, 2021 was primarily due to incremental expense resulting from definite-lived intangible assets obtained in the acquisition of Westside and D.L. Building Materials, partially offset by time-based progression of our use of the accelerated method of amortization for acquired customer relationships.

Interest Expense


	Six Months Ended October 31,				Change
	2021		2020		Dollar		Percent
	(dollars in thousands)
Interest expense	$	(28,401)	$	(27,606)	$	795	2.9	%

The increase in interest expense during the six months ended October 31, 2021 compared to the prior year period was primarily due to an increase in average debt outstanding during the comparable periods and an increase in interest rates.

Income Taxes


	Six Months Ended October 31,						Change
	2021			2020			Dollar		Percent
	(dollars in thousands)
Provision for income taxes	$	43,740		$	17,881		$	25,859	144.6	%
Effective tax rate	24.4		%	24.3		%

The change in the effective income tax rate during the six months ended October 31, 2021 compared to the prior year period was primarily due the impact of state taxes, foreign taxes and a change in the valuation allowance in the prior year period.

Liquidity and Capital Resources

Summary

We depend on cash flow from operations, cash on hand and funds available under our asset based revolving credit facility (the “ABL Facility”) to finance working capital needs, capital expenditures and acquisitions. We believe that these sources of funds will be adequate to fund debt service requirements and provide cash, as required, to support our growth strategies, ongoing operations, capital expenditures, lease obligations and working capital for at least the next twelve months and in the long term. During fiscal 2021, we took several measures to preserve liquidity in response to COVID-19. We believe we would be able to take similar measures in the future should there be an economic downturn or disruption to our business as a result of the continuing COVID-19 pandemic or other factors.

On November 30, 2021, we amended our ABL Facility to, among other things, increase the commitments thereunder by $100.0 million from $445.0 million to $545.0 million and change the LIBOR interest rate provisions to SOFR interest rate provisions. As of ~~July~~October 31, 2021, we had available borrowing capacity of approximately ~~$335.5~~$278.0 million under our ~~$445.0~~ABL Facility. After giving effect to the amendment to the ABL Facility and borrowings under the ABL Facility to finance the acquisition of AMES, the Company had available borrowing capacity of approximately $149.5 million as of December 1, 2021 under our ABL Facility. The ABL Facility is scheduled to mature on September 30, 2024.

As of ~~July~~October 31, 2021, we had available borrowing capacity of approximately ~~$19.1~~$24.2 million under our Canadian revolving credit facility (the “Canadian Facility”) that provides for aggregate revolving commitments of ~~$24.0~~$24.2 million ($30.0 million Canadian dollars). The Canadian Facility matures on January 12, 2026.

For more information regarding our ABL Facility and other indebtedness, see Note 5 of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q and Note 7 of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended April 30, 2021.

We have a common stock repurchase program authorized by our Board of Directors to repurchase up to $75.0 million of our outstanding common stock. The share repurchase program does not obligate us to acquire any particular amount of common stock, and it may be suspended or terminated at any time at our discretion. The timing and amount of any purchases of our common stock will be subject to a variety of factors, including, but not limited to, our liquidity, credit availability, general business and market conditions, our debt covenant restrictions and the availability of alternative investment opportunities. We repurchased approximately ~~85,000~~280,000 shares of our common stock for ~~$3.9~~$13.1 million during the ~~three~~six months ended ~~July~~October 31, 2021. As of ~~July~~October 31, 2021, we had ~~$50.5~~$41.2 million of remaining purchase authorization.

We regularly evaluate opportunities to optimize our capital structure, including through consideration of the issuance or incurrence of additional debt to refinance existing debt and to fund ongoing cash needs such as general corporate purposes, growth initiatives, acquisitions and our stock repurchase program.

Cash Flows

A summary of our operating, investing and financing activities is shown in the following table:


		Three Months Ended July 31,					Six Months Ended October 31,
		2021		2020			2021		2020
		(in thousands)					(in thousands)
Cash used in operating activities		$	(75,077)	$	(15,711)
Cash (used in) provided by operating activities						Cash (used in) provided by operating activities	$	(77,095)	$	24,048
Cash used in investing activities	Cash used in investing activities	(129,576)		(4,613)		Cash used in investing activities	(140,629)		(11,176)
Cash provided by (used in) financing activities	Cash provided by (used in) financing activities	81,394		(51,819)		Cash provided by (used in) financing activities	110,103		(106,895)
Effect of exchange rates on cash and cash equivalents	Effect of exchange rates on cash and cash equivalents	(163)		943		Effect of exchange rates on cash and cash equivalents	(81)		1,282
Decrease in cash and cash equivalents	Decrease in cash and cash equivalents	$	(123,422)	$	(71,200)	Decrease in cash and cash equivalents	$	(107,702)	$	(92,741)

Operating Activities

The ~~increase~~change in cash ~~used in~~(used in) provided by operating activities during the ~~three~~six months ended ~~July~~October 31, 2021 compared to the prior year period was primarily due to a ~~$100.4~~$195.5 million decrease in cash resulting from changes in our net working capital, partially offset by a ~~$41.0~~$94.3 million increase in net income after adjustments for non-cash items. The decrease in cash from net working capital was primarily due to an increase in inventory related to ensuring product availability and managing price inflation amid an environment of tight and less reliable supply, as well as an increase in accounts receivable due to higher sales activity. In addition, in the prior year period we were still conserving cash in response to COVID-19.

Investing Activities

The increase in cash used in investing activities during the ~~three~~six months ended ~~July~~October 31, 2021 compared to the prior year period was primarily due to a ~~$122.8~~$124.9 million increase in cash used for acquisitions and a ~~$2.1~~$4.3 million increase in capital expenditures.

Capital expenditures during the ~~three~~six months ended ~~July~~October 31, 2021 primarily consisted of building and leasehold improvements, vehicles and IT-related spending. Capital expenditures vary depending on prevailing business factors, including

current and anticipated market conditions. Historically, capital expenditures have remained at relatively low levels in comparison to the operating cash flows generated during the corresponding periods.

Financing Activities

The change in cash provided by (used in) financing activities during the ~~three~~six months ended ~~July~~October 31, 2021 compared to the prior year period was primarily due to net borrowings of ~~$92.2~~$140.8 million of our revolving credit facilities during the ~~three~~six months ended ~~July~~October 31, 2021, compared to net repayments of ~~$43.7~~$87.4 million during the prior year period. During the ~~three~~six months ended ~~July~~October 31, 2021, we used our ~~revolvers~~revolving credit facilities to help fund the Westside acquisition and general working capital needs. During the prior year period, we repaid ~~a portion of~~the proceeds we proactively borrowed in March 2020 due to COVID-19. Also contributing to the change was ~~$3.9~~an $11.9 million ofincrease in repurchases of common stock during the ~~three~~six months ended ~~July~~October 31, ~~2021. No shares were repurchased during~~2021 compared to the prior year period. Repurchases were temporarily suspended in the prior year period to preserve liquidity in response to COVID-19

Debt Covenants

~~Our senior secured first lien term loan facility (the “Term~~The Term Loan ~~Facility”) contains~~Facility and the indenture governing the Senior Notes contain a number of covenants that limit our ability and the ability of our restricted subsidiaries, as described in the respective credit agreement and the indenture, to: incur more indebtedness; pay dividends, redeem or repurchase stock or make other distributions; make investments; create restrictions on the ability of our restricted subsidiaries to pay dividends to us or make other intercompany transfers; create liens securing indebtedness; transfer or sell assets; merge or consolidate; enter into certain transactions with our affiliates; and prepay or amend the terms of certain indebtedness. ~~We were~~Such covenants are subject to several important exceptions and qualifications set forth in the Term Loan Facility and the indenture governing the Senior Notes. The Company was in compliance with all covenants contained in the Term Loan Facility ~~as of July 31, 2021.~~

~~Our senior unsecured notes due May 2029 (the "Senior Notes") contains certain covenants that, among other things, limit the Company’s ability~~ and the ability of its restricted subsidiaries to incur additional indebtedness, make certain dividends, repurchase Company stock or make other distributions, make certain investments, create liens, transfer or sell assets, merge or consolidate, and enter into transactions with the Company’s affiliates. Such covenants are subject to a number of important exceptions and qualifications set forth in the related indenture. We were in compliance with all covenants contained inindenture governing the Senior Notes as of ~~July~~October 31, ~~2021~~

2021.

The ABL Facility contains certain affirmative covenants, including financial and other reporting requirements. We were in compliance with all such covenants as of ~~July~~October 31, 2021.

Contractual Obligations

There have been no material changes to the contractual obligations as disclosed in our Annual Report on Form 10-K for the fiscal year ended April 30, 2021, other than those made in the ordinary course of business.

Off-Balance Sheet Arrangements

There have been no material changes to our off-balance sheet arrangements as discussed in our Annual Report on Form 10-K for the fiscal year ended April 30, 2021.

Non-GAAP Financial Measures

Adjusted EBITDA

Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures. We report our financial results in accordance with GAAP. However, we present Adjusted EBITDA and Adjusted EBITDA margin, which are not recognized financial measures under GAAP, because we believe they assist investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. Management believes Adjusted EBITDA and Adjusted EBITDA margin are helpful in highlighting trends in our operating results, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure and allocation, the tax jurisdictions in which companies operate and capital investments and acquisitions.

In addition, we utilize Adjusted EBITDA in certain calculations under our debt agreements. Our debt agreements permit us to make certain additional adjustments in calculating Consolidated EBITDA, such as projected net cost savings, which are not reflected in the Adjusted EBITDA data presented in this Quarterly Report on Form 10-Q. We may in the future reflect such permitted adjustments in our calculations of Adjusted EBITDA.

We believe that Adjusted EBITDA and Adjusted EBITDA margin are frequently used by analysts, investors and other interested parties in their evaluation of companies, many of which present an Adjusted EBITDA or Adjusted EBITDA margin measure when reporting their results. Our presentation of Adjusted EBITDA should not be construed as an inference that our

future results will be unaffected by unusual or non-recurring items. In addition, Adjusted EBITDA may not be comparable to similarly titled measures used by other companies in our industry or across different industries.

We also include information concerning Adjusted EBITDA margin, which is calculated as Adjusted EBITDA divided by net sales. We present Adjusted EBITDA margin because it is used by management as a performance measure to judge the level of Adjusted EBITDA that is generated from net sales.

Adjusted EBITDA and Adjusted EBITDA margin have their limitations as analytical tools and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP.

The following is a reconciliation of our net income to Adjusted EBITDA and Adjusted EBITDA margin:


		Three Months Ended July 31,							Three Months Ended October 31,					Six Months Ended October 31,
		2021			2020						2021			2020			2021			2020
		(in thousands)						(in thousands)
Net income	Net income	$	61,202		$	27,219				Net income	$	74,361		$	28,469		$	135,563		$	55,688
Interest expense	Interest expense	13,657			14,081					Interest expense	14,744			13,525			28,401			27,606
Interest income	Interest income	—			(37)					Interest income	(27)			(14)			(27)			(51)
Provision for income taxes	Provision for income taxes	19,971			9,604					Provision for income taxes	23,769			8,277			43,740			17,881
Depreciation expense	Depreciation expense	12,925			12,827					Depreciation expense	13,703			12,710			26,628			25,537
Amortization expense	Amortization expense	14,789			14,270					Amortization expense	15,700			14,535			30,489			28,805
Stock appreciation rights(a)	Stock appreciation rights(a)	892			792					Stock appreciation rights(a)	983			314			1,875			1,106
Redeemable noncontrolling interests(b)	Redeemable noncontrolling interests(b)	310			252					Redeemable noncontrolling interests(b)	593			186			903			438
Equity-based compensation(c)	Equity-based compensation(c)	1,958			1,605					Equity-based compensation(c)	3,215			3,252			5,173			4,857
Severance and other permitted costs(d)	Severance and other permitted costs(d)	147			1,947					Severance and other permitted costs(d)	249			762			396			2,709
Transaction costs (acquisitions and other)(e)	Transaction costs (acquisitions and other)(e)	575			100					Transaction costs (acquisitions and other)(e)	2,393			25			2,968			125
(Gain) loss on disposal and impairment of assets(f)	(Gain) loss on disposal and impairment of assets(f)	(78)			394					(Gain) loss on disposal and impairment of assets(f)	(144)			481			(222)			875
Effects of fair value adjustments to inventory(g)	Effects of fair value adjustments to inventory(g)	1,731			—					Effects of fair value adjustments to inventory(g)	—			—			1,731			—
Adjusted EBITDA	Adjusted EBITDA	$	128,079		$	83,054				Adjusted EBITDA	$	149,539		$	82,522		$	277,618		$	165,576

Net sales	Net sales	$	1,042,076		$	802,573				Net sales	$	1,150,551		$	812,856		$	2,192,627		$	1,615,429
Adjusted EBITDA Margin	Adjusted EBITDA Margin	12.3		%	10.3		%			Adjusted EBITDA Margin	13.0		%	10.2		%	12.7		%	10.2		%

(a)Represents changes in the fair value of stock appreciation rights.

(b)Represents changes in the fair values of noncontrolling interests.

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

(e)Represents costs related to acquisitions paid to third parties.

(f)Includes gains from the sale of assets and impairment of assets resulting from restructuring plans to close certain facilities.

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

3236

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to our exposure to market risks from those reported in our Annual Report on Form 10-K for the fiscal year ended April 30, 2021.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of ~~July~~October 31, 2021, our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), which are designed to provide reasonable assurance that the information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of ~~July~~October 31, 2021, our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that are filed or submitted under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended ~~July~~October 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting except that on July 1, 2021 the Company acquired Westside Building Material ("Westside"). As a result, the Company is currently integrating Westside’s operations into its overall system of internal control over financial reporting. Under the guidelines established by the Securities and Exchange Commission, companies are permitted to exclude acquisitions from their assessment of internal control over financial reporting during the first year of acquisition. Accordingly, we expect to exclude Westside from the assessment of internal control over financial reporting for fiscal 2022.

3337

PART II – Other Information

Item 1. Legal Proceedings

From time to time, we are involved in lawsuits that are brought against us in the normal course of business. We are not currently a party to any legal proceedings that would be expected, either individually or in the aggregate, to have a material adverse effect on our business or financial condition. For additional information, see Note 12, “Commitments and Contingencies.”

The building materials industry has been subject to personal injury and property damage claims arising from alleged exposure to raw materials contained in building products as well as claims for incidents of catastrophic loss, such as building fires. As a distributor of building materials, we face an inherent risk of exposure to product liability claims in the event that the use of the products we have distributed in the past or may in the future distribute is alleged to have resulted in economic loss, personal injury or property damage or violated environmental, health or safety or other laws. Such product liability claims have included and may in the future include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. In particular, certain of our subsidiaries have been the subject of claims related to alleged exposure to asbestos-containing products they distributed prior to 1979. Since 2002 and as of ~~July~~October 31, 2021, approximately ~~1,025~~1,026 asbestos-related personal injury lawsuits have been filed and we vigorously defend against them. Of these, ~~980~~981 have been dismissed without any payment by us, 35 are pending and only 10 have been settled, which settlements have not materially impacted our financial condition or operating results. See “Risk Factors—Risks Relating to Our Business and Industry—We are exposed to product liability, warranty, casualty, construction defect, contract, tort, employment and other claims and legal proceedings related to our business, the products we distribute, the services we provide and services provided for us by third parties” listed in Part 1, Item 1A of our Annual Report on Form 10-K for the fiscal year ended April 30, 2021.

Item 1A. Risk Factors

There have been no material changes in the risks facing the Company as described in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2021.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The number of shares repurchased and the average price paid per share for each month in the three months ended ~~July~~October 31, 2021 are as follows:

Total Number
of Shares
Repurchased Average Price
Paid Per Share Total Number of Shares
Repurchased as
Part of Publicly
Announced Program (1) Approximate
Dollar Value that May
Yet be Purchased
Under the Program
(in thousands)
May 1 through May 31 8,583 $ 44.41 8,583 $ 53,939
June 1 through June 30 20,081 42.88 20,081 53,078
July 1 through July 31 56,371 46.36 56,371 50,465
Total 85,035 85,035


	Total Number of Shares Repurchased	Average Price Paid Per Share		Total Number of Shares Repurchased as Part of Publicly Announced Program (1)	Approximate Dollar Value that May Yet be Purchased Under the Program
					(in thousands)
August 1 through August 31	58,734	$	49.34	58,734	$	47,567
September 1 through September 30	64,058	47.39		64,058	44,531
October 1 through October 31	72,623	45.92		72,623	41,196
Total	195,415			195,415

(1)On November 30, 2018, our Board of Directors authorized a common stock repurchase program to repurchase up to $75.0 million of our outstanding common stock. We may conduct repurchases under the share repurchase program through open market transactions, under trading plans in accordance with Rule 10b5-1 and/or in privately negotiated transactions, in compliance with Rule 10b-18 under the Exchange Act of 1934, as amended, subject to a variety of factors, including, but not limited to, our liquidity, credit availability, general business and market conditions, our debt covenant restrictions and the availability of alternative investment opportunities. The share repurchase program does not obligate us to acquire any particular amount of common stock, and it may be suspended or terminated at any time at our discretion.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

~~None.~~On November 30, 2021, the Company's ABL Facility was amended to, among other things, increase the commitments thereunder by $100.0 million from $445.0 million to $545.0 million and change the LIBOR interest rate provisions to SOFR interest rate provisions.

3539

Item 6. Exhibits

(a)Exhibits. The following exhibits are filed as part of this report:



Exhibit No.		Exhibit Description
3.1		Third Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on October 23, 2020).

3.2		Second Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on October 23, 2020).

4.1		Specimen Common Stock Certificate of the Company (incorporated by reference to Exhibit 4.1 to Amendment No. 5 to the Company’s Registration Statement on Form S-1 filed on May 16, 2016 (File No. 333-205902)).

10.1	*	~~Form~~First Amendment to Amended and Restated Credit Agreement, dated as of ~~Nonqualified Stock Option Agreement under~~November 30 , 2021, by and among GYP Holdings II Corp., GYP Holdings III Corp., as lead borrower, the ~~GMS Inc. 2020 Equity Incentive Plan.~~

~~10.2~~	*	~~Form of Restricted Stock Unit Agreement under~~other borrowers party thereto, the ~~GMS Inc. 2020 Equity Incentive Plan.~~lenders party thereto and Wells Fargo Bank, N.A., as administrative agent and collateral agent for the lenders from time to time party thereto, and as Swing Line Lender and L/C Issuer.

31.1	*	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.

31.2	*	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.

32.1	*	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2	*	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101 INS	*	Inline XBRL Instance Document – the instance document does not appear in the Interactive Data file because its XBRL tags are embedded within the Inline XBRL document.

101 SCH	*	Inline XBRL Taxonomy Extension Schema Document.

101 CAL	*	Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101 DEF	*	Inline XBRL Taxonomy Extension Definition Linkbase Document.

101 LAB	*	Inline XBRL Taxonomy Extension Label Linkbase Document.

101 PRE	*	Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

* Filed herewith.

3640

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.


	GMS INC.

Date: ~~September~~December 2, 2021	By:	/s/ Scott M. Deakin
		Scott M. Deakin
		Chief Financial Officer
		(Principal Financial Officer)

3741


	Estimated Useful Lives (years)	Weighted Average Amortization Period	July 31, 2021
			Gross Carrying Amount		Accumulated Amortization		Net Carrying Value
	(dollars in thousands)
Customer relationships	5 - 16	12.7	$	616,241	$	(342,161)	$	274,080
Definite-lived tradenames	5 - 20	15.8	72,820		(15,803)		57,017
Vendor agreements	8 - 10	8.3	6,644		(5,574)		1,070
Developed technology	5	4.9	5,608		(3,612)		1,996
Other	3 - 5	3.2	4,243		(4,126)		117
Totals			$	705,556	$	(371,276)	$	334,280