Exhibit 99.1
GMS REPORTS RESULTS FOR SECOND QUARTER 2019
— Second Quarter Net Sales Increased 28.7% to a Record $833.8 Million —
— Second Quarter Net Income Improved by 38.2% to $24.9 Million —
— Second Quarter Adjusted EBITDA Increased by 60.7% to a Record $87.1 Million —
— Announces Authorization of $75 Million Stock Repurchase Program —
Tucker, Georgia, December 4, 2018. GMS Inc. (NYSE:GMS), a leading North American distributor of wallboard and suspended ceilings systems, today reported financial results for the second quarter of fiscal 2019 ended October 31, 2018.
Net sales for the fiscal second quarter ended October 31, 2018 increased 28.7% to a record $833.8 million from $648.0 million for the fiscal second quarter ended October 31, 2017. Reported net income increased to $24.9 million, or $0.58 per diluted share in the fiscal second quarter ended October 31, 2018, compared to $18.0 million, or $0.43 per diluted share in the fiscal second quarter ended October 31, 2017. Adjusted EBITDA for the fiscal second quarter increased to a record $87.1 million from Adjusted EBITDA of $54.2 million for the second quarter of fiscal 2018.
Mike Callahan, President and CEO of GMS, stated, “We delivered a strong fiscal second quarter highlighted by record net sales and adjusted EBITDA. Our organic sales increased 8.7% year-over-year, reflecting broad-based sales growth across each of our product groups. Adjusted EBITDA increased more than 60%, reflecting contributions from the Titan acquisition, our continued focus on price discipline and our steadfast commitment to operational improvement. Driven by improved profitability, we generated strong free cash flow of $88 million during the second quarter, which allowed us to reduce our net leverage nearly a half turn from 4.2 times to 3.8 times.”
Mr. Callahan continued, “As we look toward the second half of the fiscal year, we remain confident in the health of our end markets and see continued growth opportunities across our product portfolio. We feel very good about our leading North American platform with significant scale advantages and a well-balanced portfolio built for growth and value creation. I am also pleased to announce that our Board of Directors has approved the repurchase of up to $75 million of the Company’s common stock. We plan to opportunistically purchase our common stock while at the same time continue with our stated strategy to use expected operating cash flows to reduce our net leverage to under 3.0 times by the end of fiscal 2020.”
Second Quarter 2019 Results
Net sales for the second quarter of fiscal 2019 ended October 31, 2018 were $833.8 million, compared to $648.0 million for the second quarter of fiscal 2018 ended October 31, 2017.
· Wallboard sales of $334.7 million increased 16.0% compared to the second quarter of fiscal 2018, with the positive impact of the June 1st acquisition of Titan and pricing improvement.
· Ceilings sales of $118.4 million rose 16.5% compared to the second quarter of fiscal 2018, mainly due to greater commercial activity, pricing improvement and the positive impact of acquisitions.
· Steel framing sales of $135.8 million grew 31.5% compared to the second quarter of fiscal 2018, mainly driven by greater commercial activity, pricing improvement and the positive impact of acquisitions.
· Other product sales of $245.0 million were up 58.4% compared to the second quarter of fiscal 2018, as a result of the positive impact of the acquisition of Titan and pricing improvement.
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Gross profit of $268.2 million grew 26.3% compared to $212.3 million in the second quarter of fiscal 2018, mainly attributable to increased sales from the Titan acquisition. Gross margin decreased by approximately 60 basis points to 32.2% compared to 32.8% in the second quarter of fiscal 2018.
Selling, general and administrative expense as a percentage of net sales, was 22.2% for the quarter compared to 24.7% in the second quarter of fiscal 2018. Adjusted Selling, general and administrative expense as a percentage of net sales was 21.8% compared to 24.5% in the prior year quarter. 200 basis points of the 270 basis point reduction is the result of increased cost efficiencies, primarily the result of previously announced cost reduction initiatives taken during the fiscal year, as well as contributions from the Titan acquisition. The remaining 70 basis points was the result of the amendment of certain equipment operating leases that are now being accounted for as capital leases. These improvements were partially offset by continuing inflation pressures, primarily in logistics.
Net income of $24.9 million, or $0.58 per diluted share, increased by 38.2% or $6.9 million compared to $18.0 million, or $0.43 per diluted share, in the second quarter of fiscal 2018. Adjusted net income of $38.3 million, or $0.89 per diluted share, increased 40.4% or $11.0 million, compared to $27.3 million, or $0.65 per diluted share, in the second quarter of fiscal 2018. Second quarter net income was positively impacted by an increase of $16.4 million in operating income, partially offset by a $11.3 million increase in interest expense related to the June 1, 2018 acquisition of Titan.
Adjusted EBITDA of $87.1 million increased from $54.2 million in the second quarter of fiscal 2018, representing an Adjusted EBITDA margin of 10.5%. This improvement was driven by the contribution of a full quarter of Titan results, benefits from the restructuring actions taken earlier this fiscal year, continued pricing improvement, and favorable lease accounting changes.
Capital Resources
As of October 31, 2018, GMS had cash of $52.9 million and total debt of $1.24 billion, compared to cash of $19.8 million and total debt of $610.5 million, as of October 31, 2017.
Acquisition Activity
On August 7, 2018, the Company acquired Charles G. Hardy, Inc. a leading distributor of interior building products that serves residential and non-residential customers in the Los Angeles market. The acquisition marks GMS’ entry into the Los Angeles area, the second largest metropolitan area nationwide.
Stock Repurchase Program
The Company announced that its Board of Directors has approved on November 30, 2018 the repurchase of up to $75 million of the Company’s common stock. The repurchases will be made from time to time on the open market at prevailing market prices or in negotiated transactions off the market. The Company has approximately 41.9 million shares of common stock outstanding on a fully diluted basis as of October 31, 2018.
Conference Call and Webcast
GMS will host a conference call and webcast to discuss its results for the fiscal second quarter ended October 31, 2018 and other information related to its business at 8:30 a.m. Eastern Time on December 4, 2018. Investors who wish to participate in the call should dial 877-407-3982 (domestic) or 201-493-6780 (international) at least 5 minutes prior to the start of the call. The live webcast will be available on the Investors section of the Company’s website at www.gms.com. There will be a slide presentation of the results available on that page of the website as well. Replays of the call will be available through January 4, 2019 and can be accessed at 844-512-2921 (domestic) or 412-317-6671 (international) and entering the pass code 13682840.
About GMS Inc.
Founded in 1971, GMS operates a network of more than 245 distribution centers across the United States and Canada. GMS’s extensive product offering of wallboard, suspended ceilings systems, or ceilings, and complementary construction products is designed to provide a comprehensive one-stop-shop for our core customer, the interior contractor who installs these products in commercial and residential buildings.
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Use of Non-GAAP Financial Measures
GMS reports its financial results in accordance with GAAP. However, it presents Adjusted net income, free cash flow, Adjusted SG&A, Adjusted EBITDA and Adjusted EBITDA margin, which are not recognized financial measures under GAAP. GMS believes that Adjusted net income, free cash flow, Adjusted SG&A, Adjusted EBITDA and Adjusted EBITDA margin assist investors and analysts in comparing its operating performance across reporting periods on a consistent basis by excluding items that the Company does not believe are indicative of its core operating performance. The Company’s management believes Adjusted net income, Adjusted SG&A, free cash flow, Adjusted EBITDA and Adjusted EBITDA margin are helpful in highlighting trends in its operating results, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which the Company operates and capital investments. In addition, the Company utilizes Adjusted EBITDA in certain calculations under its senior secured asset based revolving credit facility and its senior secured first lien term loan facility.
You are encouraged to evaluate each adjustment and the reasons GMS considers it appropriate for supplemental analysis. In addition, in evaluating Adjusted net income, Adjusted SG&A and Adjusted EBITDA, you should be aware that in the future, the Company may incur expenses similar to the adjustments in the presentation of Adjusted net income, Adjusted SG&A and Adjusted EBITDA. The Company’s presentation of Adjusted net income, Adjusted SG&A and Adjusted EBITDA should not be construed as an inference that its future results will be unaffected by unusual or non-recurring items. In addition, Adjusted net income, free cash flow, Adjusted SG&A and Adjusted EBITDA may not be comparable to similarly titled measures used by other companies in GMS’s industry or across different industries. Please see the tables at the end of this release for a reconciliation of Adjusted EBITDA, free cash flow, Adjusted SG&A and Adjusted net income to the most directly comparable GAAP financial measures.
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Forward-Looking Statements and Information:
This press release includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. You can generally identify forward-looking statements by the Company’s use of forward-looking terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “seek,” or “should,” or the negative thereof or other variations thereon or comparable terminology. In particular, statements about the markets in which GMS operates, statements about its expectations, beliefs, plans, strategies, objectives, prospects, assumptions or future events or performance, statements related to net sales, gross profit and gross margins, as well as non-GAAP financial measures such as Adjusted EBITDA, Adjusted net income and base business growth, statements about growth potential across the Company’s product portfolio and the ability to deliver growth and value creation, demand trends and the anticipated benefits of the Company’s cost reduction and operational improvements plan, including future SG&A savings, and the Titan acquisition, including potential synergies, contained in this press release are forward-looking statements. In addition, forward looking statements may include statements regarding the Company’s expectations concerning management’s plans for execution of a stock repurchase program, including the maximum amount, manner and duration of purchases of the Company’s common stock under its authorized stock repurchase program. The Company has based these forward-looking statements on its current expectations, assumptions, estimates and projections. While the Company believes these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond its control. Forward-looking statements involve risks and uncertainties, including, but not limited to, economic, competitive, governmental and technological factors outside of the Company’s control, that may cause its business, strategy or actual results to differ materially from the forward-looking statements. These risks and uncertainties may include, among other things: changes in the prices, supply, and/or demand for products which GMS distributes; general economic and business conditions in the United States and Canada; the activities of competitors; changes in significant operating expenses; changes in the availability of capital and interest rates; adverse weather patterns or conditions; acts of cyber intrusion; variations in the performance of the financial markets, including the credit markets; the possibility that the expected synergies and cost savings and final impacts from the Titan acquisition will not be realized, or will not be realized within the expected time period; the risk that the GMS and Titan businesses will not be integrated successfully; disruption from the transaction making it more difficult to maintain business and operational relationships and to accomplish other GMS objectives; the risk of customer attrition; our ability to efficiently manage and control our costs and the success of our previously announced cost reduction plan; and other factors described in the “Risk Factors” section in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2018, and in its other periodic reports filed with the SEC. In addition, the statements in this release are made as of December 4, 2018. The Company undertakes no obligation to update any of the forward-looking statements made herein, whether as a result of new information, future events, changes in expectation or otherwise. These forward-looking statements should not be relied upon as representing the Company’s views as of any date subsequent to December 4, 2018.
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GMS Inc.
Condensed Consolidated Statements of Operations (Unaudited)
Three and Six Months Ended October 31, 2018 and 2017
(in thousands, except per share data)
| | Three Months Ended | | Six Months Ended | |
| | October 31, | | October 31, | |
| | 2018 | | 2017 | | 2018 | | 2017 | |
Net sales | | $ | 833,837 | | $ | 648,004 | | $ | 1,611,981 | | $ | 1,290,161 | |
Cost of sales (exclusive of depreciation and amortization shown separately below) | | 565,687 | | 435,744 | | 1,099,015 | | 872,797 | |
Gross profit | | 268,150 | | 212,260 | | 512,966 | | 417,364 | |
Operating expenses: | | | | | | | | | |
Selling, general and administrative | | 185,268 | | 159,898 | | 370,703 | | 315,970 | |
Depreciation and amortization | | 30,787 | | 16,713 | | 57,109 | | 33,058 | |
Total operating expenses | | 216,055 | | 176,611 | | 427,812 | | 349,028 | |
Operating income | | 52,095 | | 35,649 | | 85,154 | | 68,336 | |
Other (expense) income: | | | | | | | | | |
Interest expense | | (19,182 | ) | (7,917 | ) | (35,370 | ) | (15,417 | ) |
Change in fair value of financial instruments | | (376 | ) | (238 | ) | (6,395 | ) | (434 | ) |
Write-off of debt discount and deferred financing fees | | — | | — | | — | | (74 | ) |
Other income, net | | 434 | | 512 | | 1,068 | | 998 | |
Total other expense, net | | (19,124 | ) | (7,643 | ) | (40,697 | ) | (14,927 | ) |
Income before taxes | | 32,971 | | 28,006 | | 44,457 | | 53,409 | |
Provision for income taxes | | 8,059 | | 9,983 | | 10,895 | | 20,043 | |
Net income | | $ | 24,912 | | $ | 18,023 | | $ | 33,562 | | $ | 33,366 | |
Weighted average common shares outstanding: | | | | | | | | | |
Basic | | 41,149 | | 41,006 | | 41,121 | | 40,988 | |
Diluted | | 41,918 | | 42,146 | | 41,996 | | 42,137 | |
Net income per share: | | | | | | | | | |
Basic | | $ | 0.59 | | $ | 0.44 | | $ | 0.80 | | $ | 0.81 | |
Diluted | | $ | 0.58 | | $ | 0.43 | | $ | 0.78 | | $ | 0.79 | |
(1) The following table sets forth the computation of basic and diluted earnings per share of common stock for the three and six months ended October 31, 2018 and 2017:
| | Three Months Ended | | Six Months Ended | |
| | October 31, | | October 31, | |
| | 2018 | | 2017 | | 2018 | | 2017 | |
| | (in thousands, except per share data) | |
Net income | | $ | 24,912 | | $ | 18,023 | | $ | 33,562 | | $ | 33,366 | |
Less: Net income allocated to participating securities | | 665 | | — | | 751 | | — | |
Net income attributable to common stockholders | | $ | 24,247 | | $ | 18,023 | | $ | 32,811 | | $ | 33,366 | |
Basic earnings per common share: | | | | | | | | | |
Basic weighted average common shares outstanding | | 41,149 | | 41,006 | | 41,121 | | 40,988 | |
Basic earnings per common share | | $ | 0.59 | | $ | 0.44 | | $ | 0.80 | | $ | 0.81 | |
Diluted earnings per common share: | | | | | | | | | |
Basic weighted average common shares outstanding | | 41,149 | | 41,006 | | 41,121 | | 40,988 | |
Add: Common Stock Equivalents | | 769 | | 1,140 | | 875 | | 1,149 | |
Diluted weighted average common shares outstanding | | 41,918 | | 42,146 | | 41,996 | | 42,137 | |
Diluted earnings per common share | | $ | 0.58 | | $ | 0.43 | | $ | 0.78 | | $ | 0.79 | |
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GMS Inc.
Condensed Consolidated Balance Sheets (Unaudited)
October 31, 2018 and April 30, 2018
(in thousands, except per share data)
| | October 31, | | April 30, | |
| | 2018 | | 2018 | |
Assets | | | | | |
Current assets: | | | | | |
Cash and cash equivalents | | $ | 52,878 | | $ | 36,437 | |
Trade accounts and notes receivable, net of allowances of $8,016 and $9,633, respectively | | 479,327 | | 346,450 | |
Inventories, net | | 300,737 | | 239,223 | |
Prepaid expenses and other current assets | | 15,964 | | 11,726 | |
Total current assets | | 848,906 | | 633,836 | |
Property and equipment, net of accumulated depreciation of $103,426 and $85,761, respectively | | 277,626 | | 163,582 | |
Goodwill | | 622,732 | | 427,645 | |
Intangible assets, net | | 473,686 | | 222,682 | |
Other assets | | 13,302 | | 6,766 | |
Total assets | | $ | 2,236,252 | | $ | 1,454,511 | |
Liabilities and Stockholders’ Equity | | | | | |
Current liabilities: | | | | | |
Accounts payable | | $ | 157,181 | | $ | 116,168 | |
Accrued compensation and employee benefits | | 46,744 | | 56,323 | |
Other accrued expenses and current liabilities | | 66,727 | | 45,146 | |
Current portion of long-term debt | | 37,725 | | 16,284 | |
Total current liabilities | | 308,377 | | 233,921 | |
Non-current liabilities: | | | | | |
Long-term debt, less current portion | | 1,207,503 | | 579,602 | |
Deferred income taxes, net | | 19,933 | | 10,742 | |
Other liabilities | | 47,615 | | 35,088 | |
Liabilities to noncontrolling interest holders, less current portion | | 11,566 | | 15,707 | |
Total liabilities | | 1,594,994 | | 875,060 | |
Commitments and contingencies | | | | | |
Stockholders’ equity: | | | | | |
Common stock, par value $0.01 per share, 500,000 shares authorized; 41,157 and 41,069 shares issued and outstanding as of October 31, 2018 and April 30, 2018, respectively | | 412 | | 411 | |
Preferred stock, par value $0.01 per share, 50,000 shares authorized; 0 shares issued and outstanding as of October 31, 2018 and April 30, 2018 | | — | | — | |
Exchangeable shares | | 33,194 | | — | |
Additional paid-in capital | | 492,260 | | 489,007 | |
Retained earnings | | 123,154 | | 89,592 | |
Accumulated other comprehensive income (loss) | | (7,762 | ) | 441 | |
Total stockholders’ equity | | 641,258 | | 579,451 | |
Total liabilities and stockholders’ equity | | $ | 2,236,252 | | $ | 1,454,511 | |
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GMS Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended October 31, 2018 and 2017
(in thousands)
| | Six Months Ended | |
| | October 31, | |
| | 2018 | | 2017 | |
Cash flows from operating activities: | | | | | |
Net income | | $ | 33,562 | | $ | 33,366 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation and amortization | | 57,109 | | 33,058 | |
Write-off and amortization of debt discount and debt issuance costs | | 1,665 | | 1,412 | |
Provision for losses on accounts and notes receivable | | 81 | | 873 | |
Provision for obsolescence of inventory | | 229 | | 483 | |
Effects of fair value adjustments to inventory | | 4,129 | | 187 | |
Increase in fair value of contingent consideration | | 460 | | — | |
Equity-based compensation | | 3,204 | | 3,019 | |
Gain on sale and disposal of assets | | (295 | ) | (598 | ) |
Change in fair value of financial instruments | | 6,395 | | 434 | |
Changes in assets and liabilities net of effects of acquisitions: | | | | | |
Trade accounts and notes receivable | | (45,355 | ) | (21,837 | ) |
Inventories | | (4,553 | ) | (7,553 | ) |
Prepaid expenses and other assets | | (342 | ) | (5,805 | ) |
Accounts payable | | 9,516 | | 14,590 | |
Accrued compensation and employee benefits | | (9,550 | ) | (16,352 | ) |
Derivative liability | | (10,778 | ) | — | |
Other accrued expenses and liabilities | | 5,325 | | 2,170 | |
Deferred income taxes | | (5,145 | ) | (5,437 | ) |
Cash provided by operating activities | | 45,657 | | 32,010 | |
Cash flows from investing activities: | | | | | |
Purchases of property and equipment | | (9,156 | ) | (8,442 | ) |
Proceeds from sale of assets | | 638 | | 1,928 | |
Acquisition of businesses, net of cash acquired | | (578,917 | ) | (18,375 | ) |
Cash used in investing activities | | (587,435 | ) | (24,889 | ) |
Cash flows from financing activities: | | | | | |
Repayments on the revolving credit facility | | (469,647 | ) | (443,920 | ) |
Borrowings from the revolving credit facility | | 623,117 | | 352,567 | |
Payments of principal on long-term debt | | (4,984 | ) | (2,888 | ) |
Payments of principal on capital lease obligations | | (8,820 | ) | (2,936 | ) |
Borrowings from term loan | | 996,840 | | 577,616 | |
Repayments of term loan | | (571,840 | ) | (477,616 | ) |
Debt issuance costs | | (7,933 | ) | (3,283 | ) |
Proceeds from exercises of stock options | | 973 | | — | |
Other financing activities | | 873 | | (1,441 | ) |
Cash provided by (used in) financing activities | | 558,579 | | (1,901 | ) |
Effect of exchange rates on cash and cash equivalents | | (360 | ) | — | |
Increase in cash and cash equivalents | | 16,441 | | 5,220 | |
Cash and cash equivalents, beginning of period | | 36,437 | | 14,561 | |
Cash and cash equivalents, end of period | | $ | 52,878 | | $ | 19,781 | |
Supplemental cash flow disclosures: | | | | | |
Cash paid for income taxes | | $ | 10,469 | | $ | 28,455 | |
Cash paid for interest | | 30,966 | | 14,104 | |
Supplemental schedule of noncash activities: | | | | | |
Assets acquired under capital lease | | $ | 91,005 | | $ | 6,378 | |
Issuance of installment notes associated with equity-based compensation liability awards | | 4,001 | | 11,898 | |
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GMS Inc.
Net Sales by Product Group (Unaudited)
Three and Six Months Ended October 31, 2018 and 2017
(dollars in thousands)
| | Three Months Ended | | Six Months Ended | |
| | October 31, | | % of | | October 31, | | % of | | October 31, | | % of | | October 31, | | % of | |
| | 2018 | | Total | | 2017 | | Total | | 2018 | | Total | | 2017 | | Total | |
| | (dollars in thousands) | |
Wallboard | | $ | 334,688 | | 40.1 | % | $ | 288,498 | | 44.5 | % | $ | 652,423 | | 40.5 | % | $ | 573,155 | | 44.4 | % |
Ceilings | | 118,376 | | 14.2 | % | 101,646 | | 15.7 | % | 234,231 | | 14.5 | % | 201,356 | | 15.6 | % |
Steel framing | | 135,760 | | 16.3 | % | 103,203 | | 15.9 | % | 264,872 | | 16.4 | % | 207,854 | | 16.1 | % |
Other products | | 245,013 | | 29.4 | % | 154,657 | | 23.9 | % | 460,455 | | 28.6 | % | 307,796 | | 23.9 | % |
Total net sales | | $ | 833,837 | | | | $ | 648,004 | | | | $ | 1,611,981 | | | | $ | 1,290,161 | | | |
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GMS Inc.
Reconciliation of Net Income to Adjusted EBITDA (Unaudited)
Three and Six Months Ended October 31, 2018 and 2017
(in thousands)
| | Three Months Ended | | Six Months Ended | |
| | October 31, | | October 31, | |
| | 2018 | | 2017 | | 2018 | | 2017 | |
| | | | | | | | | |
Net income | | $ | 24,912 | | $ | 18,023 | | $ | 33,562 | | $ | 33,366 | |
Interest expense | | 19,182 | | 7,917 | | 35,370 | | 15,417 | |
Write-off of debt discount and deferred financing fees | | — | | — | | — | | 74 | |
Interest income | | 203 | | (26 | ) | (33 | ) | (49 | ) |
Provision for income taxes | | 8,059 | | 9,983 | | 10,895 | | 20,043 | |
Depreciation expense | | 11,538 | | 6,023 | | 22,148 | | 12,013 | |
Amortization expense | | 19,249 | | 10,690 | | 34,961 | | 21,045 | |
EBITDA | | $ | 83,143 | | $ | 52,610 | | $ | 136,903 | | $ | 101,909 | |
Stock appreciation expense (a) | | 649 | | 642 | | 983 | | 1,232 | |
Redeemable noncontrolling interests(b) | | 282 | | 164 | | 813 | | 1,030 | |
Equity-based compensation(c) | | 1,094 | | 375 | | 1,498 | | 847 | |
Severance and other permitted costs(d) | | 882 | | 113 | | 5,718 | | 317 | |
Transaction costs (acquisitions and other)(e) | | 841 | | 88 | | 5,594 | | 246 | |
Gain on disposal of assets | | (173 | ) | (207 | ) | (294 | ) | (597 | ) |
Effects of fair value adjustments to inventory(f) | | — | | 187 | | 4,129 | | 187 | |
Change in fair value of financial instruments(g) | | 376 | | 238 | | 6,395 | | 434 | |
Secondary public offering costs(h) | | — | | — | | — | | 631 | |
Debt transaction costs(i) | | 51 | | 35 | | 678 | | 758 | |
EBITDA add-backs | | 4,002 | | 1,635 | | 25,514 | | 5,085 | |
Adjusted EBITDA | | $ | 87,145 | | $ | 54,245 | | $ | 162,417 | | $ | 106,994 | |
Adjusted EBITDA margin | | 10.5 | % | 8.4 | % | 10.1 | % | 8.3 | % |
(a) Represents non-cash compensation expenses related to stock appreciation rights agreements.
(b) Represents non-cash compensation expense related to changes in the redemption values of noncontrolling interests.
(c) Represents non-cash equity-based compensation expense related to the issuance of share-based awards.
(d) Represents severance expenses and other costs permitted in calculations under the ABL Facility and the First Lien Facility.
(e) Represents one-time costs related to our IPO and acquisitions paid to third party advisors.
(f) Represents the non-cash cost of sales impact of purchase accounting adjustments to increase inventory to its estimated fair value.
(g) Represents the mark-to-market adjustments for derivative financial instruments.
(h) Represents one-time costs related to our secondary offering paid to third party advisors.
(i) Represents expenses paid to third party advisors related to debt refinancing activities.
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GMS Inc.
Reconciliation of Cash Provided by Operating Activities to Free Cash Flow (Unaudited)
Three and Six Months Ended October 31, 2018 and 2017
(in thousands)
| | Three Months Ended | | Six Months Ended | |
| | October 31, | | October 31, | |
| | 2018 | | 2017 | | 2018 | | 2017 | |
| | | | | | | | | |
Cash provided by operating activities | | $ | 93,481 | | $ | 23,485 | | $ | 45,657 | | $ | 32,010 | |
Purchases of property and equipment | | (5,363 | ) | (2,931 | ) | (9,156 | ) | (8,442 | ) |
Free cash flow(a) | | $ | 88,118 | | $ | 20,554 | | $ | 36,501 | | $ | 23,568 | |
(a) Free cash flow is a non-GAAP financial measure defined as net cash provided by operations less capital expenditures.
GMS Inc.
Reconciliation of Selling, General and Administrative Expense to Adjusted SG&A (Unaudited)
Three and Six Months Ended October 31, 2018 and 2017
(in thousands)
| | Three Months Ended | | Six Months Ended | |
| | October 31, | | October 31, | |
| | 2018 | | 2017 | | 2018 | | 2017 | |
| | | | | | | | | |
Selling, general and administrative expense | | $ | 185,268 | | $ | 159,898 | | $ | 370,703 | | $ | 315,970 | |
| | | | | | | | | |
Adjustments | | | | | | | | | |
Stock appreciation expense (b) | | (649 | ) | (642 | ) | (983 | ) | (1,232 | ) |
Redeemable noncontrolling interests(c) | | (282 | ) | (164 | ) | (813 | ) | (1,030 | ) |
Equity-based compensation(d) | | (1,094 | ) | (375 | ) | (1,498 | ) | (847 | ) |
Severance and other permitted costs(e) | | (882 | ) | (113 | ) | (5,718 | ) | (317 | ) |
Transaction costs (acquisitions and other)(f) | | (841 | ) | (88 | ) | (5,594 | ) | (246 | ) |
Gain on disposal of assets | | 173 | | 207 | | 294 | | 597 | |
Secondary public offering costs(g) | | — | | — | | — | | (631 | ) |
Debt transaction costs(h) | | (51 | ) | (35 | ) | (678 | ) | (758 | ) |
Adjusted SG&A | | $ | 181,642 | | $ | 158,688 | | $ | 355,713 | | $ | 311,506 | |
Adjusted SG&A margin | | 21.8 | % | 24.5 | % | 22.1 | % | 24.1 | % |
(b) Represents non-cash compensation expenses related to stock appreciation rights agreements.
(c) Represents non-cash compensation expense related to changes in the redemption values of noncontrolling interests.
(d) Represents non-cash equity-based compensation expense related to the issuance of share-based awards.
(e) Represents severance expenses and other costs permitted in calculations under the ABL Facility and the First Lien Facility.
(f) Represents one-time costs related to our IPO and acquisitions paid to third party advisors.
(g) Represents one-time costs related to our secondary offering paid to third party advisors.
(h) Represents expenses paid to third party advisors related to debt refinancing activities.
10
GMS Inc.
Reconciliation of Income Before Taxes to Adjusted Net Income (Unaudited)
Three and Six Months Ended October 31, 2018 and 2017
(in thousands, except per share data)
| | Three Months Ended | | Six Months Ended | |
| | October 31, | | October 31, | |
| | 2018 | | 2017 | | 2018 | | 2017 | |
Income before taxes | | $ | 32,971 | | $ | 28,006 | | $ | 44,457 | | $ | 53,409 | |
EBITDA add-backs | | 4,002 | | 1,635 | | 25,514 | | 5,088 | |
Write-off of debt discount and deferred financing fees | | — | | — | | — | | 74 | |
Purchase accounting depreciation and amortization (1) | | 12,399 | | 5,521 | | 24,854 | | 10,545 | |
Adjusted pre-tax income | | 49,372 | | 35,162 | | 94,825 | | 69,116 | |
Adjusted income tax expense | | 11,109 | | 7,911 | | 21,336 | | 15,551 | |
Adjusted net income | | $ | 38,263 | | $ | 27,251 | | $ | 73,489 | | $ | 53,565 | |
Effective tax rate (2) | | 22.5 | % | 22.5 | % | 22.5 | % | 22.5 | % |
| | | | | | | | | |
Weighted average shares outstanding: | | | | | | | | | |
Basic | | 41,149 | | 41,006 | | 41,121 | | 40,988 | |
Diluted (3) | | 43,047 | | 42,146 | | 43,125 | | 42,137 | |
Adjusted net income per share: | | | | | | | | | |
Basic | | $ | 0.93 | | $ | 0.66 | | $ | 1.79 | | $ | 1.31 | |
Diluted | | $ | 0.89 | | $ | 0.65 | | $ | 1.70 | | $ | 1.27 | |
(1) Depreciation and amortization from the increase in value of certain long-term assets associated with the April 1, 2014 acquisition of the predecessor company and the acquisition of Titan. Full year projected amount for FY19 is $49.7 million.
(2) Normalized cash tax rate determined based on our estimated taxes for fiscal 2019 excluding the impact of purchase accounting and certain other deferred tax accounts. Fiscal Q2 2018 normalized cash tax rate updated to reflect this rate.
(3) Includes the effect of 1.1 million shares of equity issued in connection with the acquisition of Titan that are exchangeable for the Company’s common stock.
Contact Information:
Investor Relations:
ir@gms.com
678-353-2883
Media Relations:
marketing@gms.com
770-723-3378
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