GMS - Earnings call transcript Q1 2020

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Operator

Good morning, and welcome to the GMS First Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference call is being recorded.

It is now my pleasure to introduce your host, Leslie Kratcoski, Vice-President, Investor Relations. Kratcoski. Miss you Thank

begin. may You

Leslie Kratcoski

Interim Claudia. Good this President for us Officer and CEO morning I'm joined everyone and Accounting morning. Chief Turner, Lynn thanks today and joining Ross, Thanks, CFO. by and John

In Investor have accompany presentation we this posted of section the our addition in gms.com. slides the press to call issued morning, release this Relations to website at

Act forward-looking Private remarks On answers to Reform contain management's Securities may the in prepared and XXXX. statements call, defined today's questions as of Litigation your

Forward-looking control statements are that differ subject to of which today. risks many address matters cause to and are and results discussed uncertainties, beyond actual those our from may

in the statements contained forward-looking SEC, section reminder, related The no update a including forward-looking the company more As to are Factors company's these assumes statements to periodic future. XX-K to encouraged with detailed represent and Listeners management's filings the reports. Risk discussions and the other review current estimates obligation in expectations. forward-looking statements company's the in any

presentation of XXXX to quarter reconciliations a on press July note call measures. references and are of measures quarter presentation non-GAAP discussion the in release provided that certain includes these non-GAAP and slides. of this definitions relates Please XXXX. The to first fiscal Today's also ended the XX,

now I'd to John Turner. call that, turn With over the

John Turner

our to at remarks my today's here on initial over with conclude our review it of then a Thank of you, highlights with comp in to Leslie. months first I then forward more four Good some my morning financial and results turn thank call I’ll today. will our you for cover prepared following joining parts begin GMS. detail. us and our operating Lynn

GMS to products. X.X% of results fiscal growth leveraging record product the long we in sales broad strong lines, achieved based X.X% each net for a focus positioning term was of year-over-year. our framing in of in and in XXXX We on as Ceilings, business and growth which We to and growth X.X% Wallboard, on profitability. in were the across our foundation remained Steel increased Other quarter, XX.X% with start This XX.X%

sales year-over-year commercial about over decline In the X.X% solid sales States, end growth in with organic by XX% experience the results and a partially to United with team increased Organic markets offset organic United as net Canada. X% record in healthy delivered we continue demand. just residential States, the

Area. While family the in impacts in also are commercial markets slowing the Toronto in we solid the housing, continue single experience significant Canada, particularly Greater to the of

remains current single-family recovery on in of read Canadian the a housing Based our the timing market uncertain.

However, similar formation to the and household the remain fundamentals including sound, Canadian contributing United construction demand economic growth. long-term and strong States, population to residential

we on Nonetheless, a well For for long strategic what environment. control, rationale executing distributor Canada and term now, we tough can remain remains in is of in very extremely team year's last acquisition Canadian our largest focused compelling. our the

but aimed margin cost to experience a success. also we well sales. our as in Canada, because leverage operating pressures gross next as increase SG&A at reduced due as and adjusted are in While growth was investments This year-over-year, of an some advancing phase improved in we making of percentage initiatives continued did

EBITDA $XX.X an and a of realized Adjusted record EBITDA record we million to the XX%. increased for XX% adjusted almost quarter, margin

in Supply previously Acoustical adding South in the & Drywall As we acquired announced, locations quarter Texas. Hart three

and accretive other in with Texas. and geographic expansion Manchester disciplined New Wichita Greenfield our also debt Greenfield to priority. the remain through in We acquisitions Hampshire, of footprint opened reduction balanced openings, locations, We one two our Falls committed

for on detail it to With QX. to that, our I'll Lynn results turn over more provide financial

Lynn Ross

performance. record to like net deliver quarter, We for a adjusted strong us pleased to were I would you by first EBITDA joining And all also John. highlighted Thanks thank sales today. and

our our four, Slide calculation grew growth organic this the of X.X% described at well organic of net response growth in anniversary the such growth net the as in is to $XXX.X modification sales on acquisitions that the sales release sales including view we is as our organic including from Titan, appropriately million after year-over-year. to earnings as community from feedback a sales year-over-year net acquisition The investment X.X% more in morning as first date Looking reflected basis. in

been the point reference, methodology, would the previous today reporting quarter of organic fiscal methodology Titan for As XXXX. would for X.X% net of our from sales first excluded growth which all we're have have a X.X% new under organic sales the under

by up X.X% Wallboard period than year, a same less were over and volume a X% X% included which last the price. an in Our of organic sales X.X% basis, compared including decrease to of on growth increase

Our Ceiling X.X% sales XX.X% of on approximately higher an basis. price This increased organic volume growth first quarter or organic year-over-year, and of approximately by increases X% included X%.

basis, sales year-over-year approximate due to mix by was X.X% an on from organic of which increased volume in X% approximately Our declines price to and framing Steel increase totaling an offset but X.X% X%. declined

category product almost XX% joint Sales focus on increasing and quarter. stucco, continue profitable in of our highly which XX.X% segment. products complementary in of this sales. various basis, tools, the complementary total and consist and This segment product other our comprises products organic compounds, other saw installations, now EIFS we grow, to we continue a an X.X% growing of On this increase to

to Gross sales to $X.X well year million impact as profit recorded Titan first including in quarter positive acquisitions non-cash acquisition. was and $XXX increased of the million. the both the adjustments purchase organically, as prior of higher the related result the XX% accounting This in almost

Our a maintaining purchase net we purchasing points the and price XXXX. for cost to improved synergies year from favorable basis accounting prior guide gross dynamics, due fiscal of XX.X% XX.X% this At margin year primarily tightened our time, XX gross XX.X ago adjustments. margins of are

basis to point compared several the XX percentage The increase net of to expense was a XX.X% of was factors. year adjusted adjusted five, SG&A prior the SG&A in Slide Turning quarter. sales in as result XX.X%

reduced across Canada, cost weather in all, continued pressures to leverage and of business we quarter. operating the some including First related the in experienced

growth support operational in sales Additionally, some initiatives business and we made initial efficiencies. to investments

six also impacted in time last locations Our take leverage operating greenfields investment up. as these to in two ramp some the quarters

were impacts XX offset over by the last the months. cost undertaken efficiency partially initiatives from company's increased reduction These

we EBITDA, million delivered adjusted first EBITDA onto of adjusted year-over-year. Moving $XX.X XX% in up the quarter

Our as was basis X.X% a XX a X.X% from adjusted year of EBITDA margin the sales, up percentage ago. points

a $XX free flow to compares a million changes million. for use $XX of a ago. networking six, quarter million use of $XX income result Slide favorably is increase first adjustments cash typical after but cash free capital, from a to in year to It's of was have this This items. of Turning quarter flow, use a our for cash $XX in million and of primarily net this non-cash improvement a higher

the Titan following just up EBITDA At closing end adjusted XXXX was of times of X.X of of X.X we of XXXX from the pro from down the in end the end of of quarter fiscal at and fiscal slightly that the as times the forma the cash our which times of discussed. was the first acquisition, result quarter, the debt to use a X.X net LTM as quarter

ADL hand, through for under business. substantial And fiscal delever quite $XX to facilities $XXX the positive with our sheet resulting remains our year. liquidity balance generation cash and our free full continue million million healthy for to intend available cash in on We flow anticipated of

Additionally, of XXXX. long until is term total XX% the our due debt, not approximately year

let to me over the for turn the Now back line we open call before John, John? questions.

John Turner

XXXX. to Once very with fiscal Lynn. start our strong pleased we again are you, Thank

expand continued We position our to our in portfolio. balanced market product leading

and construction new, diversified Our and markets remodel an exposure repair to across commercial be continues also and residential advantage.

throughout our suppliers team America drive North our shareholders. to dedicated entrepreneurial embrace and our Our culture performance outstanding and continues for customers, strong

the me even for that case. growth attracted things that significant. to the here, are was after convinced prospects months my of more I'm first GMS One And four our that's

advancing As of forward, next phase committed we we move to success. are and growth this

We on our will growth to platform. across meaningful seek the capitalize organic opportunities

We locations with acquisitions, geographic footprint, priorities. Greenfield expand and reduction both debt enhance and through our also continue to accretive intend balanced our to

will will leverage working these and the our keep scale updated progress. to to continue sure on confident are deliver and our time, I we employee At execute further improvement. on to we practices best initiatives, and you be same be we will to team profit The diligently also

we open are for questions. now the to call ready Operator,

Operator

Capital Thank you. [Operator Please Instructions] go Mike RBC from Markets. ahead. Our with first Dahl question comes

Mike Dahl

morning. Good my questions. taking Thanks for

John Turner

Good morning, Mike.

Mike Dahl

congrats the Hi, and John on first call earnings here.

up in margins you If call margins we It continue elevated with ask your how and to a wanted sounds growth commentary you you to to we investments at tilted -- guide on here. growth know the you're and that that but on still whether And quarter, kind of Just gross margin for the little backdrop and wanted like the to bit be growth, and plateau mid-term. know here. SG&A with just focus pick seems towards you keeping the likely know we should your -- that or results left just the unchanged. you EBITDA here, focusing like about I'm to it thinking think a look may near that not make it the up significant you

John Turner

first let the business. the around discussion growing of and me investments focus the off, on address kind Well a

of investing organic as do and Ceilings internally, far as tools balanced speak nice categories, in our accessories we approach. We we're expanding accretive Tool and which our versus little we will as Specialties as around well. and we remain in product specialists we're acquisition approach investments and other as a way well some the our called But have Warehouse, Source particularly Architectural and business as sales

going we're investments of infancy a for are in some have of into are and our in us, we product that So very that and some the that ways. that profitable lot of kind categories

some of behind of So the that's investment initiatives. kind the growth

Additionally, drive both and technology customers. to initiatives our ongoing service to productivity we have

So underway. implementation logistic we a have software that's

to just now a on, We beginning with the Direct, of we're And out roll same upgrade what we moving automation to the to It's BXB everybody our called online. instance. single then ERP is are customers which our have ERP. it’s that a just we relationship

So as bit to forward. that's that's go a go going little on of spending we

we go our Lynn I'll ahead of talk about guide the what I'm margin. gross perspective, from expect a to XX.X reiterate but and going margin let on

going got good momentum, the so there sales line similar. probably We've be fine. wouldn't are I think seem market end I to top expect are

turn I’ll to that's and it going it over So leave of where Lynn. to kind I'm

Lynn Ross

at like to Yes, absolutely. going add about plan and what be We EBITDA response John XX% to forward. margins. your do incremental to higher to adjusted the XX% question to I'd or Mike, XX% says Yes,

better. Obviously, price. timing performance has in In leverage, get past. It strive to terms depends on the with about to business. depends with much on We depends of will We getting a efficiencies that guide also been operating obviously, to of and the sales then, we Canadian initiatives. guide leverage. margin gross do respect how prudent talked of additional areas on XX.X, respect growth of we've And in our our do volume the to it mix plan our seek between operating our of

question? does your respond So, that to

Mike Dahl

Yes. lot It And are right there business. does. Thank obviously gears; detail shifting your and going on Yes. things the for on then going for those. all you just a of

One and showing of wallboard side manufacturers of has around seeing think while on something the things to much that And or specifically peers mind you a declines you're you from the purchase ability is is shown. have dynamic to some mild your are think your been Could dynamics that, the just and for and driving of keep than terms top distribution investors price better achieving differential pricing public has peer the one about price of Thanks. yourselves OEMs? that wallboard that are though there? what how what your the -- pricing, public more just just shifted of on in comment the timing

John Turner

Well, as pride being service know, a as leader. you we Mike, ourselves

we get that. And so, believe that we for paid

mix complex of fairly a business. have We

moment. we're right those the market. by so like commercial the to focused place price maintaining growth up And and now. a we growing end at position our residential in feel we same I our are use we a At tremendous think share markets, the can give you not a of good very are across in And see in and much very that time, on amount

Mike Dahl

great. Okay, Thank you.

John Turner

Thank Absolutely. you, Mike

Operator

with SunTrust Our go next ahead. from Keith Hughes Please question Humphrey. Robinson is

Keith Hughes

five-odd under the question you. the of variations that U.S. look give would guess of of sale view I that country one any average? what percent same-store the Thank you seeing old substantial Are caring the us like? on kind you lacking calculation number business, regional within the versus or the is part

John Turner

there the are business coastal southern Hi, done States the stronger United in middle and regions part softer. their Keith. business. Northeast the looking been up business the that's We've the some our speaking, to what West of generally been the forward; the in are slightly. to the the accomplish teams The proud center country But all and the our coastal back able same very and things going Coast, of you're at to little throughout those we're south is strongest of from the it's trend improve parts the southeast, regions, a

Keith Hughes

at seeing quotation signs as bid – any your of And commercial? commercial nature in weakness is are look you that on you I activity guess of thing that backlog,

John Turner

No, very yet. Commercial strong, still remains pipeline. solid

Keith Hughes

final And question. the

my And on At quarter, question? where did point, how to it? what Okay. you final turning you month, it, reach started I you the do point When anniversary Canada. it? is what guess on I question really down Canada guess want Where

John Turner

I was when that let think to it, here I'm answer going started. because I don't Lynn

Keith Hughes

Okay.

John Turner

Lynn. go So, ahead

Lynn Ross

easier case Canada. get back the say year the respect half I'd comps of to in with

Keith Hughes

half of fiscal calendar So your year or year back the year?

Lynn Ross

fiscal –yes, sorry, QX. fiscal Yes,

Keith Hughes

calendar, beginning that would be basis, at XXXX correct? the Which kind of or calendar on is

Lynn Ross

correct. Yes,

Keith Hughes

right. All you Okay. Thank very much.

John Turner

Thank Keith. you,

Operator

Our from next question Kevin Hocevar Please go Northcoast ahead. Research. with is

Kevin Hocevar

morning good everybody. Hey,

John Turner

Hi, Kevin. Good morning.

Kevin Hocevar

to for year. you XX.X% back guide put the year, and of wanted revisit gross lowest always number margin gross that this historically, year been your quarter so look has I July the put XX.X%. up margin you I the -- If

balance get higher? Or I of down any is that have seasonal you to guess that there? better and clarity year. down the want but baked helpful? a I then drag going to just there maybe conservatism provide in cause to for would wanted that there year something of normal -- of a the trend you like there going Is said, going some kind there I -- still back to or come would to -- understanding is be XX.X% that that's So, the for sense with anything of the

Lynn Ross

sure. Yes,

drive make coming that XX.X%, the we prudent, believe us maintain beat the in we just year. it's believe Kevin, to will discussed, prudent of balance guide, like that that we best that anything the just at strive that. guide. we've I would On the a don't see continue down -- we to And that

Kevin Hocevar

an what we is Or looked grew lines at quarter? to think it mentioned that an as And business you. some clarity something going top-line up Is of that. to that want remaining wanted going I across on you forward? the you as got some forward, in ahead, reference in expect on expect? X% this X% base like the similar. Okay, sales you questions, look John, grew you we different sales we were get What just to provide the the -- get earlier I -- that Is Just volumes that color can along you we that's that X% to expectation look top-line categories? any can to?

John Turner

Yes. I'm organic toward speaking number. mostly our

yet steel perspective, but low on pricing and/or a mid to convinced XXX% think the -- expect situation, the Not not single-digit of happening I would single-digits. type what's wallboard from low looks the really I on volume volume. pipeline So organic I'm side mid growth with

Kevin Hocevar

right. All Thank very much. Okay. you

Operator

sir. Our go next Instinet. from question Michael Nomura comes Please with Wood ahead,

Unidentified Analyst

Good morning. is on Mike. This calling for Ryan

growth. above X.X% how you just you In achieve that growth performed Can the were Just two you or about organic one against other think points your words, market? the able talk to industry?

John Turner

yet, market above better we're numbers greater the X.X% slightly. but we think think growing all but market, dramatically doing organically. don't think rate than the is we're do of have I the the I we don't think I

wallboard the was volume think in better what but that industry mix we a on little top-line is us at better basis performing the something moment. I a dragged think we're volume of Our the certainly the than and business bit, was quarter on our definitely steel back

Unidentified Analyst

this? Okay, in your great. And for balance quarter. out the the then cost that then Are you year? called of quantify you price favorable to expectation what's able for And the

Lynn Ross

Yes.

category. a margin product that gross I our provide steel color was would to we say provide So little would bit and know, margin the don't as due particularly the down the bit -- price you of of color? by provide steel selling in gross higher wallboard fact was I business. And were up. of July that through were month that declines Did inventory, marked price we for I

Unidentified Analyst

Great. you. Thank

Operator

Our ahead. Matthew go Please is next Barclays. question with from Bouley

Christine Cho

the Christine to This was for actually about I a Hi, segment? in ceilings. what the push is on the My expectation morning. Matt. wondering first price actually Good ability continue that on of is price your was Cho contribution question noting in on X% is positive to quarter,

John Turner

I you pretty what would sell. tell upon the of its dependent mix we

through as on I normal. people it about value forward. that focused bit but that's quarter, change higher Again, engineers there but wouldn't of very space, robust mentioned with a little on and specialties. the are a for We architectural I a our sales dramatically that little business in ceilings expect driving I It's well, maybe think investment to going

Christine Cho

And you on of you. Thank and XQ forward, more tuck-in rest acquisitions how on it. a color greenfields your ? Got for more the thinking strategy, throughout your potentially strategy bit just maybe little about then and are going color year the

John Turner

we expansions it and currently certainly continue Well, opportunities of mentioned greenfields standalone going when to not. small are. be do significant our right acquisitions. They're major we're markets the we're we're in And sort along, we are tuck-ins. would expect our be strategic component markets business. to to of markets But I come going to business mostly disciplined focused delevering greenfields in really not the approach. already where where in as We're the some in right on

last on a them. two of little bit to them So SG&A as even quarters a six quarter impact this see that can an bit the up in faster. little tend is But there you ramp over they of with

continue what to we've been do about we'll doing. So

Christine Cho

you. Thank great. That's

Operator

ahead. from Baird. Please is with go David Our next Manthey question

David Manthey

morning. Yes. Hi. Good

John Turner

David. Morning, Good

David Manthey

Earlier mentioned call, in to you're contribution morning. EBITDA. Good a you a didn't margin, level for XX%, quite you're of if I catch an that? clarify to if the expectation referring Yes. XX% you referring had reported could

Lynn Ross

Yes, sure.

we provided EBITDA I goal is margin we that adhere as referring on continues always that's stated to at believe to we've a calls that So and kind strive XX% to with incremental to we margin good been our to adjusted XX% be guide respect well. also of and was to that that previous the XX% continue guidance the to What be XX% goal. as

David Manthey

then those good. been in dynamics window? Okay, kind that seems And speed be X%, volume last price that a target think relative sounds how of the XX% mix to quarters, and to revenue X%, get in X% think to few of here do you organic you've in about to about growth seeing XX%? terms bit, How there you achieve the stall here? growth the waning that -- growth the you a need XX% to do XX% revenue to Is order in now

John Turner

tell that the we single-digit level I adjust, flow-through kind we'll achieve talking reasonable obviously, a in Well, reason need about. significant wouldn't would see a that don't of don't there level that change near-term. end-use we're maintain then see able and to we yes, to you the that markets any type that, but achieve growth to a we organic be the why Obviously, growth is to level in near-term, the in we if have low

David Manthey

sorry. Okay. Yes. I'm

Lynn Ross

of to then XX.X% with respect as guide. we we're prudent leverage discussed hope the seeking exceed operating digits, the the for talked leverage, about have that. and that Yes, operating fact through And we look then single is we like We to will a balance year. the low-to-mid achieve to that to

David Manthey

today Okay. down actions specifically out on terms that going sort profitability, just in of now? growth to you Canada. flattens from even taken last the up there rightsizing if Can improve then right of the question discuss what business And you've

John Turner

done multifamily time, reduced strengthened I in has Sure. the I relationships commercial you going lot XX% And we've there. over At pretty business the same balance was look very with We've what can in the that in area Canada. that – strong. customers. markets and multifamily a rise high The with up job. was in headcount just fantastic a tell the Greater through I of we're there good. our last team unfortunate, of being Toronto -- week. there single-family our It's the

there, a executing But how is Coast we well, in in is the team but GTA everything. in family, to organic done over team that, we've long-term. also single and soft know very Our kind West single-family, in reduce little exceptionally for bit well an do soft little growth think soft additional of the again in of our comfortable up in well. costs, very the long-term. ignite do We prairies to single-family on the a going Canada We're to positioned I'm engine as that

David Manthey

it. Appreciate you. Thank

John Turner

You're you. welcome. Thank

Operator

Trey next Please is Grooms ahead. question from Our go Stephens. with

Noah Merkousko

on How Hi. you for are This doing? Merkousko is guys Grooms. Noah this morning Trey

John Turner

you? morning. Good Great. are How

Noah Merkousko

Well.

what So relatively first seen pricing been has in pricing stable, about August? August, volume and kind question in talking wallboard, sounds on continued of it you've trends like has that

Lynn Ross

Yes, it has.

Noah Merkousko

All right.

Lynn Ross

Yes.

the let So more basis, in see quarter each a context on that higher bit we per a continue you day August. momentum month were give and our year-over-year into positive me sales in little

In sequentially or each August. during we addition, the quarter were sales our that continuing and stable see month into higher

Noah Merkousko

there. you're for would a Got is just quick fair and expectations helpful. year standpoint, to cost say color you. price And well And of caught the the up That's any follow-up be here pretty a helpful? from it then remainder

John Turner

caught think up. we are I

just a is balance itself. raw of steel, under I think little steel slowing pressure the material just I this the for definitely the of think in year; remains because decline bit rate

You really look seems commodity can slippage; that market. have everything very the place else steel may only at you be little that stable. see But more to if a the seems

Noah Merkousko

right, on. I'll thanks All it guys. pass

Operator

to turn comments. conference for over like Leslie questions this I There are the no closing further to time. at Kratcoski registered back would

Leslie Kratcoski

in like A available call appreciate will shortly joining I'd the interest to everyone Good website. be always, us thank as our And on today. for your of just replay we GMS. day.

Operator

This concludes conference today's call.

for have you your pleasant day disconnect and may Thank participating lines. You a

GMS (GMS) 29 Aug 192020 Q1 Earnings call transcript