GMS - Earnings call transcript Q1 2023

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Carey Phelps

Thanks Darryl. Good morning and thank you for joining us for the GMS earnings conference call for the first quarter of fiscal 2023. I am joined today by John Turner, President and Chief Executive Officer, and Scott Deakin, Vice President and Chief Financial Officer.

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

Turning to Slide 2, on today’s call Management’s prepared remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.

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

Company SEC, future. XX-K statements references forward-looking discussions ended and reminder, press The the the related more includes certain July this filings the first any the on quarter measures current other expectations. to represent fiscal As contained definitions periodic encouraged discussion measures. in Factors Company's section assumes in to that with a obligation also provided release reports. call the statements relate to no statement and non-GAAP Today's non-GAAP detailed forward-looking to in are Risk estimates the of these the to are Management's the including a and these XX, The quarter Listeners Company's presentation forward-looking the presentation update and slides. review XXXX of reconciliations XXXX. note of in Please

that, over the we JT? one time, of turn the of in call, that once answer follow-up. session call Turner. question interests Finally, kindly one With and limit the yourself the request question to you to John we and I'll begin

John Turner

yards adjusted are our quarter our and fiscal the Thank our and net momentum first income the products joining and and of quarter we of again for you Carey. XXXX. record our has strategic elevated thank The levels into Good of busy. net sales, for demand execution us for storefronts built XXXX today. morning you all and continued remained the Market during quarter continued EBITDA delivered priorities. solid fiscal during We

sales and volumes of increases teams’ Product our recorded single Net our residential highlights work Volumes while respectively. The XXXX, income in SG&A inflationary four basis up nearly construction products QX SG&A teams with complementary adjusted with we commercial an backdrop product finally sales major We outstanding X XX improve us continued XX.X% to continued organic active progress double-digit with and XX and with more our quarter up grew this compared continued ceilings with and strategic pricing. each enabled XX% points inflationary of and priorities. adjusted XX.X% price product XX.X%, near Amid drove We of net coupled solid XX.X% diligently also environment term our initiatives. by cost our Slide these grew XXX advancing are in discipline improving inflation, some operating categories. through service highlights our to percentages improved on performance, and four points this primary XX.X% execute commitment low at basis improved EBITDA as were to of profit year these gross Slide ago. as combined wallboard than first EBITDA margin while quarter was in X growth a results. to to our adjusted growth our sales delivering Looking results. sales to fiscal comparisons here pricing of product digits. pass X%

XX% chain organic both in share and in for availability our growth nearly wallboard the revenue expanding volume levels to service steel and growth customer exceptional year-over-year our diligently ceilings XX% worked teams over ceilings each of continuing in to ensure quarter First, throughout maintain framing. core and despite products, of supply and wallboard led Notably, with again product this challenges.

our customer and forward. to commitment confident leveraging exceptional to move as will we us our scale help service the core that continue grow We are business

Second, growing our complementary products.

to customers. thereby enhancing offerings, our our value expand profitably and diversify to continued We our

some which particular, and insulation joint eaves grew from product total sales of on treatment, XX% complementary by complementary XX% organically. our lines, benefiting first both In growing larger the including and higher and and stucco tools we and the collectively in fasteners, are our for quarter, volumes, product quarter. XX% prices During grew sub-categories, focused we the

Third, during of we quarter expanding Southwest Construction leading various accretive of a broader market local Supply with Fort waterproofing to distributor Tampa and principally our outreach the the Florida, acquisitions purchased greenfield stucco through products opportunities, Myers. platform and Sarasota and serving

addition, stores yard quarter. locations opened we AMES In the two six new and greenfield during

help remains Our continue pipeline to we pursue assortment service of potential our territory and added strong expand and broaden our product customers. best-in-class value opportunities service actively to acquisition to us our provide and to targets

a leverage strategic as best our priority both across organization scale broad that drive continue fourth practices Finally, employee to our is is service. and and improve to cost profitability. our we focus This and and productivity improved technology

I’ll us perspective with drive all calendar we for profitability. our warehouse drive example, operations, Scott thereby with us inventory customers to further of initiatives make back quarter produce to and this year, advanced Overall, our of turn this programs expected to ecommerce initiatives, improved to foundation solid the all by of most efficiency, to to the teams’ to end over aim help which strategic other technology management, Scott? upgrade on the our in am to and our complete results results. our better office provide I more both our the system, for With business expect fully partner the now move are deliver capability, forward. our improvements U.S. of a very it that, pleased version locations and setting yard-of-the-future ERP For

Scott Deakin

morning. Thanks JT. Good

comprised XX% commercial XX% comprised sales outpaced year-over-year residential time at a growth, for the XX.X% grew increase a and price we wallboard mix and first began, XX.X%, sales up Looking to nearly perspective, to and commercial the of first sales XX.X% the an year-over-year of rose and commercial activity the mid-single increased for pandemic price increased in Wallboard levels. organically than in X.X% an increase Organically, were XX.X% X, before year-over-year. of in improving $X.X both billion first volumes volume the quarter. sales sales million increase mix volume Organically, quarter Slide single on XX% in of both From X.X% were grew Multi-family volume. in very XX.X%. quarter increase sequentially $XXX.X pleased more family quarter market for net since volume. and U.S. digit see wallboard a gains and end in year-over-year, and

Our seven average realized wallboard price increased has for quarters. the sequentially past

per almost For year the ended X% and a average $XXX as July, was than with wallboard the quarter realized ago. price up sequentially square compared more feet, XX% X,XXX

levels benefit price have a first quarterly with higher. and and starts million comprised marked a the consistent a in trending residential we point do average and and months, increased was slowed price grid XX.X% but a and quarter over this of in were August volume. July tile same with mix pace and at X.X% anticipate mix from of recent sales slowdown As increase X.X% XX.X% of Ceiling volume. forward, the the year, XX.X% increases sales not increase going in price anticipate an $XXX.X in XX.X% in Organic grew of last ceilings period decline.

unwinding a number partially and tough period a year-over-year volume X.X% basis contractor First activity, shipping price year, framing a sales on to of X.X% XX.X% contributed while with per-day within by volumes. Despite $XXX.X decline. project speaking, along increased and was pipeline basis the large a on however, inventory developments mix underway up a More and comparable decrease last of comprised and all office price all up of labor sequential in the were organic a otherwise ceiling steel delays, On benefit XX.X%, essentially were a grid highrises. as an outnumber wallboard, framing offset quarter stick-built mix, million commercial volume. by volumes basis, offset benefit tiles from broadly this steel and flat from partially of improving steel suburban commercial in XX.X%, quoting ceilings mix decline comprised XX.X%

this resilient While as pricing the with previously begun prices this stud than have in below product earlier more to X% has decline quarter, year, for August steel July’s level. falling second expected, roughly remained anticipated

benefited to expectation Complementary of digits for predict, declines quarter, in XXXX. comprised the calendar to sales difficult with at pricing organic monthly mix, XX% and single least basis, XX.X% across start total with of category. is our for million, an complementary XX.X% with sequential year-over-year products which volume price $XXX.X from we our strong mostly acquisitions were On contributions sales moderately sales well. this from likely year through of were the continue of the well as low as Although up products the the from positive coming as as increased up increase current

of gross the quarter, continued product principally first acquisitions. successful to gross compared profit strength from demand, million as incremental profit our year and ago, Now with increased our inflation, market pass-through of a profit our due XX.X% $XXX.X to residential during in turning gross

XX%, consistent at quarter. quarter gross prior margin percentage and both for Our year prior came in the with the

at to EBITDA of as the While account a around cost execution, for mix traditionally believe profitability forward well. we towards and manage and going operate this reasonable gross of or be this margin to business expectation level of levels we

XX.X% activity higher, year for the Turning contract items XXXX margin to as adjusted in SG&A quarter and EBITDA driven fiscal price Delivery however, million continued inflation as these level case, XX.X% both XX Adjusted the of this percentage million the pressure this for outpaced improved XXX experienced the to XX.X%. first particular of Slide $XXX operating as quarter, improved such net quarter the as and quarter, with inflation basis have well dollars X, end a hourly for fuel. representing improved we at margin cost on with with labor, ago. salary, year-over-year the and EBITDA resultant robust compared ago profit as compared a therefore an our has compensation a gross revenues been Adjusted points basis incremental sales to $XX.X incentive increases by strong and generally and points pressures, XX.X%. results expenses to of were year product quarter; as the as up of

first during to Canadian of the law from Finally result effective in changes. tax XX.X% quarter the anticipation accruals rate quarter increased XX.X% Company’s income the to fiscal as of booked related the in expected XXXX, tax the of statement,

year and rate a Slide provide facilities. we the priorities. and $XXX.X positioned well hand X and million end, foundation available million under credit had on of revolving our For execution balance a continued strategic support capital now for planning fiscal highlights $XXX.X of purposes, cash sheet, expect At we for our liquidity cash XXXX. structure XX.X% attractive which our tax full of quarter

no to have term debt our of a use million times ensure likewise operating quarter time, X.X significant of our last from that activities million the conditions of as leverage used end We free year down ago. of We year we product X.X of first EBITDA year times, cash million $X.X at million net at from use maturities with compared to availability a debt $XX.X prior adjusted compared during near a recorded and use the summer to inventory as period cash in $XX.X quarter $XX.X built the supply-constrained for a ago. improved the

first its the first While of use at million to supply the moderated, is in have XXXX. cash $X.X improved. has quarter constraints highest of $XX.X Capital quarter, first chain the million of as cash expenditures seasonally this compared flow for quarter fiscal in

For of All full considered, we capital fiscal of XX% to the roughly term our year long XX% flow to XXXX those continue XXXX, cash approximately communicated adjusted fiscal of through-the-cycle to XXXX now to previously expect expectation expenditures free expect million. we comparable year at for full to fiscal exceed be EBITDA. $XX

ramped and turn as June, during the approximately compared XXX,XXX our for We back an approved to JT, our as repurchased repurchased such, we prior to announced Finally program shares million the for quarter. activity opportunistically share in $X.X the expanded Board before XX,XXX share shares repurchase million we year $XX.X during quarter. call repurchase up I

At arise. end, for the remaining repurchase provide quarter strategy million conditions pursuing quarter. share and investing a allocation to capital favorable intend balance growth broader market review some outlook fiscal The they leveraging now is had will attractive employ M&A our paying perspective we we shareholder opportunistically under authorization. $XXX end organic down forward, the to as repurchases initiatives, and Going second transactions, disciplined on value. drive our current JT in debt, markets for

John Turner

Thank you Scott.

it’s the levels activity slowdown, market. solid interesting headlines the significant our and to single are a between the housing we likely an with versus in latest contrast particularly Turning family time metrics X, Slide business in experiencing of indicating today

the of between significant end While materials, completions starts occupied year to starts through recent highs, calendar retreating least remains their close us there total availability and a the should on depending backlog industry are housing the and keep this that, works as labor from that gap. of at

XXXX. both building to near to timing longer family, build believe be as activity in Despite still backlog pricing while will term. home at duration capacity Also, demand the completions with we builders a higher should The active the medium to growth upcoming continue of construction volume family slowdown affordability the the the constraints expect single we suggest be stable that for and over current is least and manufacturing flatten for said, when adjust inflationary remains is slower reason multi-family for residential quarter there With dynamics be and at wallboard While starts fundamental our and elevated residential interest term, overall calendar single next remains accommodation pricing quarters. there degree, rates a actions reduced. under-build moderates looking home into is that long robust to the level to times that this encouraged after the and will early working likely term business are demand, to builders drive determined. That environment, housing, likely of the at yet of fulfill is longer reality several than cycle multi-family need. starts for to soften and

as Our model GMS well. provides business confidence

We have markets. commercial service expertise family, and multi-family and product array the the single to

With business to seeing a commercial the our we expanded we commercial meet and commercial decline. all gap as improvement residential and geographic pandemic-driven a between helped to the footprint revenues, residential residential begin as the in offerings, fill of positioned starts split are balanced Just product needs are well of customers. broadened construction, to

percentage roll significant backdrop, our consistent with uncertainties the adjusted XX%, will inflation, we to disruptions our of X.For from margin Slide and position commitment that to gross of changing of near a total and second our we of during or has pleased team and While I confident EBITDA constantly be with soon we the over product are gained of us growth realities net since most margin term remain facing associated as minus be we economic XX.X%. that turn chain its fiscal which market’s keep some our forward plus With the periods as generally the of beginning benefits quarter, organic, roughly sales demonstrated progress. prior about QX, to expect am pandemic outlook the macro supply circumstances. on will our moving let’s

longer term, the we positioned. we are confident Over are that well

commitment Darryl, to types and expertise across grow Our provide construction you to scale, the for both depth the portfolio, continue and residential to and are joining markets serve product breadth to ready profitably ability for exceptionally, questions. of our our our all open value commercial and the project us of anchors our we Thank today. all to our stakeholders. line

Operator

instructions] Truist. Hughes from questions. the your proceed coming question of is line first with with [Operator Please Keith Our

Keith Hughes

on I comments wanted you. into bit Thank commercial a your to little more. dig

Are strongest it hospitality, your be about part Just sense feel would you from talked is of is any year-over-year. great. education, being You office, wallboard sort the getting of commercial up now customers - whatever? a there which right

John Turner

Keith. hi Yes,

most office a point office. base, the the improving segment our this large would that hospitality and/or be remains strong, commercial, every highrise customers remains think General of new. office, only large not very is accelerating is that pretty than healthcare us education in-town other at strong, so segment I much course of are of remodel, low telling

type that We is dentists, work the retail, are around happening. improvement area, smaller commercial definitely tenant of happening etc., and in doctor’s work improvement seeing offices, the general tenant

Keith Hughes

the had future also you some those increases price and, here? success Could more notably will what kind just come be Okay. ceilings comment In in on the you quarters summer, you of of suppliers I from wallboard. increases in, believe, think

John Turner

It’s through passing that think I speak. as ceilings definitely taking. Yes, we is

to speak doing. in obviously, as we the we we as wallboard far, definitely we not but that easy Everything go It’s was, well. get increases expect just need commentary, as it those of as that our is increase and to going we as to good. increases, in last so we’re those pace mentioned think I forward, so here slow do, the

I so through. being this growth to it margin with in dollars gross we’re sales, think almost it’s the equal our pushing demonstrated again the quarter

Keith Hughes

going just there. again in you The volume volume steel--your what’s talk Could comments steel? in down earlier, was steel on

John Turner

office It’s work remodel commercial not down it’s related in are to the steel, you. down the I so of is gave by that large is that’s largest consumer highrise. terribly, there. but still hanging at but type That driven directly just product, that commentary new what you’re office is and Volumes they’re the of end seeing day, of that

Keith Hughes

much. right. okay, Thank Commercial very you all highrise -

John Turner

Keith. Thanks

Operator

you. Thank

next line with Our the Stevenson coming Please Capital. of your from with Jeff is questions. Loop proceed

Jeff Stevenson

congrats the taking for on thanks Hi, questions, quarter. strong and my

John Turner

good Thank you Jeff, morning.

Jeff Stevenson

as about commercial wallboard Do we half we back year? pace? demand believe growth move completions volume calendar of mid-single Good organic you think a the organic the drive digit that and should to will continue growth strong morning. kind of How through improving

John Turner

digits. closer probably to It’s mid single

the and the that that is mid industry rate today we’re and wallboard appropriate volume. single busy, I we’re in environment think for busy, digits With l we’re is would the completions at now,

Jeff Stevenson

could just provide in to you levels end bidding there the earlier an your we through if summer? I kind environment. great. Okay, Has you update or as on saw moved August, similar wonder markets any slowdown what of is any of everything this been current

John Turner

there the really to recovers single activity starts activity that, with family one we’ve July data, the the commercial highest would of Keith. The low when have very actually our to has still we’ll and office here the bidding is today, slowly, but you And all of and eyes a it it’s look starts but that really between starting strong in levels under-construction to keep still, gotten level of come just growth then is only at there to down we on still accelerated since the course happening still Great Last level total mainly speak, commercially mentioning I say, that growth construction, I of little residential, - as residentially that month today. due You know, bit. lack point there was data under a as moderately of still we’re is lot you shipping going Recession. same in this month, and units activity basically the multi-family, on is numbers so know,

Jeff Stevenson

Got you. it, thank

John Turner

Thank you.

Operator

you. Thank

from with Steven Group. question proceed next Thompson your questions. is Research line with Our Ramsey of coming Please the

Steven Ramsey

unfinished about how just you more year? not the morning. in start inventory hearing through of about starts, Can along that to given generally dynamic replenishment with, the out replenishing dealers with we’re talk declining think and Good plays feedback various rest products. Maybe you of how homes the

John Turner

activity. still Sure. particularly is The good product east pretty times, primary turning that new industry course, us the for residential, of just-in-time so news buying wallboard, and selling turns tight, that our it’s for so a is that almost we’re The respect XX to is into still pretty wallboard us the and is tight, very in Mississippi of wallboard quickly. still we’re XX

seeing is we’re steel and bit we’re products, slight steel we’re been now unwinding stretched relatively being the course bit inventory really quite as better, stock down, supply much calendar Our this in bringing that steel. tail say, of unwinding end and and chain had we’ve a the steel a purchases in our but decline been still of that last cautious, we’ve as let’s since year of

selling to in as although inventory, load slow careful not sequentially. sequentially, market likelihood well the our in Scott that out, is declining it’s acquisition pace aware costs, also and somewhat, reduction We’re pointed up and of course of on prices we’re of being continuing so end but our flat the of volume reduction

Steven Ramsey

was my the question, related about how you cash think this over Clearly free flow Then first drivers of Okay, playing higher talk year, out you do next this conversion through very thinking cash this conversion? can free quarters? flow better year-over-year, but to topic maybe higher but is the few the about QX the helpful.

Scott Deakin

that. markets year our pricing there because the it’s inventory big a I Inflation supply think was Last building - our more customers, of right were was had for disruption you’re in general and of very sure year we to of consumption we we also exactly cash related. as on we was getting a factor. balance make sheet carried ahead were increases,

that unwinds, we relatively ultimately last have will cash in higher flows of what As year we than some year. had this

compensation out As even about in year, than already that from we and about us, cash, we draw higher over for last as on talked paid first that talked that and a the with, That last was incentive year, the that was very was of behind so a ultimately strong standpoint. in should the quarter. course we accrued with be first quarter, ultimately better cash flow was

Steven Ramsey

you. Helpful, thank

Operator

you. Thank

proceed Our next questions. from the line Trey Please question of is Stephens. your with Grooms coming with

Noah Merkousko

question. is actually Good Trey. Noah for Merkousko my thanks morning on and for This taking

John Turner

Noah, morning. Hi good

Noah Merkousko

bit like My first I in because wanted one, you expectation saw quarter, clarification the prices maybe the clarify slides, and just is calling wallboard you’re get there increase sequential a a out quarter? think if for the traction, I said just to of you in move manufacturer so but you bit looks gaining price in it higher August little prices little could for flattening next next

John Turner

little Yes, the by up a more. to bit that go it’s says slide going hopefully

We expect a continuation. to have

We wallboard quarter, sequentially then higher said, expect flatten go move we of but are again, the we pricing now balance we year. to the it through this as like through seeing

Scott Deakin

the single given market we market, seeing over fact that the the little to, little that then--but which starting will a we the our the softening of the on that speaking bit Yes, has and to staying close some point, into your effect of QX we you dynamic a of ultimately lag to or some we’re that case, course is generally, the from appreciate year what family so starting benefit to drive pace the do bit to see have market. was In sequentially of flatten. see see that last demand increases we been

Noah Merkousko

if makes up contemplate following outlook from--you growth shift outpace see does Then it, any on sense. Got you that that, mix perfect residential? commercial that know, positive

John Turner

or no single very behind In rate strong, obviously some backlog mix near volumes, the residential new family still near going very completions five as starts stay months coming four today’s mean, the people so in in not in is--I Not it, wallboard anticipate pipeline right mean, into That’s his estimate very the where is I That it which is with pointed pointed - term. XXX,XXX backlog we at I at of I houses. as think that the multi-family and in still to case. term, multi-family, we’ll is. near XX% still commentary strong, in is about be the out term, strong Scott residential the growth out. see

Noah Merkousko

Thanks right, questions. for All perfect. my it taking there. leave I’ll

John Turner

Noah. Thanks

Operator

Thank you.

Our the your next line Mike of Dawe is questions. from RBC with question coming Capital Markets. with Please proceed

Chris Kalata

Chris this questions. is my Hi, Mike. Thanks actually Kalata taking on for for

John Turner

Absolutely.

Chris Kalata

hoping I looks there, to on pipeline talk capitalize on in wanted was like today you multiples your M&A capital are environment talk time also any touch could out I the to where trending to through currently. deal take through to potential allocation. that willingness and current maybe guys and private what the opportunities re-lever

Scott Deakin

our discussions, down entities full. in Clearly range. is bit active, about combined creative very we’re the to in would forward valuation marketplace, roughly towards but think allocation willing well, a and through pipeline more organic We’ve of be these things, Absolutely. have from million activity to a consideration valuations consolidator prime so of is be take to the number in in is kind past, would somewhere our you range of little strategic it’s in allocations in we We’ve other an of the companies to prepared be types - price. to of as clear, then from the a relative remarks, pretty been generally, said be standpoint and some we’re the valuation, capital particularly the talked expect we’d quickly, those space, bring some good to, than the our this about share earnings that’s doing fully some strategically if of for a but doing see very we very we I to and pipeline the think as that opportunities as a back think activities, that the share indicated repurchase flows of we we’ll continuing of as the higher X.X period believe organic standpoint, in of capex we going interim full to cash the willingness active, we valuation target some year opportunistic in X go that that growth, that is own advantage our the $XX the

Chris Kalata

guys that. in Got price. if Then my you to what this was saw you the for I the just on past, disclosed for could it, relative thanks the wallboard XXX was this average. exit you rate follow-up, the wondering guys for quarter do for

Scott Deakin

about Don’t up a talked talked to trending quarterly that we we up trending average, little August at a about exiting bit. the think I about and but was specifically want bit. point, July share it this little number at

Chris Kalata

Understood, appreciate the color.

Operator

Thank you.

is with your the question Matthew proceed from coming Bouley last line Barclays. of Our Please with questions.

Elizabeth Langan

that to mentioned questions. will you Hi, might and you idea but just year, kind to the give have an wondering, seeing a and normalize? constraints capacity you for that when of expect you start you’d pricing, have where sequential do of go could throughout I that you’re the the on Elizabeth back us and view flattening how taking jumping Langan the on Matt for today. you was Thank increase,

John Turner

our degree kind the of comments think on and I residential put slowdown we’re that we of in exactly not will what single clear be family yet.

I It’s take or last is to still talking I the a years. like unwind. for see to that. going this peak quarter, mentioned, a under-construction think the that so peak two Recession, the in next on in and reads three while more backlog, very a large XX get at we’re from a Great we’ll We units

than slowdown, that seeing the right the see have first that might year see availability. deeper we do certainly a we might volume commercial also, we’ll ends to calendar it Then right of if degree is But and unwinds, single as what see recovery I now, we’re that the and don’t is capacity well balance it of I mentioned, tight. through the east to of trough we don’t changing the As is now coast of this the this quarter interest rate degree see it’s--if exceptionally up changing. XXXX, into the being tight, would cycle, anticipate capacity degree the year-over-year growth. commercial that the family

While it also likely is commercial anywhere near from so may same size a improving, that fill consumption not is gap. the perspective, that

Elizabeth Langan

Okay, of to to the thank happen little the and a being with have talk lower? here, that of anything of term, a in do reasonable to year, would that expectation cadence about margin move about you have us you. low XXs what for Kind throughout kind you you’re gross margins could maybe thinking bit gross maybe medium switching see

Scott Deakin

residential and of that level across you lower; gross go don’t in we run level the pretty etc. commercial, balance quarter, gross of variation profitability, operates mix to balancing a gross as significantly But of little of pretty we’re a reflective costs, a margin a bit margins to between level of expect that operating the our it good really fact, history narrow of operating We of focus are at EBITDA business mix from quarter our business. the we consistent that is on may it from We operating of today, standpoint look a against business the products, within standpoint band. margin indicated see indication on the a to of reflection expenses but

Elizabeth Langan

you. Thank

Operator

you. Thank

teleconference. the We reached of have session. participation. your and our This answer today’s conclude does question We end appreciate

time. day. may this You Enjoy your of rest disconnect lines at your the

GMS (GMS) 1 Sep 222023 Q1 Earnings call transcript