GMS Reports Fourth Quarter and Fiscal Year 2020 Results

GMS Inc. (“GMS” or the “Company”), a leading North American specialty distributor of interior building products, today reported financial results for the fourth quarter and fiscal year ended April 30, 2020.

Fourth Quarter Fiscal 2020 Highlights

– Net sales of $770.9 million decreased 1.2% from $780.1 million in the fourth quarter of the prior fiscal year, as COVID-related market declines in late March and April more than offset higher sales earlier in the quarter. Organic net sales decreased 1.8%.

– Reported net loss of $41.5 million, or $0.98 per diluted share, compared to net income of $16.6 million, or $0.39 per diluted share, in the fourth quarter of the prior fiscal year. Reported net loss reflects a non-cash goodwill impairment charge of $63.1 million related to the Company’s Canada reporting unit, partially offset by a gain on a legal settlement of $14.0 million related to cash proceeds received as part of a class action legal settlement.

– Adjusted net income of $24.0 million, or $0.56 per diluted share, compared to $28.7 million, or $0.68 per diluted share, in the fourth quarter of the prior fiscal year.

– Adjusted EBITDA of $63.6 million, or 8.2% of net sales compared to Adjusted EBITDA of $73.5 million, or 9.4% of net sales, in the fourth quarter of the prior fiscal year.

– The Company completed one business acquisition and one greenfield opening during the fourth quarter of fiscal 2020.

– Net debt leverage was reduced to 2.9 times as of the end of the fourth quarter of fiscal 2020 from 3.3 times as of the end of the third quarter of fiscal 2020.

– Cash provided by operating activities of $167.7 million and free cash flow of $163.4 million increased 90.2% and 97.4%, respectively, from the fourth quarter of the prior fiscal year.

– As of April 30, 2020, the Company had cash on hand of $210.9 million and availability under its revolving credit facilities of $368.3 million.

Full Year Fiscal 2020 Highlights

– Net sales of $3.2 billion increased 4.0% from $3.1 billion in the prior fiscal year. Organic net sales increased 2.0% year-over-year.

– Reported net income of $23.4 million, or $0.55 per diluted share, compared to $56.0 million, or $1.31 per diluted share, in the prior fiscal year and reflects the above-mentioned non-cash goodwill impairment charge and gain on legal settlement.

– Adjusted net income of $126.5 million, or $2.97 per diluted share, compared to $119.5 million, or $2.80 per diluted share, in the prior fiscal year.

– Adjusted EBITDA of $299.8 million, or 9.2% of net sales, compared to Adjusted EBITDA of $295.7 million, or 9.5% of net sales, in the prior fiscal year.

– The Company completed three business acquisitions and six greenfield openings during fiscal 2020.

– Cash provided by operating activities of $303.1 million and free cash flow of $277.9 million increased 56.5% and 58.9%, respectively, from the prior fiscal year.

John C. Turner, Jr., President and Chief Executive Officer, said, “The health, safety and wellbeing of our employees, business partners and communities remains our top priority during this pandemic and I would like to share my appreciation for all of our teammates who continue to be engaged, focused and proactive as we come together to support our customers and each other during these unprecedented times. Additionally, on behalf of everyone at GMS, I would like to express our deep gratitude to the healthcare providers, first responders and essential workers who have been and continue to be on the frontlines every day.”

Mr. Turner continued, “We entered the fourth quarter with strong momentum in line with what we had seen through the first three quarters of fiscal 2020, grounded in our team’s focus on effective execution of our strategic priorities. Through mid-March we experienced favorable end-market trends and generated robust volume growth. Even as disruptions from COVID-19 began to escalate in the second half of March, construction and building products distribution were deemed essential in the majority of our markets, which enabled us to keep most of our locations open. However, demand weakened significantly in late March and in April as customers delayed orders and building projects were paused due to mandated shutdowns in certain markets or as they focused on responding to the effects of COVID-19 on their businesses.

“To date in the first quarter of fiscal 2021, we have experienced sequential improvement in net sales levels compared to the latter half of the fourth quarter as the majority of the mandated shutdowns have been eased or lifted and as businesses have begun to reopen. On a year-over-year basis, comparable daily sales thus far in the first quarter of fiscal 2021 are down low single digits, compared to the double-digit year-over-year decline experienced in April.

“Given current macroeconomic conditions, there continues to be uncertainty regarding the near-term outlook for construction. We have taken, and intend to continue to take, the necessary actions to optimize our operations and align our business with demand. We believe the foundation we have built at GMS, coupled with our strong liquidity and cash-generating ability, will enable us to continue navigating the evolving operating environment and position us for long-term success,” Mr. Turner concluded.

Fourth Quarter Fiscal 2020 Results

Net sales for the fourth quarter of fiscal 2020 were $770.9 million, down 1.2%, compared to $780.1 million for the fourth quarter of the prior fiscal year, as an approximately 7% increase in sales in February and March combined was more than offset by an approximately 16% year-over-year decrease in net sales in April as a result of COVID-19 disruptions. Organic net sales declined 1.8%.

– Wallboard sales of $323.2 million increased 0.3% (decreased 0.3% on an organic basis) compared to the fourth quarter of fiscal 2019, as higher volumes driven by strength in February and March were largely offset by lower price/mix.

– Ceilings sales of $111.1 million decreased 1.0% (decreased 2.6% on an organic basis) compared to the fourth quarter of fiscal 2019, as higher volumes in February and March and favorable price/mix were more than offset by lower volumes resulting from COVID-19 impacts in April.

– Steel framing sales of $115.3 million decreased 7.4% (decreased 7.8% on an organic basis) compared to the fourth quarter of fiscal 2019, as higher volumes in February and March were more than offset by lower price/mix as well as lower April volumes resulting from COVID-19 impacts.

– Other product sales of $221.2 million were essentially flat (decreased 0.3% on an organic basis) compared to the fourth quarter of fiscal 2019, as higher sales in February and March were offset by lower sales in April resulting from COVID-19 impacts.

Gross profit of $251.6 million decreased 2.1% compared to $256.9 million in the fourth quarter of fiscal 2019 primarily as a result of lower sales and gross margin of 32.6% compared to 32.9% a year ago.

Selling, general and administrative (SG&A) expense as a percentage of net sales was 25.4% for the quarter compared to 24.4% in the fourth quarter of fiscal 2019. Adjusted SG&A expense as a percentage of net sales was 24.5% compared to 23.6% in the prior year quarter. The 90 basis point increase in Adjusted SG&A as a percentage of sales resulted from deflationary market pricing of certain of the Company’s products, lower sales and operating inefficiencies related to COVID-19 business interruptions, continuing inflationary cost pressures and the timing of certain expenses.

Net loss of $41.5 million, or $0.98 per diluted share, compared to net income of $16.6 million, or $0.39 per diluted share, in the fourth quarter of fiscal 2019. The net loss for the quarter includes a $63.1 million non-cash goodwill impairment charge related to the Company’s Canada reporting unit recorded in connection with the Company’s annual goodwill impairment test. The primary factors contributing to the impairment were an increase in the discount rate and a decrease in market multiples, combined with a decrease in the reporting unit’s forecasted near-term cash flows, principally resulting from COVID-19 driven economic uncertainty. The net loss for the quarter also includes cash proceeds received by the Company as part of a class action legal settlement and recognized as a gain on legal settlement of $14.0 million.

Adjusted net income of $24.0 million, or $0.56 per diluted share, compared to $28.7 million, or $0.68 per diluted share, in the fourth quarter of fiscal 2019. Adjusted EBITDA of $63.6 million compared to $73.5 million a year ago and represented an Adjusted EBITDA margin of 8.2%.

Balance Sheet and Liquidity

During the fourth fiscal quarter, the Company reduced its net debt by $141.5 million, including a $50.0 million prepayment of outstanding principal of its term loan facility on March 6, 2020. Net debt leverage was 2.9 times as of the end of the quarter compared to 3.3 times as of the end of the third quarter of fiscal 2020.

As of April 30, 2020, the Company had cash on hand of $210.9 million and availability under its revolving credit facilities of $368.3 million.

Platform Expansion

During the fourth quarter of fiscal 2020, the Company completed the previously announced acquisition of Trowel Trades Supply, Inc., a single-location distributor based in Colchester, Vermont, and opened a greenfield location in Panama City Beach, Florida.

Taking Action in Response to Changing Industry Dynamics

In response to the effects of the COVID-19 pandemic, GMS has taken proactive steps to reduce costs, increase liquidity and improve financial flexibility designed to ensure the Company is well positioned for the duration of this period and able to emerge even stronger. Such actions include:

– Proactively drawing $87.2 million under revolving credit facilities in March 2020;
– Deferring or limiting non-essential operating or other discretionary expenses;
– Implementing a wage and hiring freeze and certain permanent headcount reductions;
– Immediately furloughing employees (with a majority having returned to work following easing of shutdown restrictions);
– Utilizing appropriate benefits of the CARES Act;
– Suspending company matching contributions to the 401(k) plan;
– Closure of certain underperforming branches and distribution centers;
– Delaying or reducing capital expenditures that are not anticipated to impact near-term business;
– Temporarily suspending acquisition-related activity; and
– Optimizing all areas of working capital.

Ensuring the Safety and Health of Employees, Customers and Communities

In response to the COVID-19 pandemic, GMS has taken actions to promote the safety of employees, customers and communities by enhancing operating protocols at its locations in compliance with public health requirements, recommendations and guidelines. These precautions include curtailing non-essential travel and group meetings, implementing routine cleaning and sanitization throughout the day at locations, practicing social distancing, restricting or modifying access to facilities including limiting walk-in traffic in showrooms, recommending that employees who can effectively work from home do so, and use of appropriate personal protective equipment. The Company is continuing to monitor the pandemic, recommendations of public health officials and the reopening guidelines of state and local governments and has made and will continue to make adjustments to its protocols as appropriate.

To read the full results, click here.

About GMS Inc.

Founded in 1971, GMS operates a network of more than 260 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.

Contact:

Leslie H. Kratcoski – Investor Relations – ir@gms.com – (770) 723-3306

Source: GMS, Inc.