GMS Reports Second Quarter Fiscal 2024 Results

Strong Multi-Family and Commercial Activity During the Quarter Amid An Improving Single-Family Demand Backdrop

GMS Inc. (NYSE: GMS), a leading North American specialty building products distributor, today reported financial results for the fiscal second quarter ended October 31, 2023.

Second Quarter Fiscal 2024 Highlights

(Comparisons are to the second quarter of fiscal 2023)

• Net sales of $1.4 billion decreased 0.7%; organic net sales decreased 3.1%.
• In the U.S., Wallboard volume growth of 17.0% in multi-family and 6.5% in commercial helped to offset single-family volume declines of 11.4%.
• Net income of $81.0 million, or $1.97 per diluted share, decreased 21.5% compared to net income of $103.2 million, or $2.41 per diluted share in the previous year; Net income margin declined 150 basis points to 5.7%; Adjusted net income of $94.6 million, or $2.30 per diluted share, compared to $119.5 million, or $2.79 per diluted share in the previous year.
• Adjusted EBITDA of $167.6 million decreased $28.0 million, or 14.3%; Adjusted EBITDA margin was 11.8%, compared to 13.7%.
• Improved cash generation with cash provided by operating activities and free cash flow up 10.1% and 5.8%, respectively, as compared to a year ago; Net debt leverage was 1.5 times, improved from 1.6 times a year ago.

“We were pleased to deliver solid results for our fiscal second quarter, including net sales, net income and Adjusted EBITDA that were ahead of our previously stated expectations as commercial and multi-family Wallboard, Ceilings and Steel Framing volumes outpaced our forecast,” said John C. Turner, Jr., President and Chief Executive Officer of GMS. “These solid levels of demand helped to offset a steeper than anticipated steel pricing decline along with single-family demand that is comparatively reduced versus the prior year, but sequentially improving.”

“Our well-balanced product portfolio, with a revenue mix roughly evenly split between commercial and residential construction, allows us to flex our operations to best align with demand as dynamics in our end markets evolve,” Turner continued. “In the near term, we anticipate the backlog in multi-family construction to drive continued growth in this end market through the end of fiscal 2024, albeit at declining year-over-year rates. Despite some potential headwinds from tightened credit conditions, our commercial demand is expected to continue its current pace of activity over the next few quarters. Additionally, we are optimistic about improving single-family activity, as the very recent easing of mortgage rates, limited supply of existing homes for sale and favorable demographics seem to be setting up improved conditions, particularly as we look out to fiscal 2025.”

“While market conditions are fluid, our scale, wide breadth of product offerings, execution and expertise across all of our varying end markets, and our commitment to outstanding service continues to position us well for solid financial performance, growth and realization of value for our shareholders over the long term.”

Second Quarter Fiscal 2024 Results

Net sales for the second quarter of fiscal 2024 of $1.4 billion decreased 0.7% as compared with the prior year quarter. Continued solid demand in commercial and multi-family construction drove volume increases in Ceilings, Steel Framing and Complementary Products, the benefits of which were offset by a marked price deflation in Steel Framing, which reduced net sales by $85 million for the quarter. Despite softness in the single-family market, Wallboard experienced only a slight volume decline, contributing to continued resilience in pricing. Recent acquisitions also contributed positively for the quarter. Organic net sales, which exclude the first year of acquired business net sales as well as the impact of foreign currency translation, declined 3.1%.

Year-over-year quarterly sales changes by product category were as follows:

• Wallboard sales of $585.2 million increased 0.1% (down 0.3% on an organic basis).
• Ceilings sales of $175.3 million increased 9.9% (up 7.2% on an organic basis).
• Steel Framing sales of $232.1 million decreased 16.6% (down 17.4% on an organic basis).
• Complementary Product sales of $428.3 million increased 4.8% (down 1.4% on an organic basis).

Gross profit of $458.6 million decreased $5.9 million, or 1.3%, compared to the second quarter of fiscal 2023 notably due to deflationary dynamics in steel pricing. Gross margin was 32.3%, compared to 32.5% a year ago.

Selling, general and administrative (“SG&A”) expenses were $300.9 million for the quarter, up from $279.0 million in the prior year period. Of the $21.9 million year-over-year increase, $12.6 million related to recent acquisitions and newly-opened greenfield locations. The remaining $9.3 million increase was primarily driven by higher wages and benefits as we executed against more robust sales volumes in our commercial and multi-family end markets, which tend to require a higher cost to serve than our single-family end market. Specifically, volume growth in Steel Framing was 13.0%, commercial Wallboard volumes grew 6.5% and Ceilings volumes grew 5.8%.

SG&A expense as a percentage of net sales increased 170 basis points to 21.2% for the quarter, compared to 19.5% in the second quarter of fiscal 2023 with 120 basis points of the difference due to steel price deflation, 30 basis points related to increased labor costs, primarily associated with the higher level of commercial and multi-family activity levels and the remaining 20 basis points due to recent acquisitions. Adjusted SG&A expense as a percentage of net sales of 20.6% also increased 170 basis points from 18.9% in the prior year quarter.

All in, inclusive of a $2.7 million, or 16.7%, increase in interest expense, net income decreased 21.5% to $81.0 million, or $1.97 per diluted share, compared to net income of $103.2 million, or $2.41 per diluted share, in the second quarter of fiscal 2023. Net income margin declined 150 basis points from 7.2% to 5.7%. Adjusted net income was $94.6 million, or $2.30 per diluted share, compared to $119.5 million, or $2.79 per diluted share, in the second quarter of the prior fiscal year.

Adjusted EBITDA decreased $28.0 million, or 14.3%, to $167.6 million compared to the prior year quarter. Adjusted EBITDA margin was 11.8%, compared with 13.7% for the second quarter of fiscal 2023.

Balance Sheet, Liquidity and Cash Flow

As of October 31, 2023, the Company had cash on hand of $76.5 million, total debt of $1.1 billion and $823.7 million of available liquidity under its revolving credit facilities. Net debt leverage was 1.5 times as of the end of the quarter, down from 1.6 times at the end of the second quarter of fiscal 2023.

For the second quarter of fiscal 2024, cash provided by operating activities improved to $118.1 million, compared to cash provided by operating activities of $107.3 million in the prior year period. Free cash flow improved to $102.1 million for the quarter ended October 31, 2023, compared to $96.5 million for the quarter ended October 31, 2022.

Expanded Share Repurchase Authorization

In October 2023, the Company’s Board of Directors approved an expanded share repurchase program under which the Company is authorized to repurchase up to $250 million of its outstanding common stock. This expanded program replaces the Company’s previous share repurchase authorization of $200 million, which commenced in June 2022, and reflects the Board’s confidence in the business going forward. The repurchases will be made from time to time on the open market at prevailing market prices or in negotiated transactions off the market.

During the quarter, the Company repurchased 688,717 shares of common stock for $44.3 million, of which $8.7 million was purchased under the new and expanded authorization. As of October 31, 2023, the Company had $241.3 million of share repurchase authorization remaining.

Platform Expansion Activities

During the second quarter of fiscal 2024, the Company continued the execution of its platform expansion strategy with the acquisition of AMW Construction Supply, LLC, a highly respected tools and fasteners and other complementary products distributor servicing the Phoenix, AZ metro area.

In addition during the quarter, the Company added two new greenfield locations and one new AMES store location.

For the complete press release, click here.

About GMS Inc.

Founded in 1971, GMS operates a network of more than 300 distribution centers with extensive product offerings of Wallboard, Ceilings, Steel Framing and Complementary Products. In addition, GMS operates more than 100 tool sales, rental and service centers, providing a comprehensive selection of building products and solutions for its residential and commercial contractor customer base across the United States and Canada. The Company’s unique operating model combines the benefits of a national platform and strategy with a local go-to-market focus, enabling GMS to generate significant economies of scale while maintaining high levels of customer service.

Contact:

Carey Phelps – Investor Relations – ir@gms.com – (770) 723-3369

Source: GMS, Inc.