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Form 8-K GMS Inc. For: Sep 13

September 13, 2016 7:06 AM

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 8-K

 


 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): September 13, 2016

 


 

GMS INC.

(Exact name of registrant as specified in charter)

 


 

Delaware

 

001-37784

 

46-2931287

(State or Other Jurisdiction
of Incorporation)

 

(Commission
File Number)

 

(I.R.S. Employer
Identification No.)

 

100 Crescent Centre Parkway, Suite 800
Tucker, Georgia

 

30084

(Address of Principal Executive Offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (800) 392-4619

 


 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

o            Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o            Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o            Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o            Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 



 

Item 2.02. Results of Operations and Financial Condition.

 

On September 13, 2016, GMS Inc. (the “Company” or “GMS”) issued a press release, a copy of which is furnished as Exhibit 99.1 hereto and incorporated herein by reference, announcing the Company’s financial results for the three months ended July 31, 2016.

 

In accordance with General Instruction B.2 of Form 8-K, the information in this Item 2.02 of this Current Report on Form 8-K, including Exhibit 99.1 attached hereto, shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

 

Item 5.02.                                        Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

 

On September 13, 2016, the Company announced that Lynn Ross, age 49, will be promoted to serve as the Company’s Corporate Controller and Chief Accounting Officer, effective September 13, 2016. Ms. Ross will replace Richard Alan Adams, age 56, who has served as the Company’s Vice President, Chief Accounting Officer, and Chief Technology Officer since August 2014. Mr. Adams will remain with the Company and serve as its Vice President and Chief Information Officer, effective September 13, 2016.

 

Ms. Ross has served as the Corporate Controller of the Company since January 2015. Prior to joining the Company, she served as the Corporate Controller for Floor and Decor Outlets of America, Inc., a retailer of floor and wall coverings. From 2004 to 2011, Ms. Ross worked for Georgia-Pacific LLC in positions of increasing responsibility, most recently in a Vice President/Controller role. Prior to 2004, Ms. Ross was an Audit Senior Manager at Deloitte & Touche LLP, an international accounting firm. Ms. Ross holds a B.S.B.A. in accounting from Appalachian State University and is a certified public accountant.

 

Ms. Ross does not have any family relationships with any executive officer or director of the Company.

 

Ms. Ross is not a party to any transaction required to be disclosed pursuant to Item 404(a) of Regulation S-K.

 

Item 7.01. Regulation FD Disclosure.

 

The slide presentation furnished as Exhibit 99.2 hereto, and incorporated herein by reference, will be presented to certain investors of GMS on September 13, 2016 and may be used by GMS in various other presentations to investors.

 

In accordance with General Instruction B.2 of Form 8-K, the information in this Item 7.01 of this Current Report on Form 8-K, including Exhibit 99.2 attached hereto, shall not be deemed “filed” for the purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

 

Item 9.01. Financial Statements and Exhibits.

 

(d)         Exhibits:

 

Exhibit Number

 

Description

99.1

 

Press Release of GMS Inc., dated September 13, 2016.

99.2

 

GMS Inc. presentation to investors.

 

2



 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

GMS INC.

 

 

 

 

 

Date: September 13, 2016

By:

/s/ H. Douglas Goforth

 

 

Name: H. Douglas Goforth

 

 

Title: Chief Financial Officer

 

3



 

EXHIBIT INDEX

 

Exhibit Number

 

Description

99.1

 

Press Release of GMS Inc., dated September 13, 2016.

99.2

 

GMS Inc. presentation to investors.

 

4


Exhibit 99.1

 

GRAPHIC

 

GMS REPORTS RESULTS FOR FIRST QUARTER OF FISCAL 2017

- Net Sales Increased 21.5% -

- Net Income Grew to $9.2 Million -

- Adjusted EBITDA Rose 34.7% to $45.9 Million -

 

Tucker, Georgia, September 13, 2016. GMS Inc. (NYSE: GMS), a leading North American distributor of wallboard and suspended ceilings systems, today reported financial results for the first quarter of fiscal 2017 ended July 31, 2016.

 

First Quarter Fiscal 2017 Highlights Compared to First Quarter Fiscal 2016

 

·                  Net sales increased 21.5% to $549.8 million; base business net sales up 9.2% despite one fewer shipping day

 

·                  Wallboard unit volume grew 20.0% to 818 million square feet

 

·                  Net income increased to $9.2 million, or $0.24 per share, compared to $3.0 million, or $0.09 per share

 

·                  Gross margin expanded 140 basis points to 32.5%

 

·                  Adjusted EBITDA margin improved approximately 80 basis points to 8.4% as a percentage of net sales

 

·                  Completed four acquisitions as of September 1, 2016, adding eight branches in five states

 

Mike Callahan, President and CEO of GMS, stated, “We are excited to produce our 20th straight quarter of double-digit growth in net sales, with strong results across all of our product categories to start the current fiscal year. Residential demand continued to outpace commercial activity in many markets, which particularly benefitted our wallboard and other product categories. The modest improvement in wallboard price compared to Q4 of last fiscal year was in line with expectations. Beyond our base business improvement, we completed four acquisitions during fiscal 2017 as of September 1, 2016, representing $134.9 million of combined trailing twelve month net sales. In June 2016, we used the proceeds from our successful initial public offering to further reduce debt and strengthen our balance sheet. In all, we are pleased with our progress and the dedication of the entire GMS family which is driving our continued success.”

 

First Quarter Fiscal 2017 Results

 

Net sales for the first quarter ended July 31, 2016 were $549.8 million, compared to $452.4 million for the first quarter ended July 31, 2015.

 

·                  Wallboard sales of $251.3 million increased 19.1%, compared to the first quarter of fiscal 2016. Wallboard unit volume grew 20.0% million to 818 million square feet, helped by greater end market demand and the positive contribution from acquisitions.

 

·                  Ceiling sales of $86.3 million rose 9.3%, compared to the first quarter of fiscal 2016, helped by improved pricing and acquisitions.

 

·                  Steel framing sales of $84.3 million grew 25.3%, compared to the first quarter of fiscal 2016, due to greater commercial activity and pricing gains as industry steel prices increased year-over-year, along with the benefit from accretive acquisitions.

 

·                  Other product sales of $127.8 million were up 34.2%, compared to the first quarter of fiscal 2016, attributable to greater end market demand, price gains, retail showrooms, acquisitions and other initiatives.

 

Gross profit of $178.6 million grew 26.8%, compared to $140.9 million in the first quarter of fiscal 2016. Gross margin of 32.5% expanded by 140 basis points, compared to 31.1% in the first quarter of fiscal 2016 mainly attributable to increased product margins.

 

Net income of $9.2 million, or $0.24 per share, increased $6.2 million, compared to $3.0 million, or $0.09 per share, in the first quarter of fiscal 2016. Adjusted net income of $17.8 million, or $0.47 per share, grew $6.5 million, compared to $11.3 million, or $0.35 per share, in the first quarter of fiscal 2016.

 

Adjusted EBITDA of $45.9 million rose 34.7%, compared to $34.1 million in the first quarter of fiscal 2016.  Adjusted EBITDA margin was 8.4% as a percentage of net sales for the first quarter of fiscal 2017, compared to 7.5% in the first quarter of fiscal 2016, largely reflecting a higher gross margin.

 



 

Capital Resources

 

On June 1, 2016, GMS completed the initial public offering of its common stock, raising net proceeds of approximately $157.2 million, including the full exercise of the underwriters’ option to purchase additional shares. Following completion of the offering, GMS had 40,942,905 of basic and 41,605,076 of diluted shares of common stock outstanding.

 

GMS used all of the net proceeds from its initial public offering, together with cash on hand, to repay, in full, its outstanding indebtedness of $160.0 million plus accrued and unpaid interest under its 7.75% senior secured second lien term loan facility due April 2022.

 

At July 31, 2016, GMS had cash of $9.8 million and total debt of $546.7 million, as compared to cash of $19.1 million and total debt of $644.6 million at April, 30, 2016.

 

Acquisition Activity

 

During the first quarter of fiscal 2017, the Company acquired Wall & Ceiling Supply Co., Inc., or Wall & Ceiling Supply, and Rockwise, LLC, or Rockwise, for a total purchase price of approximately $26.0 million. Wall & Ceiling Supply and Rockwise distribute wallboard and related building materials from four locations in Washington, Arizona and Colorado. For the twelve months ended April 30, 2016, the combined companies generated approximately $35.2 million in net sales and the earnings of these entities would have contributed approximately $4.5 million to Adjusted EBITDA for that period, including operating synergies.

 

Subsequent to July 31, 2016, the Company acquired Steven F. Kempf Building Materials, Inc., or SKBM, and Olympia Building Supplies, LLC, or Olympia, for a total purchase price of approximately $75.6 million. SKBM and Olympia distribute wallboard and related building materials from four locations in Pennsylvania and Florida. For the twelve months ended July 31, 2016, the combined companies generated approximately $99.7 million in net sales and the earnings of these entities would have contributed approximately $10.9 million to Adjusted EBITDA for that period, including operating synergies.

 

Conference Call and Webcast

 

The Company will host a conference call and webcast to discuss its results for the first quarter ended July 31, 2016 at 11:00 a.m. Eastern Time on September 13, 2016. Investors who wish to participate in the call should dial 877-407-0789 (domestic) or 201-689-8562 (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 Company’s first quarter results available on that page of the website as well.  Replays of the call will be available through October 13, 2016 and can be accessed at 877-870-5176 (domestic) or 858-384-5517 (international) and entering the pass code 13644496.

 

About GMS Inc.

 

Founded in 1971, GMS operates a national network of distribution centers across the United States.  GMS’s extensive product offering of wallboard, suspended ceilings systems, or ceilings, and complementary interior 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.

 

Use of Non-GAAP Financial Measures

 

GMS reports its financial results in accordance with GAAP. However, we present adjusted net income, Adjusted EBITDA, Adjusted EBITDA margin and base buisness growth, which are not recognized financial measures under GAAP.We believe adjusted net income, Adjusted EBITDA and Adjusted EBITDA margin assist investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. Management believes adjusted net income, Adjusted EBITDA, Adjusted EBITDA margin and base business growth are helpful in highlighting trends in our operating results, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital investments.  In addition, we utilize Adjusted EBITDA in certain calculations under our senior secured asset based revolving credit facility and our senior secured first lien term loan facility.

 

You are encouraged to evaluate each adjustment and the reasons we consider it appropriate for supplemental analysis. In addition, in evaluating adjusted net income and Adjusted EBITDA, you should be aware that in the future, we may incur expenses similar to the adjustments in the presentation of adjusted net income and Adjusted EBITDA. Our presentation of adjusted net income and Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. In addition, adjusted net income and Adjusted EBITDA may not be comparable to similarly titled measures used by other companies in our industry or across different industries.

 



 

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 our 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 we operate, including the potential for growth in the commercial, residential and repair and remodeling, or R&R, markets, statements about our expectations, beliefs, plans, strategies, objectives, prospects, assumptions or future events or performance, statements related to net sales, gross profit and capital expenditures, as well as non-GAAP financial measures such as Adjusted EBITDA, adjusted net income and base business growth and statements regarding potential acquisitions and future greenfield locations contained in this press release are forward-looking statements. We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe 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 our control. Forward-looking statements involve risks and uncertainties, including, but not limited to, economic, competitive, governmental and technological factors outside of our control, that may cause our 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 we distribute; general economic and business conditions in the United States; 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; and other factors described in the “Risk Factors” section in our Annual Report on Form 10-K for the fiscal year ended April 30, 2016, and in our other periodic reports filed with the SEC.  In addition, the statements in this release are made as of September 13, 2016. We undertake 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 our views as of any date subsequent to September 13, 2016.

 



 

GMS Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)

(in thousands of dollars, except for share and per share data)

 

 

 

Three Months Ended

 

 

 

July 31, 

 

 

 

2016

 

2015

 

Net sales

 

$

549,800

 

$

452,441

 

Cost of sales (exclusive of depreciation and amortization shown separately below)

 

371,215

 

311,553

 

Gross profit

 

178,585

 

140,888

 

Operating expenses:

 

 

 

 

 

Selling, general and administrative

 

135,058

 

110,210

 

Depreciation and amortization

 

15,795

 

16,065

 

Total operating expenses

 

150,853

 

126,275

 

Operating income

 

27,732

 

14,613

 

Other (expense) income:

 

 

 

 

 

Interest expense

 

(7,577

)

(9,257

)

Write-off of discount and deferred financing fees

 

(5,426

)

 

Other income, net

 

593

 

510

 

Total other (expense), net

 

(12,410

)

(8,747

)

Income before taxes

 

15,322

 

5,866

 

Provision for income taxes

 

6,159

 

2,855

 

Net income

 

$

9,163

 

$

3,011

 

Weighted average shares outstanding:

 

 

 

 

 

Basic

 

38,200,597

 

32,677,418

 

Diluted

 

38,602,378

 

32,830,677

 

Net income per share:

 

 

 

 

 

Basic

 

$

0.24

 

$

0.09

 

Diluted

 

$

0.24

 

$

0.09

 

Comprehensive income:

 

 

 

 

 

Net income

 

$

9,163

 

$

3,011

 

Decrease in fair value of financial instrument, net of tax

 

(88

)

(181

)

Comprehensive income

 

$

9,075

 

$

2,830

 

 



 

GMS Inc.

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands of dollars, except share data)

 

 

 

July 31, 

 

April 30, 

 

 

 

2016

 

2016

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

9,828

 

$

19,072

 

Trade accounts and notes receivable, net of allowances of $9,432 and $8,607, respectively

 

295,105

 

270,257

 

Inventories, net

 

186,006

 

165,766

 

Prepaid expenses and other current assets

 

12,109

 

16,548

 

Total current assets

 

503,048

 

471,643

 

Property and equipment, net of accumulated depreciation of $58,952 and $54,377, respectively

 

154,368

 

153,260

 

Goodwill

 

393,640

 

386,306

 

Intangible assets, net

 

223,594

 

221,790

 

Other assets

 

7,346

 

7,815

 

Total assets

 

$

1,281,996

 

$

1,240,814

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

95,999

 

$

91,500

 

Accrued compensation and employee benefits

 

27,959

 

51,680

 

Other accrued expenses and current liabilities

 

42,985

 

41,814

 

Current portion of long-term debt

 

9,514

 

8,667

 

Revolving credit facility

 

 

26,914

 

Total current liabilities

 

176,457

 

220,575

 

Non-current liabilities:

 

 

 

 

 

Long-term debt, less current portion

 

537,220

 

609,029

 

Deferred income taxes, net

 

37,908

 

41,203

 

Other liabilities

 

33,468

 

33,600

 

Liabilities to noncontrolling interest holders, less current portion

 

24,378

 

25,247

 

Total liabilities

 

809,431

 

929,654

 

Commitments and contingencies

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Common stock, par value $0.01 per share, authorized 500,000,000 shares; 40,942,905 and 32,892,905 shares issued at July 31, 2016 and April 30, 2016, respectively

 

409

 

329

 

Preferred stock, par value $0.01 per share, authorized 50,000,000 shares; 0 shares issued at July 31, 2016 and April 30, 2016, respectively

 

 

 

Additional paid-in capital

 

486,494

 

334,244

 

Accumulated deficit

 

(13,102

)

(22,265

)

Accumulated other comprehensive loss

 

(1,236

)

(1,148

)

Total stockholders’ equity

 

472,565

 

311,160

 

Total liabilities and stockholders’ equity

 

$

1,281,996

 

$

1,240,814

 

 



 

GMS Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands of dollars)

 

 

 

Three Months Ended

 

 

 

July 31, 

 

 

 

2016

 

2015

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

9,163

 

$

3,011

 

Adjustments to reconcile net income to net cash used in operating activities:

 

 

 

 

 

Depreciation and amortization of property and equipment

 

6,382

 

7,279

 

Accretion and amortization of debt discount and deferred financing fees

 

6,129

 

854

 

Amortization of intangible assets

 

9,413

 

8,792

 

Provision for losses on accounts and notes receivable

 

(75

)

(1

)

Provision for obsolescence of inventory

 

23

 

43

 

Equity-based compensation

 

627

 

1,172

 

Net gain on sale or impairment of assets

 

(199

)

(25

)

Deferred income tax benefit

 

(3,222

)

(4,091

)

Prepaid expenses and other assets

 

(3,058

)

(4,144

)

Accrued compensation and employee benefits

 

(24,947

)

(26,880

)

Other accrued expenses and liabilities

 

852

 

11,429

 

Liabilities to noncontrolling interest holders

 

246

 

473

 

Income taxes

 

2,835

 

2,457

 

 

 

4,169

 

369

 

Changes in primary working capital components, net of acquisitions:

 

 

 

 

 

Trade accounts and notes receivable

 

(19,360

)

(21,834

)

Inventories

 

(17,101

)

377

 

Accounts payable

 

1,672

 

2,677

 

Cash used in operating activities

 

(30,620

)

(18,411

)

Cash flows from investing activities:

 

 

 

 

 

Purchases of property and equipment

 

(2,607

)

(1,465

)

Proceeds from sale of assets

 

841

 

430

 

Acquisition of businesses, net of cash acquired

 

(23,278

)

 

Cash used in investing activities

 

(25,044

)

(1,035

)

Cash flows from financing activities:

 

 

 

 

 

Repayments on the revolving credit facility

 

(225,702

)

(136,243

)

Borrowings from the revolving credit facility

 

280,397

 

161,089

 

Payments of principal on long-term debt

 

(975

)

(975

)

Principal repayments of capital lease obligations

 

(1,213

)

(1,032

)

Proceeds from issuance of common stock in initial public offering, net of underwriting discounts

 

157,217

 

 

Repayment of term loan

 

(160,000

)

 

Stock repurchases

 

 

(5,827

)

Exercise of stock options

 

 

3,317

 

Payments of contingent consideration

 

(3,304

)

 

Cash provided by financing activities

 

46,420

 

20,329

 

(Decrease) increase in cash and cash equivalents

 

(9,244

)

883

 

Balance, beginning of period

 

19,072

 

12,284

 

Balance, end of period

 

$

9,828

 

$

13,167

 

Supplemental cash flow disclosures:

 

 

 

 

 

Cash paid for income taxes

 

$

6,540

 

$

4,515

 

Cash paid for interest

 

6,613

 

7,943

 

Supplemental schedule of noncash activities:

 

 

 

 

 

Assets acquired under capital lease

 

$

3,824

 

$

2,283

 

Change in fair value of derivative instrument

 

(205

)

(282

)

Increase (decrease) in insurance claims payable and insurance recoverable

 

161

 

(26,000

)

 



 

GMS Inc.

Net Sales by Product Group (Unaudited)

(in thousands of dollars)

 

 

 

Three Months 
Ended

 

 

 

Three Months 
Ended

 

 

 

 

 

July 31, 

 

% of

 

July 31, 

 

% of

 

 

 

2016

 

Total

 

2015

 

Total

 

Wallboard

 

$

251,296

 

45.7

%

$

210,922

 

46.6

%

Ceilings

 

86,349

 

15.7

%

78,967

 

17.5

%

Steel framing

 

84,343

 

15.3

%

67,332

 

14.9

%

Other products

 

127,812

 

23.3

%

95,220

 

21.0

%

Total net sales

 

$

549,800

 

 

 

$

452,441

 

 

 

 



 

GMS Inc.

Reconciliation of Net Income to Adjusted EBITDA (Unaudited)

(in thousands of dollars)

 

 

 

Three Months Ended

 

 

 

July 31, 

 

July 31, 

 

 

 

2016

 

2015

 

Net income

 

$

9,163

 

$

3,011

 

Interest expense

 

13,003

 

9,257

 

Interest income

 

(43

)

(230

)

Income tax expense

 

6,159

 

2,855

 

Depreciation expense

 

6,382

 

7,273

 

Amortization expense

 

9,413

 

8,792

 

EBITDA

 

$

44,077

 

$

30,958

 

Stock appreciation rights expense (a)

 

$

(92

)

$

594

 

Redeemable noncontrolling interests (b)

 

292

 

554

 

Equity-based compensation (c)

 

673

 

498

 

Severance and other permitted costs (d)

 

140

 

557

 

Transaction costs (acquisitions and other) (e)

 

654

 

415

 

Gain on disposal of assets

 

(198

)

(25

)

Management fee to related party (f)

 

188

 

562

 

Effects of fair value adjustments to inventory (g)

 

164

 

 

Interest rate swap and cap mark-to-market (h)

 

43

 

 

Adjusted EBITDA add-backs

 

 

1,864

 

 

3,155

 

Adjusted EBITDA

 

$

45,941

 

$

34,113

 

Adjusted EBITDA margin

 

 

8.4

%

 

7.5

%

 


(a)         Represents non-cash compensation expenses related to stock appreciation rights agreements

(b)         Represents non-cash compensation expense related to changes in the fair values of noncontrolling interests

(c)          Represents non-cash equity-based compensation expense related to the issuance of stock options

(d)         Represents severance and other costs permitted in calculations under the ABL Facility and the Term Loan Facilities

(e)          Represents one-time costs related to the IPO and acquisitions paid to third party advisors

(f)           Represents management fees paid to AEA, which were discontinued after the IPO

(g)          Non-cash cost of sales impact of purchase accounting adjustments to increase inventory to its estimated fair value

(h)         Mark to market adjustments for certain financial instruments

 



 

GMS Inc.

Reconciliation of Net Income to Adjusted Net Income (Unaudited)

(in thousands of dollars, except for share and per share data)

 

 

 

Three Months Ended

 

 

 

July 31, 

 

July 31, 

 

 

 

2016

 

2015

 

Income before taxes

 

$

15,322

 

$

5,866

 

Adjusted EBITDA add-backs

 

1,864

 

3,155

 

Write-off of discount and deferred financing fees

 

5,426

 

 

Purchase accounting depreciation and amortization (1)

 

7,999

 

10,445

 

Adjusted pre-tax income

 

30,611

 

19,466

 

Adjusted income tax expense

 

12,826

 

8,156

 

Adjusted net income

 

$

17,785

 

11,310

 

Effective tax rate (2)

 

41.9

%

41.9

%

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

Basic

 

38,200,597

 

32,677,418

 

Diluted

 

38,602,378

 

32,830,677

 

Adjusted net income per share:

 

 

 

 

 

Basic

 

$

0.47

 

$

0.35

 

Diluted

 

$

0.46

 

$

0.34

 

 


(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.

(2)         Normalized effective tax rate excluding the impact of purchase accounting and certain other deferred tax amounts.

 

Contact Information:

 

Investor Relations:

[email protected]

678-353-2883

 

Media Relations:

[email protected]

770-723-3378

 


Exhibit 99.2

 

GMS Quarterly Review Fiscal Q1 2017

 


Safe Harbor and Basis of Presentation Forward-Looking Statement Safe Harbor - This presentation includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All of these forward-looking statements are based on estimates and assumptions made by our management that, although believed by us to be reasonable, are inherently uncertain. Forward-looking statements involve risks and uncertainties, including, but not limited to, economic, competitive, governmental and technological factors outside of our control, that may cause our 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 we distribute; general economic and business conditions in the United States; 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; and other factors described in the "Risk Factors" section in our Annual Report on Form 10-K for the fiscal year ended April 30, 2016, and in our other periodic reports filed with the SEC. In addition, the statements in this presentation are made as of September 13, 2016. We undertake 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 our views as of any date subsequent to September 13, 2016. Use of Non-GAAP and Adjusted Financial Information - To supplement GAAP financial information, we use adjusted measures of operating results which are non-GAAP measures. This non-GAAP adjusted financial information is provided as additional information for investors. These adjusted results exclude certain costs, expenses, gains and losses, and we believe their exclusion can enhance an overall understanding of our past financial performance and also our prospects for the future. These adjustments to our GAAP results are made with the intent of providing both management and investors a more complete understanding of our operating performance by excluding non-recurring, infrequent or other non-cash charges that are not believed to be material to the ongoing performance of our business. The presentation of this additional information is not meant to be considered in isolation or as a substitute for GAAP measures of net income, diluted earnings per share or net cash provided by (used in) operating activities prepared in accordance with generally accepted accounting principles in the United States. 2

 


GMS at a Glance Based on FY2015 results. Wallboard share based on volume. Ceilings share based on sales. GMS Overview Fiscal Q1 2017 Net Sales Breakdown #1 North American specialty distributor of interior construction products (1) 13% market share in wallboard 14% market share in ceilings Critical link between suppliers and highly fragmented customer base National scale combined with local expertise One-stop-shop for the interior contractor with broad product offering of 20,000+ SKUs Substantial diversification across customers, geographies and end markets National Scale Combined With Local Expertise Wallboard $251.3mm 46% Ceilings $86.3mm 16% Steel Framing $84.3mm 15% Other $127.8mm 23% 3 GMS Branch Locations GMS Headquarters

 


Q1 2017 Highlights 4 Above-Market Growth Attractive Capital Structure Accretive Acquisitions Continued Margin Improvement Net sales increased 21.5% to $549.8 million Base business net sales up 9.2% despite one fewer shipping day Wallboard unit volume grew 20.0% to 818 million square feet Net income tripled to $9.2 million Gross margin expanded 140 basis points to 32.5% Adjusted EBITDA grew 34.7% to $45.9 million Completed four acquisitions as of September 1, 2016, adding 8 branches across 5 states with combined LTM net sales and EBITDA of $135 million and $15.4 million, respectively Acquisitions closed since February 1, 2015 represented 59% of Q1 2017 net sales growth Completed Initial Public Offering in June 2016 Further improved balance sheet and credit metrics Corporate debt upgraded to B2/B+ from B3/B by Moody’s and Standard & Poor's in Q2 2017

 


Attractive Acquirer with Significant Consolidation Opportunity 5 Acquisition Strategy FY 2017 GMS Acquisitions Acquisition Rationale Industry Structure: Large, highly fragmented industry comprised of ~400 competitors Similar business operations enable efficient integration Limited number of scaled players Acquisition Strategy: Criteria: leading capabilities in targeted new markets / increase existing network density / enhance strategic capabilities Fit GMS culture and platform Deliver scale benefits Attractive purchase price multiples Dedicated M&A team Pipeline: The majority of the market is comprised of local, independent competitors representing significant opportunity Maintain active dialogue with many potential targets at any given time Employee-centric culture and industry track record positions GMS to drive additional growth through acquisitions LTM Sales of $46.8 million Strategic entrance into the greater Philadelphia metropolitan area Over its 20+ year operating history, SKBM has built an extremely strong reputation for customer service in the market which has garnered significant respect for its management team and also makes it a great fit with GMS core values September 1, 2016 3 Branches August 29, 2016 1 Branch July 5, 2016 3 Branches May 2, 2016 1 Branch LTM Sales of $52.9 million Strategic entrance into south Florida Founded in 2008, OBS is a leading supplier of wallboard and related construction products to the south Florida marketplace. OBS has developed a strong reputation for customer service and fits nicely with the GMS culture LTM Sales of $26.7 million Founded in 2009, RW is a leading supplier of wallboard and related construction products to the greater Arizona and southwestern Colorado markets Given its locations in Arizona and southwestern Colorado, RW has a strong commercial and multi-family residential focus which dovetails nicely with GMS’s existing operations LTM Sales of $8.5 million Founded in the early 1970s, W&CS is a leading supplier of wallboard and related construction products to the Seattle, WA and greater Puget Sound marketplaces Given its location in Seattle, WA, W&CS has a strong commercial and multi-family residential focus which compliments GMS’s existing position in the market

 


Continue to Use Multiple Levers to Drive Growth 6 (5) Net Sales ($ mm) Fiscal Q1 2017 Net Sales Strong track record of executing profitable growth strategy (5) When calculating our “base business” results, we exclude any branches that were acquired in the current fiscal year, prior fiscal year and three months prior to the start of the prior fiscal year. Fiscal Q1 2017 Performance End Market Recovery and Expansion Market Growth Operating Leverage Operational Excellence Margin Expansion Organic Growth Strategic Acquisitions Strategic Acquisition Opportunities in Highly Fragmented Market Continued Market Share Gains Greenfield Branch Openings +21.5% YOY +9.2% Base Business YOY $452.4 $549.8 $427.7 $467.2 $24.7 $82.6 $0 $200 $400 $600 Fiscal Q1 2016 Fiscal Q1 2017 Base Business Acquisitions ($ in millions) Fiscal Q1 YOY Base FY16 FY17 Growth Business (1) Wallboard Volume (MSF) 681 818 20.0% 8.8% Wallboard Price ($/'000 Sq. Ft.) 310 $ 307 $ (0.7%) Net Sales Wallboard 210.9 $ 251.3 $ 19.1% 6.8% Ceilings 79.0 86.3 9.3% 3.4% Steel Framing 67.3 84.3 25.3% 6.0% Other Products 95.3 127.9 34.2% 22.9% Total Net Sales 452.4 $ 549.8 $ 21.5% 9.2%

 


One-Stop-Shop Outsized Impact on Other Products Sales “One-stop-shop” for the Interior Contractor Interior Contractor Wallboard Steel Framing Joint Compound Tools Safety Products Insulation GMS sells a complementary and complete product offering to the interior contractor who installs wallboard, ceilings, steel framing and all the ancillary products needed to complete the job Ceilings Fasteners Other products net sales benefitting from significant pull through factor and further supplemented by pricing improvements, retail showrooms, acquisitions and other initiatives 7 Net Sales ($ mm) Fiscal Q1 2017 Other Product Net Sales Represents complementary product (other products) +34.2% YOY +22.9% Base Business YOY $95.2 $127.8 $83.3 $102.5 $11.9 $25.3 $0 $50 $100 $150 Fiscal Q1 2016 Fiscal Q1 2017 Base Business Acquisitions

 


Margin Expansion in Fiscal Q1 2017 8 Gross Profit ($ mm) FY 2016 Gross Profit & Margin Tailored investments in Yard Support Center, IT and branch talent to support our growth are paying off (5) Adj. EBITDA ($ mm) FY 2016 Adjusted EBITDA (1) For a reconciliation of Adj. EBITDA to Net Income (loss), the most directly comparable GAAP metric, see Appendix. Margin(1): 7.5% 8.4% Gross margin increased 140 basis points, primarily driven by increased product margins and, to a lesser extent, product mix Partially offsetting higher gross profit were higher operating expenses at the branch level to support growth in sales Adjusted EBITDA grew 34.7% to $45.9 million reflecting stronger sales activity Adjusted EBITDA margin improved ~80 basis points to 8.4% as a percentage of net sales reflecting better product margins Commentary +34.7% YOY $34.1 $45.9 $0 $10 $20 $30 $40 $50 Fiscal Q1 2016 Fiscal Q1 2017

 


Attractive Capital Structure Post IPO Leverage of 3.4x Net Debt / LTM Adj. EBITDA as of 7/31/16, after use of $157.2 million net proceeds from IPO and $2.8 million cash on hand to pay off $160 million Second Lien Term Loan Continued improvement in credit metrics from 6.0x Net Debt / LTM Adj. EBITDA as of 4/30/14 and 4.9x as of 4/30/15 There remains a significant degree of liquidity in the business, with $9.8 million of cash on hand and an additional $132 million undrawn on the ABL facility as of 7/31/16 In Q2 2017, Moody’s and Standard & Poor’s upgraded GMS corporate debt to B2/B+ from B3/B based on increased construction activity and improved credit metrics Commentary Leverage Summary Net Debt / Adjusted EBITDA 9 PF Adjusted EBITDA includes the earnings of acquired entities from the beginning of the periods presented to the date of such acquisitions, as well as certain purchasing synergies and cost savings, as defined in and permitted by the ABL Facility and the First Lien Facility, and which is used in the calculation of certain baskets to covenants in the Company’s debt agreements, including in connection with the Company’s ability to incur additional indebtedness. PF Adjusted EBITDA for the LTM period ending 7/31/16, fiscal year ended 4/30/16 and fiscal year ended 4/30/15 include PF adjustments of $11.3 million, $12.1 million and $8.1 million, respectively. For a reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP metric, see Appendix. 6.0x 4.9x 4.3x 3.4x 4/30/14 4/30/15 4/30/16 LTM 7/31/16 ($ mm) 4/30/14 4/30/15 4/30/16 7/31/16 FYE FYE FYE LTM Cash $33 $12 $19 $10 Asset-Based Revolver - 17 102 157 First Lien Term Loan 390 386 382 381 Second Lien Term Loan 160 160 160 - Capital Lease and Other 2 10 14 15 Total Debt $552 $573 $658 $553 PF Adj. EBITDA (1) $87 $114 $150 $161 Total Debt / PF Adj. EBITDA 6.3x 5.0x 4.4x 3.4x Net Debt / PF Adj. EBITDA 6.0x 4.9x 4.3x 3.4x

 


Appendix

 


Summary Quarterly Financials Note: Fiscal year end April 30. 11 (In millions, except per share data) 1Q16 2Q16 3Q16 4Q16 FY16 1Q17 (Unaudited) Wallboard Volume (MSF) 681 700 646 816 2,843 818 Wallboard Price ($ / '000 Sq. Ft.) 310 $ 306 $ 305 $ 305 $ 306 $ 307 $ Wallboard 211 $ 214 $ 197 $ 249 $ 871 $ 251 $ Ceilings 79 75 65 78 297 86 Steel framing 67 70 66 78 281 84 Other products 95 99 92 122 409 128 Net sales 452 458 420 527 1,858 550 Cost of sales 312 314 286 353 1,265 371 Gross profit 141 144 134 174 593 179 Operating expenses: Selling, general and administrative expenses 110 114 112 133 470 135 Depreciation and amortization 16 15 16 17 64 16 Total operating expenses 126 130 128 150 534 151 Operating income (loss) 15 14 6 24 59 28 Other (expense) income: Interest expense (9) (9) (9) (9) (37) (8) Change in fair value of financial instruments - - - (0) (0) (0) Write-off of discount and deferred financing costs - - - - - (5) Other income, net 1 0 1 2 4 1 Total other (expense), net (9) (9) (9) (7) (34) (12) Income (loss) from continuing operations, before tax 6 5 (3) 17 25 15 Income tax expense (benefit) 3 3 (1) 8 13 6 Net income (loss) 3 3 (2) 9 13 9 Weighted average shares outstanding: Basic 32,677 32,738 32,891 32,893 32,799 38,201 Diluted 32,831 32,898 32,891 33,155 33,125 38,602 Net income (loss) per share: Basic 0.09 $ 0.09 $ (0.07) $ 0.27 $ 0.38 $ 0.24 $ Diluted 0.09 $ 0.09 $ (0.07) $ 0.27 $ 0.38 $ 0.24 $

 


Quarterly Net Sales Note: Fiscal year end April 30. When calculating our “base business” results, we exclude any branches that were acquired in the current fiscal year, prior fiscal year and three months prior to the start of the prior fiscal year. FY16 quarterly sales from acquisitions have been updated in accordance with our presentation of base business for the FY17 vs. FY16 comparative period. Quarterly business days for FY17 are 63, 65, 63 and 63 for 1Q17, 2Q17, 3Q17 and 4Q17, respectively. Includes greenfields, which we consider extensions of “base business.” FY16 acquired branches have been updated to reflect the number of acquired branches that are included within the sales from acquisitions 12 ($ in millions) 1Q16 2Q16 3Q16 4Q16 FY16 1Q17 (Unaudited) Base Business (1) (2) 428 $ 432 $ 379 $ 451 $ 1,642 $ 467 $ Acquisitions (2) 25 26 41 76 216 83 Total Net Sales 452 $ 458 $ 420 $ 527 $ 1,858 $ 550 $ Business Days (3) 64 64 61 65 254 63 Net Sales by Business Day 7.1 $ 7.2 $ 6.9 $ 8.1 $ 7.3 $ 8.7 $ Base Business Branches (4) (5) 149 151 152 153 153 153 Acquired Branches (5) 7 8 26 33 33 37 Total Branches 156 159 178 186 186 190

 


Quarterly Net Income to Adjusted EBITDA GAAP Adjusted EBITDA Reconciliation Commentary Represents non-cash compensation expenses related to stock appreciation rights agreements Represents non-cash compensation expense related to changes in the fair values of noncontrolling interests Represents non-cash equity-based compensation expense related to the issuance of stock options Represents severance and other costs permitted in calculations under the ABL Facility and the Term Loan Facilities Represents one-time costs related to the IPO and acquisitions paid to third party advisors Represents management fees paid to AEA, which were discontinued after the IPO Non-cash cost of sales impact of purchase accounting adjustments to increase inventory to its estimated fair value Mark to market adjustments for certain financial instruments Full year (i.e. predecessor) pro forma impact of acquisitions assuming a May 1st purchase 13 ( $ in 000s) 1Q16 2Q16 3Q16 4Q16 FY16 1Q17 (Unaudited) Net Income (Loss) 3,011 $ 2,825 $ (2,212) $ 8,940 $ 12,564 $ 9,163 $ Add: Income Tax Expense 2,855 2,623 (819) 7,925 12,584 6,159 Less: Interest Income (230) (208) (247) (243) (928) (43) Add: Interest Expense 9,257 9,260 9,473 9,428 37,418 13,003 Add: Depreciation Expense 7,273 6,465 6,469 6,460 26,667 6,382 Add: Amortization Expense 8,792 8,797 9,540 10,419 37,548 9,413 EBITDA 30,958 $ 29,762 $ 22,204 $ 42,929 $ 125,853 $ 44,077 $ Adjustments Stock appreciation rights expense (benefit) (A) 594 692 337 365 1,988 (92) Redeemable noncontrolling interests (B) 554 451 167 (292) 880 292 Equity-based compensation (C) 498 863 728 610 2,699 673 Severance and other permitted costs (D) 557 824 52 (1,054) 379 140 Transaction costs (acquisition and other) (E) 415 1,340 1,057 939 3,751 654 Loss (gain) on disposal of assets (25) 305 (205) (720) (645) (198) AEA management fee (F) 562 563 562 563 2,250 188 Effects of fair value adjustments to inventory (G) - - 786 223 1,009 164 Interest rate swap / cap mark-to-market (H) - - - 19 19 43 Total Add-Backs 3,155 $ 5,038 $ 3,484 $ 653 $ 12,330 $ 1,864 $ Adjusted EBITDA 34,113 $ 34,800 $ 25,688 $ 43,582 $ 138,183 $ 45,941 $ Contributions from acquisitions - prior year (I) 4,896 4,991 2,073 132 12,093 Contributions from acquisitions - current year (I) 1,227 856 1,232 3,315 811 Pro-forma Adjusted EBITDA 39,009 $ 41,018 $ 28,617 $ 44,946 $ 153,591 $ 46,752 $

 


Quarterly Cash Flows 14 ($ in millions) (Unaudited) 1Q16 2Q16 3Q16 4Q16 FY16 1Q17 Net income (loss) $ 3.0 $ 2.8 $ (2.2) $ 8.9 $ 12.6 $ 9.2 Non-cash changes (2.6) 17.2 12.2 35.4 62.2 (5.0) Changes in primary working capital components: Trade accounts and notes receivable (21.8) (2.1) 25.8 (29.2) (27.3) (19.4) Inventories 0.4 (0.6) (0.0) (0.4) (0.7) (17.1) Accounts payable 2.7 (1.2) (15.6) 15.2 1.1 1.7 Cash provided by (used in) operating activities (18.4) 16.1 20.2 29.8 47.7 (30.6) Purchases of property and equipment (1.5) (1.2) (1.3) (3.7) (7.7) (2.6) Proceeds from sale of assets 0.4 5.7 0.7 3.1 9.8 0.8 Purchase of financial instruments - - - - - - Acquisitions of businesses, net of cash acquired - (0.9) (82.9) (29.9) (113.6) (23.3) Cash (used in) provided by investing activities (1.0) 3.6 (83.5) (30.5) (111.4) (25.0) Cash provided by (used in) financing activities 20.3 (23.5) 61.3 12.4 70.5 46.4 Increase (decrease) in cash and cash equivalents 0.9 (3.8) (2.0) 11.7 6.8 (9.2) Balance, beginning of period 12.3 13.2 9.4 7.4 12.3 19.1 Balance, end of period $ 13.2 $ 9.4 $ 7.4 $ 19.1 $ 19.1 $ 9.8 Supplemental cash flow disclosures: Cash paid for income taxes $ 4.5 $ 9.7 $ 8.0 $ 3.9 $ 26.1 $ 6.5 Cash paid for interest $ 7.9 $ 8.6 $ 8.3 $ 9.8 $ 34.6 $ 6.6 Historical

 


SG&A Adjustments Table 15 GAAP SG&A Reconciliation Commentary Represents non-cash compensation expenses related to stock appreciation rights agreements Represents non-cash compensation expense related to changes in the fair values of noncontrolling interests Represents non-cash equity-based compensation expense related to the issuance of stock options Represents severance and other costs permitted in calculations under the ABL Facility and the Term Loan Facilities Represents one-time costs related to the IPO and acquisitions paid to third party advisors Represents management fees paid to AEA, which were discontinued after the IPO. 1Q17 includes fees paid for the month of May (Unaudited) ($ in millions) 1Q16 2Q16 3Q16 4Q16 FY2016 1Q17 SG&A - Reported 110.2 $ 114.4 $ 112.2 $ 133.2 $ 470.0 $ 135.1 $ Adjustments Stock appreciation rights expense (benefit) (A) (0.6) (0.7) (0.3) (0.4) (2.0) 0.1 Redeemable noncontrolling interests (B) (0.6) (0.5) (0.2) 0.3 (0.9) (0.3) Equity-based compensation (C) (0.5) (0.9) (0.7) (0.6) (2.7) (0.7) Severance and other permitted costs (D) (0.6) (0.8) (0.1) (0.1) (1.6) (0.1) Transaction costs (acquisition and other) (E) (0.4) (1.3) (1.1) (0.9) (3.8) (0.7) Loss (gain) on disposal of assets 0.0 (0.3) 0.2 0.7 0.6 0.2 AEA management fee (F) (0.6) (0.6) (0.6) (0.6) (2.2) (0.2) SG&A - Adjusted 107.1 $ 109.3 $ 109.5 $ 131.6 $ 457.6 $ 133.4 $

 


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