gms-20230731

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________.

COMMISSION FILE NUMBER: 001-37784

______________________________________________________________

GMS INC.

(Exact name of registrant as specified in its charter)

______________________________________________________________


Delaware		46-2931287
(State or other jurisdiction of incorporation		(IRS Employer Identification No.)
or organization)

100 Crescent Centre Parkway, Suite 800
Tucker,	Georgia	30084
(Address of principal executive offices)		(ZIP Code)

(800) 392-4619

(Registrant’s telephone number, including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

GMS

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

There were 40,593,055 shares of the registrant’s common stock, par value $0.01 per share, outstanding as of August 29, 2023.

FORM 10-Q

TABLE OF CONTENTS



		Page
Cautionary Note Regarding Forward-Looking Statements		3

PART I	Financial Information	5
Item 1	Financial Statements	5
	Condensed Consolidated Balance Sheets (Unaudited)	5
	Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)	6
	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)	7
	Condensed Consolidated Statements of Cash Flows (Unaudited)	8
	Notes to Condensed Consolidated Financial Statements (Unaudited)	9
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4	Controls and Procedures	36

PART II	Other Information	37
Item 1	Legal Proceedings	37
Item 1A	Risk Factors	37
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 3	Defaults Upon Senior Securities	38
Item 4	Mine Safety Disclosures	38
Item 5	Other Information	38
Item 6	Exhibits	39
Signatures		40

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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. Statements about the growth of or other future developments relating to our various markets and statements about our expectations, beliefs, plans, strategies, objectives, prospects, assumptions or future events or performance contained in this Quarterly Report on Form 10-Q 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. These and other important factors, including those discussed under the heading “Risk Factors” in Part 1, Item 1A of our Annual Report on Form 10-K for the fiscal year ended April 30, 2023, filed with the U.S. Securities and Exchange Commission (the “SEC”), may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. Some of the factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include:

•general business, financial market and economic conditions, including inflation and deflation, rising interest rates, supply chain disruptions, labor shortages and labor costs, geopolitical conflicts, an economic downturn or recession and capital market volatility;

•our dependency upon the cyclical commercial and residential construction markets, both new and repair and remodeling, or R&R, including any impact from the slow-down in single-family construction, any decline in commercial construction or delay in the commercial activity recovery, including from disruptions caused by the inability of commercial borrowers to repay their debt obligations;

•competition in our highly fragmented industry and the markets in which we operate;

•consolidation in our industry;

•the fluctuations in prices and mix of the products we distribute and our ability to pass on price increases to our customers and effectively manage inventories and margins in both inflationary and deflationary pricing environments;

•our ability to successfully implement our growth strategy, including through identifying, successfully consummating and integrating acquisitions, opening new branches and expanding our product offerings;

•our ability to expand into new geographic markets;

•product shortages, other disruptions in our supply chain or distribution network and potential loss of relationships with key suppliers, including increased shipping costs and delays and heightened risks relating to sourcing products from international suppliers;

•our ability to manage operating costs and achieve cost reduction and productivity initiatives;

•the potential loss of any significant customers and the reduction of the quantity of products our customers purchase;

•our ability to renew leases for our facilities on acceptable terms or secure new facilities on acceptable terms;

•our ability to effectively manage our inventory as our sales volume or the prices of the products we distribute fluctuate;

•significant fluctuations in fuel costs or shortages in the supply of fuel;

•natural or man-made disruptions to our facilities;

•the risk of our Canadian operations, including currency rate fluctuations;

•our ability to continue to anticipate and address evolving consumer demands;

•exposure to product liability and various other claims and litigation, and the adequacy and costs of insurance related thereto;

•operating hazards that may cause personal injury or property damage;

•the impact of federal, state, provincial and local regulations, including potential changes in our effective tax rate;

•our inability to engage in activities that may be in our best long-term interests because of restrictions in our debt agreements;

•our current level of indebtedness and our potential to incur additional indebtedness;

•our ability to obtain additional financing on acceptable terms, if at all;

•the effects of widespread public health crises on our business, industry and results of operations;

•our ability to attract and retain key employees while controlling costs, including the impact of labor and trucking shortages;

•cybersecurity breach, including misappropriation of our customers’, employees’ or suppliers’ confidential information, and the potential costs related thereto;

•a disruption in our IT systems and costs necessary to maintain and update our IT systems; and

•the imposition of tariffs and other trade barriers, and the effect of any retaliatory trade measures.

Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements contained in this Quarterly Report on Form 10-Q are not guarantees of future performance, and actual results and events may differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q.

Any forward-looking statement that we make in this Quarterly Report on Form 10-Q speaks only as of the date of such statement. Except as required by law, we do not undertake any obligation to update or revise, or to publicly announce any update or revision to, any of the forward-looking statements, whether as a result of new information, future events or otherwise. You should review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of the filing of this Quarterly Report on Form 10-Q.

PART I – Financial Information

Item 1. Financial Statements

GMS Inc.

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except per share data)


	July 31, 2023		April 30, 2023
Assets
Current assets:
Cash and cash equivalents	$	81,449	$	164,745
Trade accounts and notes receivable, net of allowances of $14,682 and $13,636, respectively	837,627		792,232
Inventories, net	582,679		575,495
Prepaid expenses and other current assets	33,343		17,051
Total current assets	1,535,098		1,549,523
Property and equipment, net of accumulated depreciation of $275,827 and $264,650, respectively	409,683		396,419
Operating lease right-of-use assets	188,561		189,351
Goodwill	719,838		700,813
Intangible assets, net	411,129		399,660
Deferred income taxes	21,139		19,839
Other assets	14,955		11,403
Total assets	$	3,300,403	$	3,267,008
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	351,951	$	377,003
Accrued compensation and employee benefits	55,987		119,887
Other accrued expenses and current liabilities	137,287		107,675
Current portion of long-term debt	54,477		54,035
Current portion of operating lease liabilities	48,470		47,681
Total current liabilities	648,172		706,281
Non-current liabilities:
Long-term debt, less current portion	1,047,542		1,044,642
Long-term operating lease liabilities	140,044		141,786
Deferred income taxes, net	60,732		51,223
Other liabilities	49,107		48,319
Total liabilities	1,945,597		1,992,251
Commitments and contingencies
Stockholders' equity:
Common stock, par value $0.01 per share, 500,000 shares authorized; 40,606 and 40,971 shares issued and outstanding as of July 31, 2023 and April 30, 2023, respectively	406		410
Preferred stock, par value $0.01 per share, 50,000 shares authorized; 0 shares issued and outstanding as of July 31, 2023 and April 30, 2023	—		—
Additional paid-in capital	404,944		428,508
Retained earnings	967,798		880,968
Accumulated other comprehensive loss	(18,342)		(35,129)
Total stockholders' equity	1,354,806		1,274,757
Total liabilities and stockholders' equity	$	3,300,403	$	3,267,008

The accompanying notes are an integral part of these condensed consolidated financial statements.

GMS Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)

(in thousands, except per share data)


	Three Months Ended July 31,
	2023		2022
Net sales	$	1,409,600	$	1,359,553
Cost of sales (exclusive of depreciation and amortization shown separately below)	959,046		924,832
Gross profit	450,554		434,721
Operating expenses:
Selling, general and administrative	286,796		267,689
Depreciation and amortization	32,018		32,440
Total operating expenses	318,814		300,129
Operating income	131,740		134,592
Other (expense) income:
Interest expense	(18,914)		(14,661)
Write-off of debt discount and deferred financing fees	(1,401)		—
Other income, net	2,139		1,569
Total other expense, net	(18,176)		(13,092)
Income before taxes	113,564		121,500
Provision for income taxes	26,734		32,030
Net income	$	86,830	$	89,470
Weighted average common shares outstanding:
Basic	40,749		42,549
Diluted	41,477		43,317
Net income per common share:
Basic	$	2.13	$	2.10
Diluted	$	2.09	$	2.07
Comprehensive income
Net income	$	86,830	$	89,470
Foreign currency translation adjustments	11,398		2,642
Changes in other comprehensive income, net of tax	5,389		2,219
Comprehensive income	$	103,617	$	94,331

The accompanying notes are an integral part of these condensed consolidated financial statements.

GMS Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

(in thousands)


	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders' Equity
	Shares	Amount
Balances as of April 30, 2023	40,971	$	410	$	428,508	$	880,968	$	(35,129)	$	1,274,757
Net income	—	—		—		86,830		—		86,830
Foreign currency translation adjustments	—	—		—		—		11,398		11,398
Other comprehensive income, net of tax	—	—		—		—		5,389		5,389
Repurchase and retirement of common stock	(469)	(5)		(30,779)		—		—		(30,784)
Equity-based compensation	—	—		3,304		—		—		3,304
Exercise of stock options	46	—		1,248		—		—		1,248


Issuance of common stock pursuant to employee stock purchase plan	58	1		2,663		—		—		2,664
Balances as of July 31, 2023	40,606	$	406	$	404,944	$	967,798	$	(18,342)	$	1,354,806


	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders' Equity
	Shares	Amount
Balances as of April 30, 2022	42,773	$	428	$	522,136	$	547,977	$	(6,043)	$	1,064,498
Net income	—	—		—		89,470		—		89,470
Foreign currency translation adjustments	—	—		—		—		2,642		2,642
Other comprehensive income, net of tax	—	—		—		—		2,219		2,219
Repurchase and retirement of common stock	(516)	(5)		(23,790)		—		—		(23,795)
Equity-based compensation	—	—		3,132		—		—		3,132
Exercise of stock options	1	—		29		—		—		29
Vesting of restricted stock units	7	—		—		—		—		—
Tax withholding related to net share settlements of equity awards	—	—		(300)		—		—		(300)
Issuance of common stock pursuant to employee stock purchase plan	33	—		1,329		—		—		1,329
Balances as of July 31, 2022	42,298	$	423	$	502,536	$	637,447	$	(1,182)	$	1,139,224

The accompanying notes are an integral part of these condensed consolidated financial statements.

GMS Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)


	Three Months Ended July 31,
	2023		2022
Cash flows from operating activities:
Net income	$	86,830	$	89,470
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	32,018		32,440
Write-off and amortization of debt discount and debt issuance costs	2,077		425
Equity-based compensation	5,002		5,971
Gain on disposal of assets	(131)		(284)
Deferred income taxes	(2,587)		(945)
Other items, net	820		2,958
Changes in assets and liabilities net of effects of acquisitions:
Trade accounts and notes receivable	(38,244)		(69,635)
Inventories	(1,359)		(28,712)
Prepaid expenses and other assets	(19,331)		(3,709)
Accounts payable	(28,280)		(4,405)
Accrued compensation and employee benefits	(64,038)		(46,065)
Other accrued expenses and liabilities	33,870		18,088
Cash provided by (used in) operating activities	6,647		(4,403)
Cash flows from investing activities:
Purchases of property and equipment	(13,538)		(10,943)
Proceeds from sale of assets	982		272
Acquisition of businesses, net of cash acquired	(38,976)		(2,606)
Cash used in investing activities	(51,532)		(13,277)
Cash flows from financing activities:
Repayments on revolving credit facilities	(187,784)		(141,247)
Borrowings from revolving credit facilities	190,673		195,113
Payments of principal on long-term debt	—		(1,278)
Proceeds from Term Loan Facility amendment	498		—
Payments of principal on finance lease obligations	(9,793)		(7,639)
Repurchases of common stock	(30,784)		(23,795)

Payment for debt issuance costs	(5,825)		—
Proceeds from exercises of stock options	1,248		29
Payments for taxes related to net share settlement of equity awards	—		(300)
Proceeds from issuance of stock pursuant to employee stock purchase plan	2,664		1,329
Cash (used in) provided by financing activities	(39,103)		22,212
Effect of exchange rates on cash and cash equivalents	692		165
(Decrease) increase in cash and cash equivalents	(83,296)		4,697
Cash and cash equivalents, beginning of period	164,745		101,916
Cash and cash equivalents, end of period	$	81,449	$	106,613
Supplemental cash flow disclosures:
Cash paid for income taxes	$	3,167	$	3,232
Cash paid for interest	21,853		17,834

The accompanying notes are an integral part of these condensed consolidated financial statements.

GMS Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Business, Basis of Presentation and Summary of Significant Accounting Policies

Business

Founded in 1971, GMS Inc. (together with its consolidated subsidiaries, “we,” “our,” “us,” or the “Company”), through its operating subsidiaries, operates a network of more than 300 distribution centers with extensive product offerings of wallboard, ceilings, steel framing and complementary construction products. The Company also operates more than 100 tool sales, rental and service centers. Through these operations, the Company provides 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 the Company to generate significant economies of scale while maintaining high levels of customer service.

Basis of Presentation

The condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) that permit reduced disclosure for interim periods. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all normal and recurring adjustments necessary for a fair presentation of the results of operations, financial position and cash flows. All adjustments are of a normal recurring nature unless otherwise disclosed. The results of operations for interim periods are not necessarily indicative of results for any other interim period or the entire fiscal year. The unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended April 30, 2023.

Principles of Consolidation

The condensed consolidated financial statements present the results of operations, financial position, stockholders’ equity and cash flows of the Company and its subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. The results of operations of businesses acquired are included from their respective dates of acquisition.

Use of Estimates

The preparation of financial statements in conformity with Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Foreign Currency Translation

Assets and liabilities of the Company’s Canadian subsidiaries are translated at the exchange rate prevailing at the balance sheet date, while income and expenses are translated at average rates for the period. Translation gains and losses are reported as a separate component of stockholders’ equity and other comprehensive income. Gains and losses on foreign currency transactions are recognized in the Condensed Consolidated Statements of Operations and Comprehensive Income within other income, net.

Insurance Liabilities

The Company is self-insured for certain losses related to medical claims. The Company has stop-loss coverage to limit the exposure arising from medical claims. In addition, the Company has deductible-based insurance policies for certain losses related to general liability, automobile and workers’ compensation. The expected ultimate cost for claims incurred as of the balance sheet date is not discounted and is recognized as a liability if probable and estimable. Insurance losses for claims filed and claims incurred but not reported are accrued based upon estimates of the aggregate liability for uninsured claims using historical loss development factors and actuarial assumptions followed in the insurance industry.

GMS Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

The following table presents the Company’s aggregate liabilities for medical self-insurance, general liability, automobile and workers’ compensation and the expected recoveries for medical self-insurance, general liability, automobile and workers’ compensation. Liabilities for medical self-insurance are included in other accrued expenses and current liabilities. Reserves for general liability, automobile and workers’ compensation are included in other accrued expenses and current liabilities and other liabilities in the Condensed Consolidated Balance Sheets. Expected recoveries for insurance liabilities are included in prepaid expenses and other current assets and other assets in the Condensed Consolidated Balance Sheets.


	July 31, 2023		April 30, 2023
	(in thousands)
Medical self‑insurance	$	2,290	$	4,275
General liability, automobile and workers’ compensation	20,447		20,502
Expected recoveries for insurance liabilities	(3,531)

SEC Form 10-Q filed by GMS Inc.