|
||||||||||||||||||||||||||
| SEC Info℠ | | | Home | | | Search | | | My Interests | | | Help | | | Sign In | | | Please Sign In | |||||||
|
||||||||||||||||||||||||||
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 12/03/20 GMS Inc. 10-Q 10/31/20 83:9.3M Toppan Merrill Bridge/FA |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 1.28M
2: EX-31.1 Certification -- §302 - SOA'02 HTML 34K
3: EX-31.2 Certification -- §302 - SOA'02 HTML 34K
4: EX-32.1 Certification -- §906 - SOA'02 HTML 27K
5: EX-32.2 Certification -- §906 - SOA'02 HTML 26K
12: R1 Document and Entity Information HTML 76K
13: R2 Condensed Consolidated Balance Sheets HTML 121K
14: R3 Condensed Consolidated Balance Sheets HTML 45K
(Parenthetical)
15: R4 Condensed Consolidated Statements of Operations HTML 109K
and Comprehensive Income
16: R5 Condensed Consolidated Statements of Stockholders' HTML 108K
Equity (Unaudited)
17: R6 Condensed Consolidated Statements of Cash Flows HTML 116K
18: R7 Business, Basis of Presentation and Summary of HTML 50K
Significant Accounting Policies
19: R8 Revenue HTML 32K
20: R9 Accounts Receivable HTML 49K
21: R10 Goodwill and Intangible Assets HTML 115K
22: R11 Long-Term Debt HTML 83K
23: R12 Leases HTML 118K
24: R13 Income Taxes HTML 29K
25: R14 Stockholders' Equity HTML 50K
26: R15 Equity-Based Compensation HTML 89K
27: R16 Stock Appreciation Rights, Deferred Compensation HTML 62K
and Redeemable Noncontrolling Interests
28: R17 Fair Value Measurements HTML 43K
29: R18 Transactions With Related Parties HTML 27K
30: R19 Commitments and Contingencies HTML 26K
31: R20 Segments HTML 241K
32: R21 Earnings Per Common Share HTML 70K
33: R22 Business, Basis of Presentation and Summary of HTML 72K
Significant Accounting Policies (Policies)
34: R23 Accounts Receivable (Tables) HTML 49K
35: R24 Goodwill and Intangible Assets (Tables) HTML 117K
36: R25 Long-Term Debt (Tables) HTML 82K
37: R26 Leases (Tables) HTML 138K
38: R27 Stockholders' Equity (Tables) HTML 46K
39: R28 Equity-Based Compensation - (Tables) HTML 87K
40: R29 Stock Appreciation Rights, Deferred Compensation HTML 57K
and Redeemable Noncontrolling Interests (Tables)
41: R30 Fair Value Measurements (Tables) HTML 37K
42: R31 Segments (Tables) HTML 152K
43: R32 Earnings Per Common Share (Tables) HTML 68K
44: R33 Business, Basis of Presentation and Summary of HTML 24K
Significant Accounting Policies - Business
(Details)
45: R34 Business, Basis of Presentation and Summary of HTML 54K
Significant Accounting Policies - Insurance
Liabilities (Details)
46: R35 Revenue (Details) HTML 30K
47: R36 Accounts Receivable - Trade Accounts And Notes HTML 34K
Receivable (Details)
48: R37 Accounts Receivable - Change In Allowance HTML 34K
(Details)
49: R38 Goodwill and Intangible Assets - Goodwill HTML 35K
(Details)
50: R39 Goodwill and Intangible Assets - Definite-Lived HTML 61K
Intangible Assets (Details)
51: R40 Goodwill and Intangible Assets - Amortization HTML 28K
(Details)
52: R41 Goodwill and Intangible Assets - Estimated HTML 39K
Aggregate Amortization Expense (Details)
53: R42 Goodwill and Intangible Assets - Indefinite-Lived HTML 25K
Intangible Assets (Details)
54: R43 Long-Term Debt - Components (Details) HTML 46K
55: R44 Long-Term Debt - Acquisition Debt (Details) HTML 37K
56: R45 Long-Term Debt - Asset-Based Lending Facility HTML 30K
(Details)
57: R46 Long-Term Debt - Canadian Revolving Credit HTML 29K
Facility (Details)
58: R47 Long-Term Debt - Maturities (Details) HTML 56K
59: R48 Leases (Details) HTML 48K
60: R49 Leases - Supplemental cash flow information HTML 35K
(Details)
61: R50 Leases - Other information (Details) HTML 43K
62: R51 Leases - Future minimum lease payments under HTML 62K
non-cancellable leases (Details)
63: R52 Income Taxes (Details) HTML 31K
64: R53 Stockholders' Equity - Exchangeable Shares, Share HTML 43K
Repurchase Program and Secondary Public Offering
(Details)
65: R54 Stockholders' Equity - Accumulated Other HTML 47K
Comprehensive Loss (Details)
66: R55 Equity-Based Compensation - Stock Option Activity HTML 90K
(Details)
67: R56 Equity-Based Compensation - Black Scholes Options HTML 37K
- Pricing Model (Details)
68: R57 Equity-Based Compensation - Restricted Stock Units HTML 52K
(Details)
69: R58 Equity-Based Compensation - Employee Stock HTML 37K
Purchase Plan (Details)
70: R59 Stock Appreciation Rights, Deferred Compensation HTML 50K
and Redeemable Noncontrolling Interests (Details)
71: R60 Fair Value Measurements (Details) HTML 59K
72: R61 Transactions With Related Parties - Purchased HTML 33K
Inventories (Details)
73: R62 Segments (Details) HTML 31K
74: R63 Segments - Net Sales, Adjusted EBITDA and Certain HTML 52K
Other Measures (Details)
75: R64 Segments - Reconciliation of Net Income to HTML 68K
Adjusted EBITDA (Details)
76: R65 Segments - Net Sales by Main Product Lines HTML 38K
(Details)
77: R66 Segments - Net sales by major geographic area HTML 33K
(Details)
78: R67 Segments - Property and equipment, net, by major HTML 30K
geographic area (Details)
79: R68 Earnings Per Common Share (Details) HTML 70K
81: XML IDEA XML File -- Filing Summary XML 150K
11: XML XBRL Instance -- gms-20201031x10q_htm XML 2.42M
80: EXCEL IDEA Workbook of Financial Reports XLSX 96K
7: EX-101.CAL XBRL Calculations -- gms-20201031_cal XML 211K
8: EX-101.DEF XBRL Definitions -- gms-20201031_def XML 495K
9: EX-101.LAB XBRL Labels -- gms-20201031_lab XML 1.42M
10: EX-101.PRE XBRL Presentations -- gms-20201031_pre XML 977K
6: EX-101.SCH XBRL Schema -- gms-20201031 XSD 162K
82: JSON XBRL Instance as JSON Data -- MetaLinks 395± 590K
83: ZIP XBRL Zipped Folder -- 0001558370-20-014171-xbrl Zip 269K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM i 10-Q
i ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended i October 31, 2020
OR
i ☐ 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: i 001-37784
i GMS INC.
(Exact name of registrant as specified in its charter)
| |
i Delaware | i 46-2931287 |
(State or other jurisdiction of incorporation | (IRS Employer Identification No.) |
or organization) | |
| |
i 100 Crescent Centre Parkway, Suite 800 | |
i Tucker, i Georgia | i 30084 |
(Address of principal executive offices) | (ZIP Code) |
| |
( i 800) i 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 exchanged on which registered |
i Common Stock, par value $0.01 per share | | i GMS | | i 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. i 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 and post such files). i 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” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
i Large accelerated filer ⌧ |
| Accelerated filer ☐ |
Non-accelerated filer ☐ | | Smaller reporting company i ☐ |
| Emerging growth company i ☐ |
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 i ☐ No ⌧
There were i 42,681,068 shares of the registrant’s common stock, par value $0.01 per share, outstanding as of November 30, 2020.
FORM 10-Q
2
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. In particular, statements about the growth of 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, 2020, 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:
| ● | the negative impact of the COVID-19 pandemic (which, among other things, may exacerbate each of the risks listed below); |
| ● | general economic and financial conditions; |
| ● | our dependency upon the commercial and residential construction and residential repair and remodeling, or R&R, markets; |
| ● | competition in our highly fragmented industry and the markets in which we operate; |
| ● | the fluctuations in prices of the products we distribute; |
| ● | the consolidation of our industry; |
| ● | our ability to successfully implement our strategic initiatives, which include pursuing growth through acquisitions and greenfield branch expansion as well as cost reduction and productivity initiatives; |
| ● | 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; |
| ● | the seasonality of the commercial and residential construction markets; |
| ● | the potential loss of any significant customers and the reduction of the quantity of products our customers purchase; |
| ● | exposure to product liability and various other claims and litigation; |
| ● | operating hazards that may cause personal injury or property damage; |
| ● | our ability to attract and retain key employees; |
3
| ● | rising health care costs and labor costs, including the impact of labor and trucking shortages; |
| ● | the credit risk from our customers; |
| ● | our ability to renew leases for our facilities on favorable terms or identify new facilities; |
| ● | our ability to effectively manage our inventory as our sales volume or the prices of the products we distribute fluctuate; |
| ● | an impairment of our goodwill or intangible assets; |
| ● | the impact of federal, state, provincial and local regulations; |
| ● | the cost of compliance with environmental, health and safety laws and other regulations; |
| ● | significant fluctuations in fuel costs or shortages in the supply of fuel; |
| ● | a 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; |
| ● | natural or man-made disruptions to our facilities; |
| ● | the risk of our Canadian operations, including currency rate fluctuations; |
| ● | the imposition of tariffs and other trade barriers, and the effect of retaliatory trade measures; |
| ● | 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; and |
| ● | our ability to obtain additional financing on acceptable terms, if at all. |
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, after the date of this Quarterly Report on Form 10-Q. 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.
4
PART I – Financial Information
Item 1. Financial Statements
GMS Inc.
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands, except per share data)
| | | | | | |
|
| October 31, | | |||
| | 2020 |
| 2020 | ||
Assets | ||||||
Current assets: |
| |
|
| |
|
Cash and cash equivalents |
| $ | i 118,168 | | $ | i 210,909 |
Trade accounts and notes receivable, net of allowances of $ i 5,273 and $ i 5,141, respectively |
|
| i 434,836 | |
| i 405,254 |
Inventories, net |
|
| i 302,357 | |
| i 299,815 |
Prepaid expenses and other current assets |
|
| i 19,042 | |
| i 14,972 |
Total current assets |
|
| i 874,403 | |
| i 930,950 |
Property and equipment, net of accumulated depreciation of $ i 174,832 and $ i 158,554, respectively |
|
| i 300,144 | |
| i 305,467 |
Operating lease right-of-use assets | | | i 114,198 | | | i 115,257 |
Goodwill |
|
| i 557,486 | |
| i 553,073 |
Intangible assets, net |
|
| i 339,918 | |
| i 361,884 |
Deferred income taxes | | | i 12,651 | | | i 8,904 |
Other assets |
|
| i 12,074 | |
| i 13,247 |
Total assets |
| $ | i 2,210,874 | | $ | i 2,288,782 |
Liabilities and Stockholders’ Equity | ||||||
Current liabilities: |
|
|
| |
|
|
Accounts payable |
| $ | i 163,927 | | $ | i 213,230 |
Accrued compensation and employee benefits |
|
| i 43,843 | |
| i 67,590 |
Other accrued expenses and current liabilities |
|
| i 88,170 | |
| i 63,812 |
Current portion of long-term debt | | | i 49,302 | |
| i 50,201 |
Current portion of operating lease liabilities |
|
| i 31,694 | | | i 33,040 |
Total current liabilities |
|
| i 376,936 | |
| i 427,873 |
Non-current liabilities: |
| | | | | |
Long-term debt, less current portion |
|
| i 946,721 | |
| i 1,047,279 |
Long-term operating lease liabilities | | | i 88,122 | | | i 89,605 |
Deferred income taxes, net |
|
| i 7,837 | |
| i 12,018 |
Other liabilities |
|
| i 73,361 | |
| i 78,026 |
Total liabilities |
|
| i 1,492,977 | |
| i 1,654,801 |
Commitments and contingencies |
|
|
| |
|
|
Stockholders' equity: |
|
|
| |
|
|
Common stock, par value $ i i 0.01 / per share, i i 500,000 / shares authorized; i 42,690 and i 42,554 shares issued and outstanding as of October 31, 2020 and April 30, 2020, respectively |
|
| i 427 | |
| i 426 |
Preferred stock, par value $ i i 0.01 / per share, i i 50,000 / shares authorized; i i 0 / shares issued and outstanding as of October 31, 2020 and April 30, 2020 |
|
| — | |
| — |
Additional paid-in capital |
|
| i 534,646 | |
| i 529,662 |
Retained earnings |
|
| i 224,663 | |
| i 168,975 |
Accumulated other comprehensive loss |
|
| ( i 41,839) | |
| ( i 65,082) |
Total stockholders' equity | | | i 717,897 | | | i 633,981 |
Total liabilities and stockholders' equity |
| $ | i 2,210,874 | | $ | i 2,288,782 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
GMS Inc.
Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)
(in thousands, except per share data)
| | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||
| | October 31, | | |||||||||
|
| 2020 |
| 2019 |
| | 2020 | | 2019 | |||
Net sales |
| $ | i 812,856 | | $ | i 861,929 | | $ | i 1,615,429 | | $ | i 1,709,105 |
Cost of sales (exclusive of depreciation and amortization shown separately below) |
|
| i 547,785 | |
| i 577,436 | |
| i 1,089,900 | |
| i 1,150,958 |
Gross profit |
|
| i 265,071 | |
| i 284,493 | |
| i 525,529 | |
| i 558,147 |
Operating expenses: |
|
|
| |
|
| |
|
| |
|
|
Selling, general and administrative |
|
| i 188,352 | |
| i 200,457 | |
| i 371,464 | |
| i 395,088 |
Depreciation and amortization |
|
| i 27,245 | |
| i 29,518 | |
| i 54,342 | |
| i 58,793 |
Total operating expenses |
|
| i 215,597 | |
| i 229,975 | |
| i 425,806 | |
| i 453,881 |
Operating income |
|
| i 49,474 | |
| i 54,518 | |
| i 99,723 | |
| i 104,266 |
Other (expense) income: |
|
|
| |
|
| |
|
| |
|
|
Interest expense |
|
| ( i 13,525) | |
| ( i 17,559) | |
| ( i 27,606) | |
| ( i 35,836) |
Write-off of debt discount and deferred financing fees | | | — | | | ( i 707) | | | — | | | ( i 707) |
Other income, net |
|
| i 797 | |
| i 813 | |
| i 1,452 | |
| i 1,752 |
Total other expense, net |
|
| ( i 12,728) | |
| ( i 17,453) | |
| ( i 26,154) | |
| ( i 34,791) |
Income before taxes |
|
| i 36,746 | |
| i 37,065 | |
| i 73,569 | |
| i 69,475 |
Provision for income taxes |
|
| i 8,277 | |
| i 7,927 | |
| i 17,881 | |
| i 15,517 |
Net income |
| $ | i 28,469 | | $ | i 29,138 | | $ | i 55,688 | | $ | i 53,958 |
Weighted average common shares outstanding: |
|
| | | | | | | | | |
|
Basic |
|
| i 42,723 | |
| i 41,761 | |
| i 42,674 | |
| i 41,382 |
Diluted |
|
| i 43,174 | |
| i 42,635 | |
| i 43,096 | |
| i 42,126 |
Net income per common share(1): |
|
|
| |
|
| |
|
| |
|
|
Basic |
| $ | i 0.67 | | $ | i 0.70 | | $ | i 1.30 | | $ | i 1.30 |
Diluted |
| $ | i 0.66 | | $ | i 0.68 | | $ | i 1.29 | | $ | i 1.27 |
Comprehensive income |
| | | | | | | |
| | | |
Net income |
| $ | i 28,469 | | $ | i 29,138 | | $ | i 55,688 | | $ | i 53,958 |
Foreign currency translation income (loss) | | | i 3,159 | | | ( i 409) | | | i 19,440 | | | i 11,451 |
Changes in other comprehensive income (loss), net of tax |
|
| i 2,844 | |
| ( i 3,602) | |
| i 3,803 | |
| ( i 9,667) |
Comprehensive income | | $ | i 34,472 | | $ | i 25,127 | | $ | i 78,931 | | $ | i 55,742 |
| (1) | See Note 15 for detailed calculations. |
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
GMS Inc.
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
(in thousands)
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| | |
| |
| Accumulated |
| | | ||
| | | | | | | | |
| Additional |
| |
| Other |
| Total | ||||
|
| Common Stock | | Exchangeable | | Paid-in | | Retained | | Comprehensive | | Stockholders' | ||||||||
|
| Shares |
| Amount | | Shares |
| Capital |
| Earnings |
| Loss |
| Equity | ||||||
Balances as of April 30, 2020 | | i 42,554 | | $ | i 426 | | $ | — | | $ | i 529,662 | | $ | i 168,975 | | $ | ( i 65,082) | | $ | i 633,981 |
Net income | | — | | | — | | | — | | | — | | | i 27,219 | | | — | | | i 27,219 |
Foreign currency translation adjustments | | — | | | — | | | — | | | — | | | — | | | i 16,281 | | | i 16,281 |
Change in other comprehensive income (loss), net of tax | | — | | | — | | | — | | | — | | | — | | | i 959 | | | i 959 |
Equity-based compensation | | — | | | — | | | — | | | i 1,575 | | | — | | | — | | | i 1,575 |
Exercise of stock options | | i 54 | | | — | | | — | | | i 691 | | | — | | | — | | | i 691 |
Vesting of restricted stock units | | i 7 | | | — | | | — | | | — | | | — | | | — | | | — |
Tax withholding related to net share settlements of equity awards | | — | | | — | | | — | | | ( i 105) | | | — | | | — | | | ( i 105) |
Issuance of common stock pursuant to employee stock purchase plan | | i 58 | | | i 1 | | | — | | | i 1,269 | | | — | | | — | | | i 1,270 |
Balances as of July 31, 2020 | | i 42,673 | | | i 427 | | | — | | | i 533,092 | | | i 196,194 | | | ( i 47,842) | | | i 681,871 |
Net income | | — | | | — | | | — | | | — | | | i 28,469 | | | — | | | i 28,469 |
Foreign currency translation adjustments | | — | | | — | | | — | | | — | | | — | | | i 3,159 | | | i 3,159 |
Change in other comprehensive income (loss), net of tax | | — | | | — | | | — | | | — | | | — | | | i 2,844 | | | i 2,844 |
Repurchase and retirement of common stock | | ( i 50) | | | ( i 1) | | | — | | | ( i 1,221) | | | — | | | — | | | ( i 1,222) |
Equity-based compensation | | — | | | — | | | — | | | i 3,253 | | | — | | | — | | | i 3,253 |
Exercise of stock options | | i 5 | | | — | | | — | | | i 172 | | | — | | | — | | | i 172 |
Vesting of restricted stock units | | i 62 | | | i 1 | | | — | | | ( i 1) | | | — | | | — | | | — |
Tax withholding related to net share settlements of equity awards | | — | | | — | | | — | | | ( i 649) | | | — | | | — | | | ( i 649) |
Balances as of October 31, 2020 | | i 42,690 | | $ | i 427 | | $ | — | | $ | i 534,646 | | $ | i 224,663 | | $ | ( i 41,839) | | $ | i 717,897 |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| | |
| |
| Accumulated |
| | | ||
| | | | | | | | |
| Additional |
| |
| Other |
| Total | ||||
|
| Common Stock | | Exchangeable | | Paid-in | | Retained | | Comprehensive | | Stockholders' | ||||||||
|
| Shares |
| Amount | | Shares |
| Capital |
| Earnings |
| Loss |
| Equity | ||||||
Balances as of April 30, 2019 | | i 40,375 | | $ | i 404 | | $ | i 29,639 | | $ | i 480,113 | | $ | i 145,594 | | $ | ( i 26,574) | | $ | i 629,176 |
Net income | | — | | | — | | | — | | | — | | | i 24,820 | | | — | | | i 24,820 |
Exercise of Exchangeable Shares | | i 1,129 | | | i 11 | | | ( i 29,639) | | | i 29,628 | | | — | | | — | | | — |
Foreign currency translation adjustments | | — | | | — | | | — | | | — | | | — | | | i 11,860 | | | i 11,860 |
Change in other comprehensive income (loss), net of tax | | — | | | — | | | — | | | — | | | — | | | ( i 6,065) | | | ( i 6,065) |
Equity-based compensation | | — | | | — | | | — | | | i 1,349 | | | — | | | — | | | i 1,349 |
Exercise of stock options | | i 9 | | | — | | | — | | | i 133 | | | — | | | — | | | i 133 |
Issuance of common stock pursuant to employee stock purchase plan | | i 76 | | | i 1 | | | — | | | i 1,021 | | | — | | | — | | | i 1,022 |
Balances as of July 31, 2019 | | i 41,589 | | | i 416 | | | — | | | i 512,244 | | | i 170,414 | | | ( i 20,779) | | | i 662,295 |
Net income | | — | | | — | | | — | | | — | | | i 29,138 | | | — | | | i 29,138 |
Foreign currency translation adjustments | | — | | | — | | | — | | | — | | | — | | | ( i 409) | | | ( i 409) |
Change in other comprehensive income (loss), net of tax | | — | | | — | | | — | | | — | | | — | | | ( i 3,602) | | | ( i 3,602) |
Equity-based compensation | | — | | | — | | | — | | | i 2,271 | | | — | | | — | | | i 2,271 |
Exercise of stock options | | i 525 | | | i 5 | | | — | | | i 6,623 | | | — | | | — | | | i 6,628 |
Vesting of restricted stock units | | i 55 | | | i 1 | | | — | | | ( i 1) | | | — | | | — | | | — |
Tax withholding related to net share settlements of equity awards | | — | | | — | | | — | | | ( i 282) | | | — | | | — | | | ( i 282) |
Balances as of October 31, 2019 | | i 42,169 | | $ | i 422 | | $ | — | | $ | i 520,855 | | $ | i 199,552 | | $ | ( i 24,790) | | $ | i 696,039 |
| | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
GMS Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
| | | | | | |
|
| Six Months Ended | ||||
| | |||||
|
| 2020 |
| 2019 | ||
Cash flows from operating activities: |
| |
| | | |
Net income |
| $ | i 55,688 | | $ | i 53,958 |
Adjustments to reconcile net income to net cash provided by operating activities: |
| | | | | |
Depreciation and amortization |
|
| i 54,342 | | | i 58,793 |
Write-off and amortization of debt discount and debt issuance costs |
|
| i 1,505 | | | i 2,368 |
Equity-based compensation |
|
| i 6,370 | | | i 5,591 |
Loss (gain) on disposal and impairment of assets |
|
| i 875 | | | ( i 742) |
Deferred income taxes |
|
| ( i 9,296) | | | ( i 2,380) |
Other items, net | | | ( i 1,057) | | | i 1,101 |
Changes in assets and liabilities net of effects of acquisitions: | | | | | | |
Trade accounts and notes receivable |
|
| ( i 26,137) | | | ( i 29,932) |
Inventories |
|
| ( i 950) | | | i 1,800 |
Prepaid expenses and other assets |
|
| ( i 4,776) | | | i 1,573 |
Accounts payable |
|
| ( i 50,867) | | | ( i 5,486) |
Accrued compensation and employee benefits |
|
| ( i 23,889) | | | ( i 12,974) |
Other accrued expenses and liabilities |
|
| i 22,240 | | | ( i 3,743) |
Cash provided by operating activities |
|
| i 24,048 | |
| i 69,927 |
Cash flows from investing activities: |
|
|
| |
|
|
Purchases of property and equipment |
|
| ( i 11,845) | |
| ( i 14,637) |
Proceeds from sale of assets |
|
| i 720 | |
| i 1,056 |
Acquisition of businesses, net of cash acquired |
|
| ( i 51) | |
| ( i 10,633) |
Cash used in investing activities |
|
| ( i 11,176) | |
| ( i 24,214) |
Cash flows from financing activities: |
|
|
| |
|
|
Repayments on revolving credit facilities |
|
| ( i 102,189) | |
| ( i 558,906) |
Borrowings from revolving credit facilities |
|
| i 14,750 | |
| i 562,698 |
Payments of principal on long-term debt |
|
| ( i 4,984) | |
| ( i 54,984) |
Payments of principal on finance lease obligations |
|
| ( i 14,629) | |
| ( i 12,310) |
Repurchases of common stock | | | ( i 1,222) | | | — |
Debt issuance costs | | | — | | | ( i 1,286) |
Proceeds from exercises of stock options | | | i 863 | | | i 6,761 |
Payments for taxes related to net share settlement of equity awards | | | ( i 754) | | | — |
Other financing activities | | | i 1,270 | | | i 1,022 |
Cash used in financing activities |
|
| ( i 106,895) | |
| ( i 57,005) |
Effect of exchange rates on cash and cash equivalents | | | i 1,282 | | | i 223 |
Decrease in cash and cash equivalents |
|
| ( i 92,741) | |
| ( i 11,069) |
Cash and cash equivalents, beginning of period |
|
| i 210,909 | |
| i 47,338 |
Cash and cash equivalents, end of period |
| $ | i 118,168 | | $ | i 36,269 |
Supplemental cash flow disclosures: |
|
|
| |
|
|
Cash paid for income taxes |
| $ | i 20,224 | | $ | i 25,642 |
Cash paid for interest |
|
| i 25,726 | |
| i 33,654 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
1. Business, Basis of Presentation and Summary of Significant Accounting Policies
Business
Founded in 1971, GMS Inc. (“we,” “our,” “us,” or the “Company”), through its wholly-owned operating subsidiaries, is a distributor of specialty building products including wallboard, suspended ceilings systems, or ceilings, steel framing and other complementary building products. We purchase products from many manufacturers and then distribute these goods to a customer base consisting of wallboard and ceilings contractors and homebuilders and, to a lesser extent, general contractors and individuals. We operate a network of approximately i 260 distribution centers across the United States and Canada.
iBasis 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. As a result, 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, 2020.
iPrinciples 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.
iUse 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.
iForeign 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 (expense) income, net.
iInsurance 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, workers’ compensation and automobile. The deductible amount per incident is $ i 0.3 million, $ i 0.5 million and $ i 1.0 million for general liability, workers’ compensation and automobile, respectively. The coverage consists of a deductible layer, a primary layer, a self-insured buffer layer, a lead umbrella layer and excess layers. The primary layer of coverage is from $ i 0.3 million, $ i 0.5 million and $ i 1.0 million for deductibles for general liability, workers’ compensation, and automobile liability, respectively, to $ i 5.0 million. The Company self-insures a
/ /9
GMS Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
buffer layer from $ i 5.0 million to $ i 10.0 million. The umbrella and excess layers cover claims from $ i 10.0 million to $ i 100.0 million. The expected ultimate cost for claims incurred as of the balance sheet date is not discounted and is recognized as a liability. Insurance losses for claims filed and claims incurred but not reported are accrued based upon estimates of the aggregate liability for uninsured claims using loss development factors and actuarial assumptions followed in the insurance industry and historical loss development experience.
As of October 31, 2020 and April 30, 2020, the aggregate liabilities for medical self-insurance were $ i 4.2 million and $ i 3.8 million, respectively, and are included in other accrued expenses and current liabilities in the Condensed Consolidated Balance Sheets. As of October 31, 2020 and April 30, 2020, reserves for general liability, automobile and workers’ compensation totaled approximately $ i 20.1 million and $ i 19.4 million, respectively, and are included in other accrued expenses and current liabilities and other liabilities in the Condensed Consolidated Balance Sheets. As of October 31, 2020 and April 30, 2020, expected recoveries for medical self-insurance, general liability, automobile and workers’ compensation totaled approximately $ i 8.0 million and $ i 6.0 million, respectively, and are included in prepaid expenses and other current assets and other assets in the Condensed Consolidated Balance Sheets.
iIncome Taxes
The Company considers each interim period an integral part of the annual period and measures tax expense (benefit) using an estimated annual effective income tax rate. Estimates of the annual effective income tax rate at the end of interim periods are, out of necessity, based on evaluation of possible future events and transactions and may be subject to subsequent refinement or revision. The Company forecasts its estimated annual effective income tax rate and then applies that rate to its year-to-date pre-tax ordinary income (loss), subject to certain loss limitation provisions. In addition, certain specific transactions are excluded from the Company’s estimated annual effective tax rate computation, but are discretely recognized within income tax expense (benefit) in their respective interim period. Future changes in the forecasted annual income (loss) projections, tax rate changes, or discrete tax items could result in significant adjustments to quarterly income tax expense (benefit) in future periods.
The Company evaluates its deferred tax assets quarterly to determine if valuation allowances are required. In this evaluation, the Company considers both positive and negative evidence in determining whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The primary negative evidence considered includes the cumulative operating losses generated in prior periods. The primary positive evidence considered includes the reversal of deferred tax liabilities primarily related to depreciation and amortization that would occur within the same jurisdiction and during the carryforward period necessary to absorb the federal and state net operating losses and other deferred tax assets.
Deferred tax assets and liabilities are computed by applying the federal, provincial and state income tax rates in effect to the gross amounts of temporary differences and other tax attributes, such as net operating loss carry-forwards. In assessing if the deferred tax assets will be realized, the Company considers whether it is more likely than not that some or all of these deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which these deductible temporary differences reverse.
10
GMS Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Authoritative guidance for fair value measurements establishes a three-level hierarchy that prioritizes the inputs to valuation models based upon the degree to which they are observable. The three levels of the fair value measurement hierarchy are as follows:
Level 1 | Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date. |
Level 2 | Inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. |
Level 3 | Inputs are unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions. |
The carrying values of the Company’s cash, cash equivalents, trade receivables and trade payables approximate their fair values because of their short-term nature. Based on borrowing rates available to the Company for loans with similar terms, the carrying values of the Company’s debt instruments approximate fair value. See Note 11, “Fair Value Measurements,” for additional information with respect to the Company’s fair value measurements.
iEarnings Per Share
Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of outstanding shares of common stock for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock, including stock options and restricted stock units (collectively “Common Stock Equivalents”), were exercised or converted into common stock. The dilutive effect of outstanding stock options and restricted stock units is reflected in diluted earnings per share by application of the treasury stock method. In applying the treasury stock method for stock-based compensation arrangements, the assumed proceeds are computed as the sum of the amount the employee must pay upon exercise and the amount of compensation cost attributed to future services and not yet recognized. Diluted earnings per share is computed by increasing the weighted-average number of outstanding shares of common stock computed in basic earnings per share to include the dilutive effect of Common Stock Equivalents for the period. In periods of net loss, the number of shares used to calculate diluted loss per share is the same as basic net loss per share.
The holders of the Company’s Exchangeable Shares (as defined in Note 8, “Stockholders’ Equity”) were entitled to receive dividends or distributions that are equal to any dividends or distributions on the Company’s common stock. As a result, when the Exchangeable Shares were outstanding, they were classified as a participating security and thereby required the allocation of income that would have otherwise been available to common stockholders when calculating earnings per share. Diluted earnings per share was calculated by utilizing the most dilutive result of the if-converted and two-class methods. In both methods, net income attributable to common stockholders and the weighted-average common shares outstanding are adjusted to account for the impact of the assumed issuance of potential common shares that are dilutive, subject to dilution sequencing rules.
iReclassifications
Certain amounts in the prior period financial statements have been reclassified to conform to the current year presentation.
iRecently Adopted Accounting Pronouncements
Credit Losses – In June 2016, the Financial Accounting Standards Board (“FASB”) issued new guidance on credit losses on financial instruments. This guidance introduces a revised approach to the recognition and measurement of credit losses of certain financial instruments, including trade and other receivables, emphasizing an updated model based on expected losses rather than incurred losses. The Company adopted this guidance on May 1,
11
GMS Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
2020 with no material impact to its financial statements. See Note 3, “Accounts Receivable,” for additional information with respect to the Company’s allowance for expected credit losses.
Fair Value Measurement Disclosures – In August 2018, the FASB issued new guidance that changes certain fair value measurement disclosure requirements. The Company adopted this guidance on May 1, 2020 with no material impact to its financial statements.
Recently Issued Accounting Pronouncements
Reference Rate Reform – In March 2020, the FASB issued new guidance to temporarily ease the potential burden in accounting for reference rate reform. The guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rates that are expected to be discontinued, such as the London Interbank Offered Rate (“LIBOR”). The guidance was effective upon issuance and generally can be applied through December 31, 2022. The Company expects to elect optional expedients and exceptions provided by the guidance, as needed, related to its debt instruments, which include interest rates based on a LIBOR rate. The Company will evaluate and disclose the impact of this guidance in the period of election, as well as the nature and reason for doing so.
i2. Revenue
Revenue Recognition
Revenue is recognized upon transfer of control of promised goods to customers at an amount that reflects the consideration the Company expects to receive in exchange for those goods. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. The Company includes shipping and handling costs billed to customers in net sales. These costs are recognized as a component of selling, general and administrative expenses.
See Note 14, “Segments,” for information regarding disaggregation of revenue, including revenue by product and by geographic area.
Performance Obligations
The Company satisfies its performance obligations at a point in time, which is upon delivery of products. The Company’s payment terms vary by the type and location of its customers. The amount of time between point of sale and when payment is due is not significant and the Company has determined its contracts do i not include a significant financing component.
The Company’s contracts with customers involve performance obligations that are i one year or less. Therefore, the Company applied the standard’s optional exemption that permits the omission of information about its unfulfilled performance obligations as of the balance sheet dates.
Significant Judgments
The Company’s contracts may include terms that could cause variability in the transaction price, including customer rebates, returns and cash discounts for early payment. Variable consideration is estimated and included in the transaction price based on the expected value method. These estimates are based on historical experience, anticipated performance and other factors known at the time. The Company only includes estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved.
/12
GMS Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
Contract Balances
Receivables from contracts with customers, net of allowances, were $ i 418.3 million and $ i 393.6 million as of October 31, 2020 and April 30, 2020, respectively. The Company did not have material amounts of contract assets or liabilities as of October 31, 2020 or April 30, 2020.
i3. Accounts Receivable
The Company’s trade accounts and notes receivable consisted of the following:
i
| | | | | | |
| | October 31, | | |||
|
| 2020 |
| 2020 | ||
| | (in thousands) | ||||
Trade receivables | | $ | i 423,603 | | $ | i 398,739 |
Other receivables | |
| i 16,506 | |
| i 11,656 |
Allowance for expected credit losses | |
| ( i 2,490) | |
| ( i 2,861) |
Other allowances | |
| ( i 2,783) | | | ( i 2,280) |
Trade accounts and notes receivable | | $ | i 434,836 | | $ | i 405,254 |
The Company records accounts and notes receivable net of allowances, including the allowance for expected credit losses. The Company maintains an allowance for estimated losses due to the failure of customers to make required payments, as well as allowances for cash discounts. The Company’s estimate of the allowance for expected credit losses is based on an assessment of individual past due accounts, historical loss information, accounts receivable aging and current economic factors and the Company’s expectation of future economic conditions. Account balances are written off when the potential for recovery is considered remote.
The Company routinely assesses the financial strength of its customers and generally does not require collateral. Concentrations of credit risk with respect to trade accounts receivable are limited due to the large number of geographically diverse customers comprising the Company’s customer base.
The following table presents the change in the allowance for expected credit losses during the six months ended October 31, 2020:
i
| | | |
| | (in thousands) | |
Balance as of April 30, 2020 | | $ | i 2,861 |
Provision | | | ( i 40) |
Recoveries | | | ( i 250) |
Write-offs | |
| ( i 81) |
Balance as of October 31, 2020 | | $ | i 2,490 |
/
13
GMS Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
4. Goodwill and Intangible Assets
Goodwill
The following table presents changes in the carrying amount of goodwill during the six months ended October 31, 2020:
i
| | | |
|
| Carrying | |
| | Amount | |
| | (in thousands) | |
Balance as of April 30, 2020 | | | |
Goodwill | | $ | i 616,147 |
Accumulated impairment loss | | | ( i 63,074) |
| | | i 553,073 |
| | | |
Working capital settlements | | | ( i 159) |
Translation adjustment | |
| i 4,572 |
| | | |
Balance as of October 31, 2020 | | | |
Goodwill | | | i 620,560 |
Accumulated impairment loss | | | ( i 63,074) |
| | $ | i 557,486 |
Intangible Assets
The following tables present the components of the Company’s definite-lived intangible assets:
i
| | | | | | | | | | | | | |
| | Estimated | | Weighted | | ||||||||
| | Useful | | Average | | Gross | | | | Net | |||
| | Lives | | Amortization | | Carrying | | Accumulated | | Carrying | |||
|
| (years) |
| Period |
| Amount |
| Amortization |
| Value | |||
| | (dollars in thousands) | |||||||||||
Customer relationships | | i 5 - i 16 | | i 12.8 | | $ | i 526,916 | | $ | i 298,246 | | $ | i 228,670 |
Definite-lived tradenames | | i 5 - i 20 | | i 16.3 | |
| i 56,907 | |
| i 12,448 | |
| i 44,459 |
Vendor agreements | | i 8 - i 10 | | i 8.3 | |
| i 6,644 | |
| i 4,970 | |
| i 1,674 |
Developed technology | | i 5 | | i 4.9 | | | i 5,253 | | | i 2,582 | | | i 2,671 |
Other | | i 3 - i 5 | | i 3.3 | | | i 4,272 | | | i 3,195 | | | i 1,077 |
Totals | | | | | | $ | i 599,992 | | $ | i 321,441 | | $ | i 278,551 |
| | | | | | | | | | | | | |
| | Estimated | | Weighted | | ||||||||
| | Useful | | Average | | Gross | | | | Net | |||
| | Lives |
| Amortization |
| Carrying |
| Accumulated |
| Carrying | |||
|
| (years) |
| Period |
| Amount |
| Amortization |
| Value | |||
| | (dollars in thousands) | |||||||||||
Customer relationships | | i 5 - i 16 | | i 12.8 | | $ | i 516,928 | | $ | i 270,029 | | $ | i 246,899 |
Definite-lived tradenames | | i 5 - i 20 | | i 16.3 | |
| i 55,654 | |
| i 10,474 | |
| i 45,180 |
Vendor agreements | | i 8 - i 10 | | i 8.3 | |
| i 6,644 | |
| i 4,567 | |
| i 2,077 |
Developed technology | | i 5 | | i 4.9 | | | i 5,036 | | | i 1,963 | | | i 3,073 |
Other | | i 1 - i 15 | | i 5.3 | | | i 7,836 | | | i 4,548 | | | i 3,288 |
Totals | | | | | | $ | i 592,098 | | $ | i 291,581 | | $ | i 300,517 |
/Definite-lived intangible assets are amortized over their estimated useful lives. The Company amortizes its customer relationships using an accelerated method to match the estimated cash flows generated by such assets, and amortizes its other definite-lived intangibles using the straight-line method because a pattern to which the expected
/14
GMS Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
benefits will be consumed or otherwise used up cannot be reliably determined. Amortization expense related to definite-lived intangible assets was $ i 14.5 million and $ i 16.9 million for the three months ended October 31, 2020 and 2019, respectively, and $ i 28.8 million and $ i 33.8 million for the six months ended October 31, 2020 and 2019, respectively. Amortization expense is recorded in depreciation and amortization expense in the Condensed Consolidated Statements of Operations and Comprehensive Income.
The following table summarizes the estimated future amortization expense for definite-lived intangible assets. Actual amortization expense to be reported in future periods could differ materially from these estimates as a result of acquisitions, changes in useful lives, foreign currency exchange rate fluctuations and other relevant factors.
i
| | |
Year Ending April 30, | (in thousands) | |
2021 (remaining six months) | $ | i 26,862 |
2022 |
| i 46,613 |
2023 |
| i 38,834 |
2024 |
| i 31,731 |
2025 |
| i 26,223 |
Thereafter |
| i 108,288 |
Total | $ | i 278,551 |
The Company’s indefinite-lived intangible assets consist of tradenames that had a carrying amount of $ i i 61.4 / million as of October 31, 2020 and April 30, 2020.
i5. Long-Term Debt
The Company’s long-term debt consisted of the following:
i
| | | | | | |
| | October 31, | | |||
|
| 2020 |
| 2020 | ||
| | (in thousands) | ||||
Term Loan Facility | | $ | i 871,919 | | $ | i 876,903 |
Unamortized discount and deferred financing costs on Term Loan Facility | | | ( i 9,540) | | | ( i 10,602) |
ABL Facility | |
| — | |
| i 80,000 |
Finance lease obligations | |
| i 122,058 | |
| i 128,767 |
Installment notes at fixed rates up to i i 5.0 / %, due in monthly and annual installments through 2024 | |
| i 12,506 | |
| i 16,316 |
Unamortized discount on installment notes | | | ( i 920) | | | ( i 1,098) |
Canadian Facility | |
| — | | | i 7,194 |
Carrying value of debt | |
| i 996,023 | |
| i 1,097,480 |
Less current portion | |
| i 49,302 | |
| i 50,201 |
Long-term debt | | $ | i 946,721 | | $ | i 1,047,279 |
Term Loan Facility
The Company has a senior secured first lien term loan facility (the “Term Loan Facility”) with aggregate principal amount of $ i 871.9 million outstanding as of October 31, 2020. The Company is required to make scheduled quarterly payments of $ i 2.5 million, or i 0.25% of the aggregate principal amount of the Term Loan Facility, with the balance due in June 2025. The Term Loan Facility bears interest at a floating rate based on LIBOR plus i 2.75%, with a i 0% floor. As of October 31, 2020, the applicable rate of interest was i 2.90%.
/15
GMS Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
Asset Based Lending Facility
The Company has an asset based revolving credit facility (the “ABL Facility”) that provides for aggregate revolving commitments of $ i 445.0 million (including same day swing line borrowings of $ i 44.5 million). Extensions of credit under the ABL Facility are limited by a borrowing base calculated periodically based on specified percentages of the value of eligible inventory and eligible accounts receivable, subject to certain reserves and other adjustments.
At the Company’s option, the interest rates applicable to the loans under the ABL Facility are based on LIBOR or base rate plus, in each case, an applicable margin. The margins applicable for each elected interest rate are subject to a pricing grid, as defined in the ABL Facility agreement, based on average daily availability for the most recent fiscal quarter. The ABL Facility also contains an unused commitment fee.
As of October 31, 2020, the Company had available borrowing capacity of approximately $ i 392.9 million under the ABL Facility. The ABL Facility matures on September 30, 2024 unless the individual affected lenders agree to extend the maturity of their respective loans under the ABL Facility upon the Company’s request and without the consent of any other lender. The ABL Facility contains a cross default provision with the Term Loan Facility.
Covenants under the Term Loan Facility and ABL Facility
The Term Loan Facility contains a number of covenants that limit our ability and the ability of our restricted subsidiaries, as described in the respective credit agreement, to: incur more indebtedness; pay dividends, redeem or repurchase stock or make other distributions; make investments; create restrictions on the ability of our restricted subsidiaries to pay dividends to us or make other intercompany transfers; create liens securing indebtedness; transfer or sell assets; merge or consolidate; enter into certain transactions with our affiliates; and prepay or amend the terms of certain indebtedness. The Company was in compliance with all restrictive covenants as of October 31, 2020.
The ABL Facility contains certain affirmative covenants, including financial and other reporting requirements. The Company was in compliance with all such covenants as of October 31, 2020.
Canadian Revolving Credit Facility
Through its WSB Titan (“Titan”) subsidiary, the Company has a revolving credit facility (the “Canadian Facility”) that provides for aggregate revolving commitments of $ i 22.5 million ($ i 30.0 million Canadian dollars). The Canadian Facility bears interest at the Canadian prime rate plus a marginal rate based on the level determined by Titan’s total debt to EBITDA ratio at the end of the most recently completed fiscal quarter or year. As of October 31, 2020, the Company had available borrowing capacity of approximately $ i 22.5 million under the Canadian Facility. The Canadian Facility matures on June 28, 2022.
Debt Maturities
As of October 31, 2020, the maturities of long-term debt were as follows
i
| | | | | | | | | | | | |
| | Term Loan | | Finance | | Installment | | | | |||
|
| Facility |
| Leases |
| Notes | | Total | ||||
Year ending April 30, | | (in thousands) | ||||||||||
2021 (remaining six months) | | $ | i 4,984 | | $ | i 17,878 | | $ | i 964 | | $ | i 23,826 |
2022 | |
| i 9,968 | | | i 34,324 | | | i 4,458 | |
| i 48,750 |
2023 | |
| i 9,968 | | | i 29,049 | | | i 4,424 | |
| i 43,441 |
2024 | |
| i 9,968 | | | i 22,039 | | | i 1,800 | |
| i 33,807 |
2025 | |
| i 9,968 | | | i 12,110 | | | i 860 | |
| i 22,938 |
Thereafter | |
| i 827,063 | | | i 6,658 | | | — | |
| i 833,721 |
| | $ | i 871,919 | | $ | i 122,058 | | $ | i 12,506 | | $ | i 1,006,483 |
16
GMS Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
i6. Leases
The Company leases office and warehouse facilities, distribution equipment and its fleet of vehicles. The Company’s leases have lease terms ranging from one to i eleven years. The Company’s facility leases generally contain renewal options for periods ranging from one to i five years. The exercise of lease i renewal options is typically at the Company’s sole discretion. The Company does not recognize right-of-use (“ROU”) assets or lease liabilities for renewal options unless it is determined that the Company is reasonably certain of exercising renewal options at lease inception. Certain of the Company’s equipment leases include options to purchase the leased property and residual value guarantees. Any residual value payment deemed probable is included in the Company’s lease liability. The Company’s lease agreements do not contain any material restrictive covenants.
The Company determines if an arrangement is a lease at inception and evaluates whether the lease meets the classification criteria of a finance or operating lease. Operating leases are included in operating lease right-of-use assets, current portion of operating lease liabilities and long-term operating lease liabilities in the Condensed Consolidated Balance Sheets. Finance leases are included in property and equipment, current portion of long-term debt and long-term debt in the Condensed Consolidated Balance Sheets.
Lease ROU assets and lease liabilities are recognized at the commencement date based on the present value of the future lease payments over the lease term. For leases that do not provide an implicit rate, the Company uses its incremental borrowing rate in determining the present value of future payments. The Company determines its incremental borrowing rate based on the applicable lease terms and the current economic environment. Lease ROU assets also include any lease payments made in advance and excludes lease incentives and initial direct costs incurred. Some of the Company’s lease agreements contain rent escalation clauses (including index-based escalations), rent holidays, capital improvements funding or other lease concessions. Lease expense is recognized on a straight-line basis based on the fixed component over the lease term. Variable lease costs consist primarily of taxes, insurance and common area or other maintenance costs for leased facilities and vehicles and equipment, which are expensed as incurred.
The components of lease expense were as follows:
i | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||
| | October 31, | | |||||||||
| | 2020 | | 2019 | | 2020 | | 2019 | ||||
| | (in thousands) | ||||||||||
Finance lease cost: | | | | | | | | | | | | |
Amortization of right-of-use assets | | $ | i 5,960 | | $ | i 6,054 | | $ | i 12,099 | | $ | i 12,113 |
Interest on lease liabilities | | | i 2,863 | | | i 3,367 | | | i 5,925 | | | i 6,789 |
Operating lease cost | | | i 10,630 | | | i 10,289 | | | i 21,329 | | | i 20,709 |
Variable lease cost | | | i 3,157 | | | i 3,414 | | | i 6,132 | | | i 6,613 |
Total lease cost | | $ | i 22,610 | | $ | i 23,124 | | $ | i 45,485 | | $ | i 46,224 |
Operating lease cost, including variable lease cost, is included in selling, general and administrative expenses; amortization of finance ROU assets is included in depreciation and amortization; and interest on finance lease liabilities is included in interest expense in the Condensed Consolidated Statements of Operations and Comprehensive Income.
/17
GMS Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
Supplemental cash flow information related to leases was as follows:
i | | | | | | |
| | Six Months Ended | ||||
| | |||||
| | 2020 | | 2019 | ||
| | (in thousands) | ||||
Cash paid for amounts included in the measurement of lease liabilities | | | | | | |
Operating cash flows from operating leases | | $ | i 21,479 | | $ | i 20,377 |
Operating cash flows from finance leases | | | i 5,925 | | | i 6,789 |
Financing cash flows from finance leases | | | i 14,629 | | | i 12,310 |
Right-of-use assets obtained in exchange for lease obligations | | | | | | |
Operating leases | | | i 17,216 | | | i 12,810 |
Finance leases | | | i 12,342 | | | i 22,812 |
Other information related to leases was as follows:
i | | | | | | | |
| | October 31, | | | |||
| | 2020 |
| 2020 | | ||
| | (in thousands) | | ||||
Finance leases included in property and equipment | | | | | | | |
Property and equipment | | $ | i 170,868 | | $ | i 171,380 | |
Accumulated depreciation | | | ( i 47,342) | | | ( i 41,737) | |
Property and equipment, net | | $ | i 123,526 | | $ | i 129,643 | |
Weighted-average remaining lease term (years) | | | | | | | |
Operating leases | | | i 5.0 | | | i 4.9 | |
Finance leases | | | i 3.5 | | | i 3.6 | |
Weighted-average discount rate | | | | | | | |
Operating leases | | | i 5.5 | % | | i 5.5 | % |
Finance leases | | | i 4.9 | % | | i 5.0 | % |
Future minimum lease payments under non-cancellable leases as of October 31, 2020 were as follows:
i
i | | | | | | |
|
| Finance |
| Operating | ||
Year Ending April 30, | | (in thousands) | ||||
2021 (remaining six months) | | $ | i 25,683 | | $ | i 19,870 |
2022 | |
| i 41,454 | |
| i 33,301 |
2023 | |
| i 32,727 | |
| i 26,613 |
2024 | |
| i 23,445 | |
| i 21,766 |
2025 | |
| i 12,541 | |
| i 15,068 |
Thereafter | |
| i 6,746 | |
| i 21,474 |
Total lease payments | | | i 142,596 | | | i 138,092 |
Less imputed interest | |
| i 20,538 | |
| i 18,276 |
Total | | $ | i 122,058 | | $ | i 119,816 |
18
GMS Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
i7. Income Taxes
General. The Company’s effective income tax rate on continuing operations was i 24.3% and i 22.3% for the six months ended October 31, 2020 and 2019, respectively. The difference in the effective income tax rate over the U.S. federal statutory rate of i 21.0% for the six months ended October 31, 2020 was primarily due to the impact of state taxes and foreign taxes. The difference in the effective income tax rate over the U.S. federal statutory rate for the six months ended October 31, 2019 was primarily due to the impact of equity based compensation, as well as foreign tax rates and state taxes and other tax effects associated with the acquisition of Titan.
Valuation allowance. The Company had a valuation allowance of $ i 10.6 million and $ i 10.2 million against its deferred tax assets related to certain U.S. tax jurisdictions as of October 31, 2020 and April 30, 2020, respectively. To the extent the Company generates sufficient taxable income in the future to utilize the tax benefits of the net deferred tax assets on which a valuation allowance is recorded, the effective tax rate may decrease as the valuation allowance is reversed.
Uncertain tax positions. The Company had i i no / uncertain tax positions as of October 31, 2020 or April 30, 2020.
/ i8. Stockholders’ Equity
Exchangeable Shares
In connection with the acquisition of Titan on June 1, 2018, the Company issued i 1.1 million shares of equity that were exchangeable for the Company’s common stock on a i one-for-one basis (“Exchangeable Shares”). The Exchangeable Shares were issued by an indirect wholly-owned subsidiary of the Company. The Exchangeable Shares ranked senior to the Company’s common stock with respect to dividend rights and rights on liquidation, dissolution and winding-up. The holders of the Exchangeable Shares were entitled to receive dividends or distributions that were equal to any dividends or distributions on the Company’s common stock. The holders of the Exchangeable Shares did not have voting rights.
The Exchangeable Shares contained rights that allowed the holders to exchange their Exchangeable Shares for GMS common stock at any time on a i one-for-one basis. On June 13, 2019, the holders of the Exchangeable Shares exchanged all of the Exchangeable Shares for i 1.1 million shares of the Company’s common stock. Following such exchange, the Exchangeable Shares ceased to be outstanding.
Share Repurchase Program
The Company has a common stock repurchase program authorized by its Board of Directors to repurchase up to $ i 75.0 million of outstanding common stock. The Company may conduct repurchases under the share repurchase program through open market transactions, under trading plans in accordance with SEC Rule 10b5-1 and/or in privately negotiated transactions, in compliance with Rule 10b-18 under the Exchange Act of 1934, as amended. These repurchases are subject to a variety of factors, including, but not limited to, our liquidity, credit availability, general business and market conditions, our debt covenant restrictions and the availability of alternative investment opportunities. The share repurchase program does not obligate us to acquire any particular amount of common stock, and it may be suspended or terminated at any time at the Company’s discretion.
The Company repurchased approximately i 50 thousand shares of its common stock for $ i 1.2 million during the six months ended October 31, 2020. The Company did not repurchase any shares of its common stock during the six months ended October 31, 2019. As of October 31, 2020, the Company had $ i 57.3 million remaining repurchase authorization.
/19
GMS Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
Accumulated Other Comprehensive Loss
The following table sets forth the changes to accumulated other comprehensive loss, net of tax, by component for the six months ended October 31, 2020:
i
| | | | | | | | | |
| | | | |
| Accumulated | |||
| | Foreign | | Derivative | | Other | |||
| | Currency | | Financial | | Comprehensive | |||
| | Translation | | Instruments | | Loss | |||
| | (in thousands) | |||||||
Balance as of April 30, 2020 | | $ | ( i 40,577) | | $ | ( i 24,505) | | $ | ( i 65,082) |
Other comprehensive income (loss) before reclassification | | | i 19,440 | | | ( i 530) | | | i 18,910 |
Reclassification to earnings from accumulated other comprehensive loss | | | — | | | i 4,333 | |
| i 4,333 |
Balance as of October 31, 2020 | | $ | ( i 21,137) | | $ | ( i 20,702) | | $ | ( i 41,839) |
Other comprehensive loss on derivative instruments for the six months ended October 31, 2020 is net of $ i 0.2 million of tax and reclassification to earnings from accumulated other comprehensive loss is net of $ i 1.4 million of tax.
i9. Equity-Based Compensation
General
The Company measures compensation cost for all share-based awards at fair value on the grant date (or measurement date if different) and recognizes compensation expense, net of estimated forfeitures, over the requisite service period for awards expected to vest. The Company estimates the fair value of stock options using the Black-Scholes valuation model, and determines the fair value of restricted stock units based on the quoted price of GMS’ common stock on the date of grant. The Company estimates forfeitures based on historical analysis of actual forfeitures and employee turnover. Actual forfeitures are recorded when incurred and estimated forfeitures are reviewed and adjusted at least annually.
Equity-based compensation expense related to stock options and restricted stock units was $ i 4.6 million and $ i 3.4 million during the six months ended October 31, 2020 and 2019, respectively, and is included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations and Comprehensive Income.
Stock Option Awards
The following table presents stock option activity for the six months ended October 31, 2020:
i
| | | | | | | | | | |
|
| |
| | |
| Weighted |
| | |
| | | | Weighted | | Average | | | | |
| | | | Average | | Remaining | | Aggregate | ||
| | Number of | | Exercise | | Contractual | | Intrinsic | ||
| | Options | | Price | | Life (years) | | Value | ||
| | (shares and dollars in thousands) | ||||||||
Outstanding as of April 30, 2020 |
| i 1,487 | | $ | i 18.85 |
| i 6.4 | | $ | i 3,895 |
Options granted |
| i 321 | | | i 23.43 |
|
|
| |
|
Options exercised |
| ( i 43) | |
| i 14.55 |
|
|
| |
|
Options forfeited |
| ( i 48) | |
| i 25.98 |
|
|
| |
|
Outstanding as of October 31, 2020 |
| i 1,717 | | $ | i 19.62 |
| i 6.4 | | $ | i 6,958 |
Exercisable as of October 31, 2020 |
| i 1,082 | | $ | i 17.45 |
| i 4.8 | | $ | i 6,585 |
Vested and expected to vest as of October 31, 2020 |
| i 1,709 | | $ | i 19.60 |
| i 6.4 | | $ | i 6,957 |
/20
GMS Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
The aggregate intrinsic value represents the excess of the Company’s closing stock price on the last trading day of the period over the weighted average exercise price multiplied by the number of options outstanding, exercisable or expected to vest. Options expected to vest are unvested shares net of expected forfeitures. The total intrinsic value of options exercised during the six months ended October 31, 2020 and 2019 was $ i 0.3 million and $ i 8.6 million, respectively. As of October 31, 2020, there was $ i 5.4 million of total unrecognized compensation cost related to stock options. That cost is expected to be recognized over a weighted-average period of i 2.2 years.
The fair value of stock options granted during the six months ended October 31, 2020 and 2019 estimated using the Black-Scholes option-pricing model with the following assumptions:
i
| | | | | | |
| | Six Months Ended | ||||
| | |||||
| | 2020 | | 2019 | ||
Volatility | | i 51.28 | % | | i 49.94 | % |
Expected life (years) | | i 6.0 | | | i 6.0 | |
Risk-free interest rate | | i 0.30 | % | | i 1.97 | % |
Dividend yield | | — | % | | — | % |
The weighted average grant date fair value of options granted during the six months ended October 31, 2020 and 2019 was $ i 11.13 per share and $ i 10.55 per share, respectively. The expected volatility was based on historical and implied volatility. The expected life of stock options was based on previous history of exercises. The risk-free rate was based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the stock option. The expected dividend yield was i i 0 / % as we have not declared any common stock dividends to date and do not expect to declare common stock dividends in the near future. The fair value of the underlying common stock at the date of grant was determined based on the value of the Company’s closing stock price on the trading day immediately preceding the date of the grant.
Restricted Stock Units
The following table presents restricted stock unit activity for the six months ended October 31, 2020:
i
| | | | | |
|
| |
| Weighted | |
| | Number of | | Average | |
| | Restricted | | Grant Date | |
| | Stock Units | | Fair Value | |
| | (shares in thousands) | |||
Outstanding as of April 30, 2020 | | i 286 | | $ | i 22.71 |
Granted | | i 212 | | | i 23.43 |
Vested | | ( i 103) | | | i 22.43 |
Forfeited | | ( i 28) | | | i 23.91 |
Outstanding as of October 31, 2020 | | i 367 | | $ | i 23.12 |
As of October 31, 2020, there was $ i 6.2 million of total unrecognized compensation cost related to nonvested restricted stock units. That cost is expected to be recognized over a weighted-average period of i 2.0 years.
Employee Stock Purchase Plan
The Company has an employee stock purchase plan (“ESPP”), the terms of which allow for qualified employees to participate in the purchase of shares of the Company’s common stock at a price equal to i 90% of the lower of the closing price at the beginning or end of the purchase period, which is a i six-month period ending on December 31 and June 30 of each year. During the six months ended October 31, 2020, i 0.1 million shares of the Company’s common stock were purchased under the ESPP at a price of $ i 22.13 per share. The Company recognized $ i 0.3 million and $ i 0.3
21
GMS Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
million of stock-based compensation expense during the six months ended October 31, 2020 and 2019, respectively, related to the ESPP.
i10. Stock Appreciation Rights, Deferred Compensation and Redeemable Noncontrolling Interests
The following table presents a summary of changes to the liabilities for stock appreciation rights, deferred compensation and redeemable noncontrolling interests for the six months ended October 31, 2020:
i
| | | | | | | | | |
| | Stock | | | | | Redeemable | ||
| | Appreciation | | Deferred | | Noncontrolling | |||
|
| Rights |
| Compensation |
| Interests | |||
| | (in thousands) | |||||||
Balance as of April 30, 2020 | | $ | i 24,205 | | $ | i 1,660 | | $ | i 8,300 |
Amounts redeemed | |
| ( i 181) | |
| — | |
| — |
Change in fair value | |
| i 1,106 | |
| i 73 | |
| i 365 |
Balance as of October 31, 2020 | | $ | i 25,130 | | $ | i 1,733 | | $ | i 8,665 |
| | | | | | | | | |
Classified as current as of April 30, 2020 | | $ | i 624 | | $ | — | | $ | — |
Classified as long-term as of April 30, 2020 | | | i 23,581 | | | i 1,660 | | | i 8,300 |
| | | | | | | | | |
Classified as current as of October 31, 2020 | | $ | i 650 | | $ | — | | $ | — |
Classified as long-term as of October 31, 2020 | | | i 24,480 | | | i 1,733 | | | i 8,665 |
Total expense related to these instruments was $ i 1.5 million and $ i 2.0 million during the six months ended October 31, 2020 and 2019, respectively, and was included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations and Comprehensive Income. Current and long-term liabilities for stock appreciation rights, deferred compensation and redeemable noncontrolling interests are included in other accrued expenses and liabilities and other liabilities, respectively, in the Condensed Consolidated Balance Sheets.
Stock Appreciation Rights
Certain subsidiaries have granted stock appreciation rights to certain employees under which payments are dependent on the appreciation in the book value per share, adjusted for certain provisions, of the applicable subsidiary. Settlements of the awards can be made in a combination of cash or installment notes, generally paid over i five years, upon a triggering event. As of October 31, 2020, all stock appreciation rights were vested. Liabilities related to these agreements are classified as share-based liability awards and are measured at fair value.
Deferred Compensation
Subsidiaries’ stockholders have entered into other deferred compensation agreements that granted the stockholders a payment based on a percentage in excess of book value, adjusted for certain provisions, upon an occurrence as defined in the related agreements. These instruments are redeemed in cash or installment notes, generally paid in annual installments over the i five years following termination of employment. Liabilities related to these agreements are classified as share-based liability awards and are measured at fair value.
Redeemable Noncontrolling Interests
Noncontrolling interests were issued to certain employees of certain of the Company’s subsidiaries. All of the noncontrolling interest awards are subject to mandatory redemption on termination of employment for any reason. These instruments are redeemed in cash or installment notes, generally paid in annual installments over the i five years following termination of employment. Liabilities related to these agreements are classified as share-based liability awards and are measured at fair value. Under the terms of the employee agreements, the redemption value is determined based on the book value of the subsidiary, as adjusted for certain items.
/22
GMS Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
Upon the termination of employment or other triggering events including death or disability of the noncontrolling stockholders in the Company’s subsidiaries, we are obligated to purchase, or redeem, the noncontrolling interests at either an agreed upon price or a formula value provided in the stockholder agreements. This formula value is typically based on the book value per share of the subsidiary’s equity, including certain adjustments.
i11. Fair Value Measurements
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents the estimated carrying amount and fair value of the Company’s liabilities measured at fair value on a recurring basis:
i
| | | | | | |
|
| October 31, | | |||
| | 2020 | | 2020 | ||
| | (in thousands) | ||||
Interest rate swaps (Level 2) | | $ | i 27,180 | | $ | i 32,218 |
Stock appreciation rights (Level 3) | | | i 25,130 | | | i 24,205 |
Deferred compensation (Level 3) | | | i 1,733 | |
| i 1,660 |
Noncontrolling interest holders (Level 3) | | | i 8,665 | | | i 8,300 |
Derivative instruments. The Company has interest rate swap agreements with a notional amount of $ i 500.0 million that convert the variable interest rate on its Term Loan Facility to a fixed interest rate of i 2.46%. The contracts were effective on February 28, 2019 and terminate on February 28, 2023. The objective of the interest rate swap agreements is to eliminate the variability of interest payment cash flows associated with variable interest rates. The Company designated the interest rate swaps as a cash flow hedges. The Company believes there have been no material changes in the creditworthiness of the counterparty to this interest rate swap and believes the risk of nonperformance by such party is minimal. As of October 31, 2020, $ i 11.7 million of the interest rate swap liability was classified in other accrued expenses and current liabilities and $ i 15.5 million was classified in other liabilities in the Condensed Consolidated Balance Sheet. The Company recognized losses, net of tax, of $ i 2.2 million and $ i 4.3 million in earnings during the three and six months ended October 31, 2020, respectively, related to its interest rate swaps. As of October 31, 2020, the Company expects that approximately $ i 11.7 million of pre-tax net losses will be reclassified from accumulated other comprehensive income (loss) into earnings during the next twelve months.
The fair value of derivative instruments is determined using Level 2 inputs. Generally, the Company obtains the Level 2 inputs from its counterparties. Substantially all of the inputs throughout the full term of the instruments can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. The fair value of the Company’s interest rate swap was determined using widely accepted valuation techniques including a discounted cash flow analysis on the expected cash flows of the derivative. This analysis reflected the contractual terms of the derivatives, including the period to maturity, and used observable market-based inputs, including interest rate curves and implied volatilities.
Stock appreciation rights, deferred compensation and redeemable noncontrolling interests. The fair values of stock appreciation rights, deferred compensation and redeemable noncontrolling interests are determined using Level 3 inputs. These inputs include a volatility rate, a discount rate, the expected time to redemption of the liabilities, historical values of the book equity of certain subsidiaries and market information for comparable entities. The use of these inputs to derive the fair value of the liabilities at a point in time can result in volatility to the financial statements. See Note 10, “Stock Appreciation Rights, Deferred Compensation and Redeemable Noncontrolling Interests,” for a reconciliation of the beginning and ending balances.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Disclosures are required for certain assets and liabilities that are measured at fair value on a nonrecurring basis in periods subsequent to initial recognition. Such measurements of fair value relate primarily to assets and liabilities
/23
GMS Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
measured at fair value in connection with business combinations and long-lived asset impairments. The Company recorded a $ i 1.0 million impairment of operating lease right-of-use assets during the six months ended October 31, 2020. There were no other material long-lived asset impairments during the six months ended October 31, 2020 or 2019.
i12. Transactions With Related Parties
The Company purchases inventories from Southern Wall Products, Inc. (“SWP”) on a continuing basis. During the six months ended October 31, 2020 and 2019, certain former executive officers and stockholders and certain directors and stockholders of the Company were stockholders of SWP. As of October 31, 2020, these executive officers and directors were no longer with the Company. The Company purchased inventory from SWP for distribution in the amount of $ i 3.8 million and $ i 3.7 million during the three months ended October 31, 2020 and 2019, respectively, and $ i 7.3 million and $ i 7.3 million during the six months ended October 31, 2020 and 2019, respectively. Amounts due to SWP for purchases of inventory for distribution was $ i 1.2 million as of April 30, 2020 and is included in accounts payable in the Condensed Consolidated Balance Sheets.
/ i13. Commitments and Contingencies
The Company is a defendant in various lawsuits and administrative actions associated with personal injuries, claims of former employees and other events arising in the normal course of business. As discussed in Note 1 “—Insurance Liabilities”, the Company records liabilities for these claims, and assets for amounts recoverable from the insurer, for claims covered by insurance.
i14. Segments
General
The Company has i eight operating segments based on geographic operations that it aggregates into i one reportable segment. The Company defines operating segments as components of the organization for which discrete financial information is available and operating results are evaluated on a regular basis by the Chief Operating Decision Maker (“CODM”) in order to assess performance and allocate resources. The Company’s CODM is its Chief Executive Officer. The Company determined it has i eight operating segments based on the Company’s i eight geographic divisions, which are Central, Midwest, Northeast, Southern, Southeast, Southwest, Western and Canada. During the six months ended October 31, 2020, the Company divided its Southern operating segment into i two operating segments, Southern and Southwest, which resulted in an increase (from i seven to i eight) in the number of operating segments. The Company performed a goodwill impairment test immediately before and after the change in operating segments, which indicated the fair values of the Company’s reporting units exceeded their carrying values. The Company aggregates its operating segments into a single reportable segment based on similarities between the operating segments’ economic characteristics, nature of products sold, production process, type of customer and methods of distribution. The accounting policies of the operating segments are the same as those described in the summary of significant policies. In addition to the Company’s reportable segment, the Company’s consolidated results include both corporate activities and certain other activities. Corporate includes the Company’s corporate office building and support services provided to its subsidiaries. Other includes Tool Source Warehouse, Inc., which functions primarily as an internal distributor of tools.
Segment Results
The CODM assesses the Company’s performance based on the periodic review of net sales, Adjusted EBITDA and certain other measures for each of the operating segments. Adjusted EBITDA is not a recognized financial measure under GAAP. However, we believe it assists 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 EBITDA is 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. See “Management’s Discussion and Analysis of
/24
GMS Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
Financial Condition and Results of Operations -- Non-GAAP Financial Measures” for a further discussion of this non-GAAP measure.
The following tables present segment results:
| | | | | | | | | | | | |
| i |
| Three Months Ended October 31, 2020 | ||||||||||
| | | |
| | |
| Depreciation and | | Adjusted | ||
| | Net Sales | | Gross Profit | | Amortization | | EBITDA | ||||
| | (in thousands) | ||||||||||
Geographic divisions | | $ | i 805,074 | | $ | i 262,534 | | $ | i 26,783 | | $ | i 82,169 |
Other | | | i 7,782 | |
| i 2,537 | |
| i 91 | | | i 353 |
Corporate | | | — | |
| — | |
| i 371 | | | — |
| | $ | i 812,856 | | $ | i 265,071 | | $ | i 27,245 | | $ | i 82,522 |
| | | | | | | | | | | | |
|
| Three Months Ended October 31, 2019 | ||||||||||
| | | |
| | |
| Depreciation and | | Adjusted | ||
| | Net Sales | | Gross Profit | | Amortization | | EBITDA | ||||
| | (in thousands) | ||||||||||
Geographic divisions | | $ | i 854,853 | | $ | i 281,900 | | $ | i 29,024 | | $ | i 89,171 |
Other | |
| i 7,076 | |
| i 2,593 | |
| i 55 | | | i 734 |
Corporate | |
| — | |
| — | |
| i 439 | | | — |
| | $ | i 861,929 | | $ | i 284,493 | | $ | i 29,518 | | $ | i 89,905 |
| | | | | | | | | | | | |
|
| Six Months Ended October 31, 2020 | ||||||||||
| | | |
| | |
| Depreciation and | | Adjusted | ||
| | Net Sales | | Gross Profit | | Amortization | | EBITDA | ||||
| | (in thousands) | ||||||||||
Geographic divisions | | $ | i 1,599,546 | | $ | i 520,372 | | $ | i 53,565 | | $ | i 164,673 |
Other | |
| i 15,883 | |
| i 5,157 | |
| i 182 | | | i 903 |
Corporate | |
| — | |
| — | |
| i 595 | | | — |
| | $ | i 1,615,429 | | $ | i 525,529 | | $ | i 54,342 | | $ | i 165,576 |
| | | | | | | | | | | | |
|
| Six Months Ended October 31, 2019 | ||||||||||
|
| | |
| | |
| Depreciation and | | Adjusted | ||
| | Net Sales | | Gross Profit | | Amortization | | EBITDA | ||||
| | (in thousands) | ||||||||||
Geographic divisions | | $ | i 1,695,010 | | $ | i 553,254 | | $ | i 57,956 | | $ | i 172,254 |
Other | |
| i 14,095 | |
| i 4,893 | |
| i 108 | | | i 1,239 |
Corporate | |
| — | |
| — | |
| i 729 | | | — |
| | $ | i 1,709,105 | | $ | i 558,147 | | $ | i 58,793 | | $ | i 173,493 |
25
GMS Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
The following table presents a reconciliation of Adjusted EBITDA to net income:
i | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||
| | October 31, | | |||||||||
|
| 2020 |
| 2019 | | 2020 | | 2019 | ||||
| | (in thousands) | ||||||||||
Net income | | $ | i 28,469 | | $ | i 29,138 | | $ | i 55,688 | | $ | i 53,958 |
Interest expense | |
| i 13,525 | |
| i 17,559 | |
| i 27,606 | |
| i 35,836 |
Write-off of debt discount and deferred financing fees | | | | | | i 707 | | | — | | | i 707 |
Interest income | |
| ( i 14) | |
| ( i 6) | |
| ( i 51) | |
| ( i 18) |
Provision for income taxes | |
| i 8,277 | |
| i 7,927 | |
| i 17,881 | |
| i 15,517 |
Depreciation expense | |
| i 12,710 | |
| i 12,592 | |
| i 25,537 | |
| i 25,014 |
Amortization expense | |
| i 14,535 | |
| i 16,926 | |
| i 28,805 | |
| i 33,779 |
Stock appreciation expense(a) | | | i 314 | | | i 1,267 | | | i 1,106 | | | i 1,327 |
Redeemable noncontrolling interests(b) | |
| i 186 | |
| ( i 18) | |
| i 438 | |
| i 644 |
Equity-based compensation(c) | |
| i 3,252 | |
| i 2,315 | |
| i 4,857 | |
| i 3,710 |
Severance and other permitted costs(d) | |
| i 762 | |
| i 1,394 | |
| i 2,709 | |
| i 1,948 |
Transaction costs (acquisitions and other)(e) | |
| i 25 | |
| i 327 | |
| i 125 | |
| i 1,299 |
Loss (gain) on disposal and impairment of assets(f) | |
| i 481 | |
| ( i 586) | |
| i 875 | |
| ( i 742) |
Effects of fair value adjustments to inventory(g) | |
| — | |
| — | |
| — | |
| i 151 |
Secondary public offering costs(h) | | | — | | | i 363 | | | — | | | i 363 |
Adjusted EBITDA | | $ | i 82,522 | | $ | i 89,905 | | $ | i 165,576 | | $ | i 173,493 |
| (a) | Represents non-cash expense 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 share-based awards. |
| (d) | Represents severance expenses and other costs permitted in the calculation of Adjusted EBITDA under the ABL Facility and the Term Loan Facility, including certain unusual, nonrecurring costs due to the COVID-19 pandemic. |
| (e) | Represents costs related to acquisitions paid to third parties. |
| (f) | Includes impairment of assets resulting from restructuring plans to close certain facilities and gains from the sale of assets. |
| (g) | Represents the non-cash cost of sales impact of acquisition accounting adjustments to increase inventory to its estimated fair value. |
| (h) | Represents costs paid to third-party advisors related to secondary offerings of our common stock. |
26
GMS Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
Revenues by Product
The following table presents the Company’s net sales to external customers by main product lines:
i | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||
| | October 31, | | |||||||||
| | 2020 | | 2019 | | 2020 |
| 2019 | ||||
| | (in thousands) | ||||||||||
Wallboard |
| $ | i 330,515 |
| $ | i 350,618 |
| $ | i 658,512 | | $ | i 692,213 |
Ceilings | |
| i 111,293 |
|
| i 122,807 |
|
| i 224,995 |
|
| i 251,917 |
Steel framing | |
| i 111,293 |
|
| i 136,159 |
|
| i 221,780 |
|
| i 267,988 |
Other products | |
| i 259,755 |
|
| i 252,345 |
|
| i 510,142 |
|
| i 496,987 |
Total net sales | | $ | i 812,856 |
| $ | i 861,929 |
| $ | i 1,615,429 |
| $ | i 1,709,105 |
Geographic Information
The following table presents the Company’s net sales by major geographic area:
i | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||
| | October 31, | | |||||||||
|
| 2020 |
| 2019 | | 2020 |
| 2019 | ||||
| | (in thousands) | ||||||||||
United States | | $ | i 684,131 |
| $ | i 744,134 |
| $ | i 1,363,452 | | $ | i 1,475,477 |
Canada | |
| i 128,725 |
|
| i 117,795 |
|
| i 251,977 | | | i 233,628 |
Total net sales | | $ | i 812,856 |
| $ | i 861,929 | | $ | i 1,615,429 | | | i 1,709,105 |
The following table presents the Company’s property and equipment, net, by major geographic area:
i | | | | | | |
| | October 31, | | |||
|
| 2020 |
| 2020 | ||
| | (in thousands) | ||||
United States | | $ | i 265,941 | | $ | i 270,855 |
Canada | |
| i 34,203 |
|
| i 34,612 |
Total property and equipment, net | | $ | i 300,144 |
| $ | i 305,467 |
27
GMS Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
15. Earnings Per Common Share
The following table sets forth the computation of basic and diluted earnings per share of common stock:
i
| | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||
| | October 31, | | |||||||||
|
| 2020 | | 2019 |
| 2020 |
| 2019 | ||||
| | (in thousands, except per share data) | ||||||||||
Net income | | $ | i 28,469 | | $ | i 29,138 | | $ | i 55,688 | | $ | i 53,958 |
Less: Net income allocated to participating securities | | | — | | | — | | | — | | | i 342 |
Net income attributable to common stockholders | | $ | i 28,469 |
| $ | i 29,138 | | $ | i 55,688 | | $ | i 53,616 |
Basic earnings per common share: | | |
| | | | | |
| | | |
Basic weighted average common shares outstanding | |
| i 42,723 | |
| i 41,761 | |
| i 42,674 | |
| i 41,382 |
Basic earnings per common share | | $ | i 0.67 | | $ | i 0.70 | | $ | i 1.30 | | $ | i 1.30 |
Diluted earnings per common share: | |
|
| |
|
| |
|
| |
|
|
Basic weighted average common shares outstanding | |
| i 42,723 | |
| i 41,761 | |
| i 42,674 | |
| i 41,382 |
Add: Common Stock Equivalents | |
| i 451 | |
| i 874 | |
| i 422 | |
| i 744 |
Diluted weighted average common shares outstanding | |
| i 43,174 | |
| i 42,635 | |
| i 43,096 | |
| i 42,126 |
Diluted earnings per common share | | $ | i 0.66 | | $ | i 0.68 | | $ | i 1.29 | | $ | i 1.27 |
During the three and six months ended October 31, 2020, approximately i 0.5 million and i 0.4 million, respectively, Common Stock Equivalents were excluded from the calculation of diluted earnings per share because their effect would have been anti-dilutive. Anti-dilutive securities could be dilutive in future periods.
/
28
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following information should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q. The following discussion may contain forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those factors discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in “Cautionary Note Regarding Forward-Looking Statements,” and discussed in the section entitled “Risk Factors” included in our Annual Report on Form 10-K for the year ended April 30, 2020.
Overview
Founded in 1971, GMS Inc. (“we,” “our,” “us” or the “Company”) is a distributor of specialty building products including wallboard, suspended ceilings systems, or ceilings, steel framing and other complementary specialty building products. We purchase products from many manufacturers and then distribute these goods to a customer base consisting of wallboard and ceilings contractors and homebuilders and, to a lesser extent, general contractors and individuals. We operate a network of approximately 260 distribution centers across the United States and Canada.
Business Strategy
Our growth strategy entails an emphasis on organic growth through expanding market share in our core products (wallboard, ceilings and steel framing) and growing our complementary product lines (insulation, lumber, ready-mix joint compound, tools, fasteners and various other construction products). Our growth strategy also includes the pursuit of greenfield branch openings and strategic acquisitions as we seek to further broaden our geographic platform. We expect to continue to capture profitable market share in our existing footprint by delivering industry-leading customer service. Our strategy for opening new branches is to further penetrate markets that are adjacent to our existing operations. Typically, we have pre-existing customer relationships in these markets but need a new location to fully capitalize on those relationships. In addition, we will continue to selectively pursue acquisitions. Due to the large, highly fragmented nature of our market and our reputation throughout the industry, we believe we have the potential to access a robust acquisition pipeline that will continue to supplement our organic growth. We use a rigorous targeting process to identify acquisition candidates that will fit our culture and business model and have an experienced team of professionals to manage the acquisition and integration processes. As a result of our scale, purchasing power and ability to improve operations through implementing best practices, we believe we can achieve substantial synergies and drive earnings accretion from our acquisition strategy. Finally, our growth strategy also entails a heightened focus on enhanced productivity and profitability across the organization, seeking to leverage our scale and employ both technology and best practices to deliver further margin expansion and earnings growth.
COVID-19 Update
We continue to monitor the COVID-19 pandemic and its impact on macroeconomic and local economic conditions. We have implemented a number of procedures and processes to protect the health and safety of our employees, customers, partners and suppliers. Such measures include routine cleaning throughout the day at all locations, adherence to social distancing protocols, restricting or modifying access to facilities including limiting walk-in traffic in showrooms, encouraging employees to work remotely when possible, mandating the use of appropriate personal protective equipment and the suspension of non-essential travel. We expect to continue to implement these measures throughout the COVID-19 pandemic, and we may take further actions as government authorities require or recommend or as we determine certain procedures to be in the best interests of our employees, customers, partners and suppliers.
During the first half of fiscal 2021, we continued to see reductions in sales as a result of COVID-19 that began in the fourth quarter of fiscal 2020. Net sales for the first half of fiscal 2021 declined compared to the comparable period in the prior year as a result of the suspension of construction activity related to mandated shutdowns and as customers focused on responding to COVID-19 and cancelled, delayed or temporarily paused building projects. The decrease in net sales was more pronounced in our ceilings and steel framing products, as these product categories are tied primarily to
29
commercial construction, which was more impacted by the COVID-19 pandemic than the residential market. During the first half of fiscal 2021, we also incurred $1.6 million of incremental costs related to the COVID-19 pandemic. However, we were able to respond quickly to reduce variable costs and have maintained our selling, general and administrative expenses as a percent of sales. We also repaid the $87.2 million that we proactively borrowed under our revolving credit facilities in March 2020. We will continue to evaluate further ways to manage costs in line with reduced net sales levels as the impact of COVID-19 develops.
While we are currently able to operate in all of our locations, the resurgence of the COVID-19 pandemic in key areas of our operations may require us to implement further restrictions, may require us to temporarily shut down facilities or may further impact our net sales. We will continue to actively monitor the COVID-19 pandemic and may take further actions that alter our business operations if required by federal, state, provincial or local authorities or that we determine are in the best interests of our employees, customers, suppliers and stockholders. See Item 1A, “Risk Factors,” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the fiscal year ended April 30, 2020 for more information regarding the impact of COVID-19 and our response.
Products
The following is a summary of our net sales by product group:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | Six Months Ended | | ||||||||||||||||||
| | October 31, | | % of | | | | October 31, | | % of | | | October 31, | | % of | | | October 31, | | % of | | |||
|
| 2020 |
| Total |
|
| | 2019 |
| Total | | | 2020 | | Total | | | 2019 | | Total | | |||
| | (dollars in thousands) | | |||||||||||||||||||||
Wallboard | | $ | 330,515 | | 40.6 | % |
| $ | 350,618 | | 40.7 | % |
| $ | 658,512 |
| 40.8 | % |
| $ | 692,213 |
| 40.5 | % |
Ceilings | |
| 111,293 |
| 13.7 | % | |
| 122,807 |
| 14.2 | % | |
| 224,995 |
| 13.9 | % | |
| 251,917 |
| 14.7 | % |
Steel framing | |
| 111,293 |
| 13.7 | % | |
| 136,159 |
| 15.8 | % | |
| 221,780 |
| 13.7 | % | |
| 267,988 |
| 15.7 | % |
Other products | |
| 259,755 |
| 32.0 | % | |
| 252,345 |
| 29.3 | % | |
| 510,142 |
| 31.6 | % | |
| 496,987 |
| 29.1 | % |
Total net sales | | $ | 812,856 |
|
| | | $ | 861,929 |
|
| | | $ | 1,615,429 |
|
| | | $ | 1,709,105 |
|
| |
30
Results of Operations
Three Months Ended October 31, 2020 and 2019
The following table summarizes key components of our results of operations for the three months ended October 31, 2020 and 2019:
| | | | | | | |
|
| Three Months Ended |
| ||||
| |
| |||||
|
| 2020 |
| 2019 |
| ||
| | | (dollars in thousands) |
| |||
Statement of operations data: |
| |
|
| |
| |
Net sales |
| $ | 812,856 | | $ | 861,929 | |
Cost of sales (exclusive of depreciation and amortization shown separately below) |
|
| 547,785 | |
| 577,436 | |
Gross profit |
|
| 265,071 | |
| 284,493 | |
Operating expenses: |
| |
| | |
| |
Selling, general and administrative expenses |
|
| 188,352 | |
| 200,457 | |
Depreciation and amortization |
|
| 27,245 | |
| 29,518 | |
Total operating expenses |
|
| 215,597 | |
| 229,975 | |
Operating income |
|
| 49,474 | |
| 54,518 | |
Other (expense) income: |
| |
| | |
| |
Interest expense |
|
| (13,525) | |
| (17,559) | |
Write-off of debt discount and deferred financing fees | | | — | | | (707) | |
Other income, net |
|
| 797 | |
| 813 | |
Total other expense, net |
|
| (12,728) | |
| (17,453) | |
Income before taxes |
|
| 36,746 | |
| 37,065 | |
Provision for income taxes |
|
| 8,277 | |
| 7,927 | |
Net income |
| $ | 28,469 | | $ | 29,138 | |
Non-GAAP measures: |
|
|
| |
|
| |
Adjusted EBITDA(1) |
| $ | 82,522 | | $ | 89,905 | |
Adjusted EBITDA margin(1)(2) |
|
| 10.2 | % |
| 10.4 | % |
| (1) | Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures. See “—Non-GAAP Financial Measures—Adjusted EBITDA,” for how we define and calculate Adjusted EBITDA and Adjusted EBITDA margin, reconciliations thereof to net income and a description of why we believe these measures are useful. |
| (2) | Adjusted EBITDA margin is Adjusted EBITDA as a percentage of net sales. |
31
Net Sales
Net sales of $812.9 million decreased $49.1 million, or 5.7%, during the three months ended October 31, 2020 compared to the three months ended October 31, 2019 primarily due to the negative impacts of the COVID-19 pandemic. In addition, there was one less selling day during the three months ended October 31, 2020 compared to the prior year period. The decrease in net sales was due to the following:
| ● | Wallboard sales, which are impacted by both commercial and residential construction activity, decreased $20.1 million, or 5.7%, compared to the three months ended October 31, 2019. The decrease in wallboard sales was primarily due to a decline in product mix, volume and, to a lesser extent, price. |
| ● | Ceilings sales decreased $11.5 million, or 9.4%, compared to the three months ended October 31, 2019. The decrease in ceilings sales was primarily due to lower volume, partially offset by higher price/mix. |
| ● | Steel framing sales decreased $24.9 million, or 18.3%, compared to the three months October 31, 2019. The decrease in steel framing sales was primarily due to a decline in both volumes and price/mix. |
| ● | Other products sales, which include insulation, joint treatment, tools, lumber and various other specialty building products, increased $7.4 million, or 2.9%, compared to the three months ended October 31, 2019. The increase was primarily due to positive contributions from acquisitions and execution of growth initiatives to increase other products sales. |
Organic net sales decreased $55.1 million, or 6.4%, during the three months ended October 31, 2020 compared to the prior year period. The decrease was primarily driven by the negative impacts of the COVID-19 pandemic, partially offset by growth in other products sales and strength in the Canadian housing market. The decrease was more pronounced in our ceilings and steel framing products, as these product categories are tied primarily to commercial construction, which was more impacted by the COVID-19 pandemic than the residential market.
The following table breaks out our net sales into organic, or base business, net sales and recently acquired net sales for the three months ended October 31, 2020:
| | | |
|
| Three Months | |
| | Ended | |
|
| ||
| | (in thousands) | |
Net sales | | $ | 812,856 |
Recently acquired net sales (1) | | | (6,024) |
Impact of foreign currency (2) | |
| (40) |
Base business net sales (3) | | $ | 806,792 |
| (1) | Represents net sales of branches acquired by us until the first anniversary of the acquisition date. For the three months ended October 31, 2020, this includes net sales of Rigney Building Supplies Ltd., which was acquired on November 1, 2019 and Trowel Trades Supply, Inc., which was acquired on February 1, 2020. |
| (2) | Represents the impact of foreign currency translation on net sales. |
| (3) | Represents net sales of existing branches and branches that were opened by us during the period presented. |
When calculating organic sales growth, we exclude the net sales of acquired businesses until the first anniversary of the acquisition date. In addition, we exclude the impact of foreign currency translation in our calculation of organic net sales growth.
32
Gross Profit and Gross Margin
Gross profit of $265.1 million for the three months ended October 31, 2020 decreased $19.4 million, or 6.8%, compared to the three months ended October 31, 2019 primarily due to a decrease in sales volume due to the impact of the COVID-19 pandemic. Gross margin on net sales decreased to 32.6% for the three months ended October 31, 2020 compared to 33.0% for the three months ended October 31, 2019 primarily due to challenging product mix dynamics, particularly in the commercial market.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist of warehouse, delivery and general and administrative expenses. Selling, general and administrative expenses of $188.4 million for the three months ended October 31, 2020 decreased $12.1 million, or 6.0%, compared to the three months ended October 31, 2019. Selling, general and administrative expenses were 23.2% of our net sales during the three months ended October 31, 2020 compared to 23.3% of our net sales during the three months ended October 31, 2019. The decrease was primarily driven by proactive actions taken to reduce costs in response to the COVID-19 pandemic, partially offset by deflationary market pricing of certain of our products.
Depreciation and Amortization Expense
Depreciation and amortization expense includes depreciation of property and equipment and amortization of definite-lived intangible assets acquired in purchases of businesses. Depreciation and amortization expense was $27.2 million for the three months ended October 31, 2020 compared to $29.5 million for the three months ended October 31, 2019. The decrease was due to a $2.4 million decrease in amortization of definite-lived intangible assets, partially offset by a $0.1 million increase in depreciation expense. The decrease in amortization expense was primarily due to the time-based progression of our use of the accelerated method of amortization for acquired customer relationships. The increase in depreciation expense was primarily due to capital expenditures and acquisitions over the past year.
Interest Expense
Interest expense consists primarily of interest expense incurred on our debt and finance leases and amortization of deferred financing fees and debt discounts. Interest expense was $13.5 million during the three months ended October 31, 2020 compared to $17.6 million for the three months ended October 31, 2019. The decrease was primarily due to a decrease in the outstanding amount of debt and a decrease in interest rates.
Income Taxes
We recognized income tax expense of $8.3 million during the three months ended October 31, 2020 compared to $7.9 million during the three months ended October 31, 2019. Our effective tax rate was 22.5% and 21.4% for the three months ended October 31, 2020 and 2019, respectively. The change in the effective income tax rate was primarily due to the impact of foreign taxes and stock-based compensation.
Net Income
Net income was $28.5 million during the three months ended October 31, 2020 compared to $29.1 million for the three months ended October 31, 2019. The decrease in net income was primarily due to a decrease in operating income, primarily as a result of lower net sales, partially offset by a decrease in interest expense.
Adjusted EBITDA
Adjusted EBITDA of $82.5 million for the three months ended October 31, 2020 decreased $7.4 million, or 8.2%, from our Adjusted EBITDA of $89.9 million for the three months ended October 31, 2019. The decrease in Adjusted EBITDA was primarily due to the negative impacts of the COVID-19 pandemic on net sales, partially offset by operating expense containment measures and strength in the Canadian housing market. See “—Non-GAAP Financial
33
Measures—Adjusted EBITDA,” below for how we define and calculate Adjusted EBITDA, reconciliations to net income and a description of why we believe these measures are useful.
Six Months Ended October 31, 2020 and 2019
The following table summarizes key components of our results of operations for the six months ended October 31, 2020 and 2019:
| | | | | | | |
|
| Six Months Ended |
| ||||
| |
| |||||
|
| 2020 |
| 2019 |
| ||
| | | (dollars in thousands) |
| |||
Statement of operations data: |
| |
|
| |
| |
Net sales |
| $ | 1,615,429 | | $ | 1,709,105 | |
Cost of sales (exclusive of depreciation and amortization shown separately below) |
|
| 1,089,900 | |
| 1,150,958 | |
Gross profit |
|
| 525,529 | |
| 558,147 | |
Operating expenses: |
| |
| | |
| |
Selling, general and administrative expenses |
|
| 371,464 | |
| 395,088 | |
Depreciation and amortization |
|
| 54,342 | |
| 58,793 | |
Total operating expenses |
|
| 425,806 | |
| 453,881 | |
Operating income |
|
| 99,723 | |
| 104,266 | |
Other (expense) income: |
| |
| | |
| |
Interest expense |
|
| (27,606) | |
| (35,836) | |
Write-off of debt discount and deferred financing fees | | | — | |
| (707) | |
Other income, net |
|
| 1,452 | |
| 1,752 | |
Total other expense, net |
|
| (26,154) | |
| (34,791) | |
Income before tax |
|
| 73,569 | |
| 69,475 | |
Provision for income taxes |
|
| 17,881 | |
| 15,517 | |
Net income |
| $ | 55,688 | | $ | 53,958 | |
Non-GAAP measures: |
|
|
| |
|
| |
Adjusted EBITDA(1) |
| $ | 165,576 | | $ | 173,493 | |
Adjusted EBITDA margin(1)(2) |
|
| 10.2 | % |
| 10.2 | % |
| (1) | Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures. See “—Non-GAAP Financial Measures—Adjusted EBITDA,” for how we define and calculate Adjusted EBITDA and Adjusted EBITDA margin, reconciliations thereof to net income and a description of why we believe these measures are useful. |
| (2) | Adjusted EBITDA margin is Adjusted EBITDA as a percentage of net sales. |
34
Net Sales
Net sales of $1,615.4 million decreased $93.7 million, or 5.5%, during the six months ended October 31, 2020 compared to the six months ended October 31, 2019 primarily due to the negative impacts of the COVID-19 pandemic. The decrease in net sales was due to the following:
| ● | Wallboard sales, which are impacted by both commercial and residential construction activity, decreased $33.7 million, or 4.9%, compared to the six months ended October 31, 2019. The decrease in wallboard sales was primarily due to a decline in both price and mix and, to a lesser extent, lower volumes. |
| ● | Ceilings sales decreased $26.9 million, or 10.7%, compared to the six months ended October 31, 2019. The decrease in ceilings sales was primarily due to lower volumes and product mix, partially offset by higher pricing. |
| ● | Steel framing sales decreased $46.2 million, or 17.2%, compared to the six months October 31, 2019. The decrease in steel framing sales was primarily due to a decline in volumes and pricing, partially offset by higher product mix. |
| ● | Other products sales, which include insulation, joint treatment, tools, lumber and various other specialty building products, increased $13.2 million, or 2.6%, compared to the six months ended October 31, 2019. The increase was primarily due to execution of growth initiatives to increase other products sales and positive contributions from acquisitions. |
Organic net sales decreased $103.0 million, or 6.0%, during the six months ended October 31, 2020 compared to the prior year period. The decrease was primarily driven by the negative impacts of the COVID-19 pandemic, partially offset by growth in other products sales and strength in the Canadian housing market. The decrease was more pronounced in our ceilings and steel framing products, as these product categories are tied primarily to commercial construction, which was more impacted by the COVID-19 pandemic than the residential market.
The following table breaks out our net sales into organic, or base business, net sales and recently acquired net sales for the six months ended October 31, 2020:
| | | |
| | Six Months | |
| | Ended | |
(Unaudited) |
| ||
| | (in thousands) | |
Net sales | | $ | 1,615,429 |
Recently acquired net sales (1) | | | (12,901) |
Impact of foreign currency (2) | |
| 3,496 |
Base business net sales (3) | | $ | 1,606,024 |
| (1) | Represents net sales of branches acquired by us until the first anniversary of the acquisition date. For the six months ended October 31, 2020, this includes net sales of J.P. Hart Lumber Company, which was acquired on June 3, 2019, Rigney Building Supplies Ltd., which was acquired on November 1, 2019 and Trowel Trades Supply, Inc., which was acquired on February 1, 2020. |
| (2) | Represents the impact of foreign currency translation on net sales. |
| (3) | Represents net sales of existing branches and branches that were opened by us during the period presented. |
35
Gross Profit and Gross Margin
Gross profit of $525.5 million for the six months ended October 31, 2020 decreased $32.6 million, or 5.8%, compared to the six months ended October 31, 2019 primarily due to a decrease in sales volume due to the impact of the COVID-19 pandemic. Gross margin on net sales decreased to 32.5% for the six months ended October 31, 2020 compared to 32.7% for the six months ended October 31, 2019 primarily due to increased competition and product mix.
Selling, General and Administrative Expenses
Selling, general and administrative expenses of $371.5 million for the six months ended October 31, 2020 decreased $23.6 million, or 6.0%, compared to the six months ended October 31, 2019. Selling, general and administrative expenses were 23.0% of our net sales during the six months ended October 31, 2020 compared to 23.1% of our net sales during the six months ended October 31, 2019. The decrease was primarily driven by proactive actions taken to reduce costs in response to the COVID-19 pandemic, partially offset by deflationary market pricing of certain of our products and incremental costs as a result of the COVID-19 pandemic.
Depreciation and Amortization Expense
Depreciation and amortization expense was $54.3 million for the six months ended October 31, 2020 compared to $58.8 million for the six months ended October 31, 2019. The decrease was due to a $5.0 million decrease in amortization of definite-lived intangible assets, partially offset by a $0.5 million increase in depreciation expense. The decrease in amortization expense was primarily due to the time-based progression of our use of the accelerated method of amortization for acquired customer relationships. The increase in depreciation expense was primarily due to capital expenditures and acquisitions over the past year.
Interest Expense
Interest expense was $27.6 million during the six months ended October 31, 2020 compared to $35.8 million for the six months ended October 31, 2019. The decrease was primarily due to a decrease in the outstanding amount of debt and a decrease in interest rates.
Income Taxes
We recognized income tax expense of $17.9 million during the six months ended October 31, 2020 compared to $15.5 million during the six months ended October 31, 2019. Our effective tax rate was 24.3% and 22.3% for the six months ended October 31, 2020 and 2019, respectively. The change in the effective income tax rate was primarily due to the impact of state taxes, foreign taxes and stock-based compensation.
Net Income
Net income was $55.7 million during the six months ended October 31, 2020 compared to $54.0 million for the six months ended October 31, 2019. The increase in net income was primarily due to a decrease in interest expense, partially offset by a decrease in operating income, primarily resulting from lower net sales, and an increase in income taxes.
Adjusted EBITDA
Adjusted EBITDA of $165.6 million for the six months ended October 31, 2020 decreased $7.9 million, or 4.6%, from our Adjusted EBITDA of $173.5 million for the six months ended October 31, 2019. The decrease in Adjusted EBITDA was primarily due to the negative impacts of the COVID-19 pandemic on net sales, partially offset by operating expense containment measures and strength in the Canadian housing market. See “—Non-GAAP Financial Measures—Adjusted EBITDA,” below for how we define and calculate Adjusted EBITDA, reconciliations to net income and a description of why we believe these measures are useful.
36
Liquidity and Capital Resources
Summary
We depend on cash flow from operations, cash on hand and funds available under our asset based revolving credit facility (the “ABL Facility”) to finance working capital needs, capital expenditures and acquisitions. We believe that these sources of funds will be adequate to fund debt service requirements and provide cash, as required, to support our growth strategies, ongoing operations, capital expenditures, lease obligations and working capital for at least the next 12 months. We have taken several measures to preserve liquidity in response to the COVID-19 pandemic. We currently believe that these measures and any others we may determine to take in the future to preserve our cash flows from operations, combined with our current financial resources, will allow us to manage the anticipated impact of the COVID-19 pandemic on our business operations.
As of October 31, 2020, we had available borrowing capacity of approximately $392.9 million under our $445.0 million ABL Facility. The ABL Facility is scheduled to mature on September 30, 2024.
As of October 31, 2020, we had available borrowing capacity of approximately $22.5 million under our Canadian revolving credit facility (the “Canadian Facility”) that provides for aggregate revolving commitments of $22.5 million ($30.0 million Canadian dollars). The Canadian Facility matures on June 28, 2022.
For more information regarding our ABL Facility and other indebtedness, see Note 5 of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q and Note 7 of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended April 30, 2020.
We have a common stock repurchase program authorized by our Board of Directors to repurchase up to $75.0 million of our outstanding common stock. The share repurchase program does not obligate us to acquire any particular amount of common stock, and it may be suspended or terminated at any time at our discretion. The timing and amount of any purchases of our common stock will be subject to a variety of factors, including, but not limited to, our liquidity, credit availability, general business and market conditions, our debt covenant restrictions and the availability of alternative investment opportunities. We repurchased approximately 50 thousand shares of our common stock for $1.2 million during the six months ended October 31, 2020. As of October 31, 2020, we had $57.3 million of remaining purchase authorization.
We regularly evaluate opportunities to optimize our capital structure, including through consideration of the issuance or incurrence of additional debt to refinance existing debt and to fund ongoing cash needs such as general corporate purposes, growth initiatives, acquisitions and our stock repurchase program.
Cash Flows
A summary of our operating, investing and financing activities is shown in the following table:
| | | | | | |
| | Six Months Ended | ||||
| | |||||
| | 2020 | | 2019 | ||
| | (in thousands) | ||||
Cash provided by operating activities | | $ | 24,048 | | $ | 69,927 |
Cash used in investing activities | |
| (11,176) | |
| (24,214) |
Cash used in financing activities | |
| (106,895) | |
| (57,005) |
Effect of exchange rates on cash and cash equivalents | | | 1,282 | | | 223 |
Decrease in cash and cash equivalents | | $ | (92,741) | | $ | (11,069) |
37
Operating Activities
The decrease in cash provided by operating activities during the six months ended October 31, 2020 compared to the prior year period was primarily due to a $35.6 million decrease in cash resulting from changes to our net working capital and a $10.3 million decrease in net income after adjustments for non-cash items. The decrease in cash from net working capital was primarily due to our efforts to preserve liquidity at the end of fiscal 2020 in response to the COVID-19 pandemic. We postponed certain payments of accounts payable at the end of fiscal 2020, which we subsequently paid during the six months ended October 31, 2020.
Investing Activities
The decrease in cash used in investing activities during the six months ended October 31, 2020 compared to the prior year period was primarily due to a $10.6 million decrease in cash used for acquisitions and a $2.8 million decrease in capital expenditures.
Capital expenditures during the six months ended October 31, 2020 primarily consisted of building and leasehold improvements, vehicles and IT-related spending. Capital expenditures vary depending on prevailing business factors, including current and anticipated market conditions. Historically, capital expenditures have remained at relatively low levels in comparison to the operating cash flows generated during the corresponding periods.
Financing Activities
The increase in cash used in financing activities during the six months ended October 31, 2020 compared to the prior year period was primarily due to the repayment of $87.2 million of our revolving credit facilities we proactively borrowed in March 2020, a $2.3 million increase in principal payments on finance leases and $1.2 million of repurchases of common stock during the six months ended October 31, 2020. These increases were partially offset by cash used in the prior year period for a $50.0 million principal prepayment of debt.
Debt Covenants
Our senior secured first lien term loan facility (the “Term Loan Facility”) contains a number of covenants that limit our ability and the ability of our restricted subsidiaries, as described in the respective credit agreement, to: incur more indebtedness; pay dividends, redeem or repurchase stock or make other distributions; make investments; create restrictions on the ability of our restricted subsidiaries to pay dividends to us or make other intercompany transfers; create liens securing indebtedness; transfer or sell assets; merge or consolidate; enter into certain transactions with our affiliates; and prepay or amend the terms of certain indebtedness. We were in compliance with all covenants contained in the Term Loan Facility as of October 31, 2020.
The ABL Facility contains certain affirmative covenants, including financial and other reporting requirements. We were in compliance with all such covenants as of October 31, 2020.
Contractual Obligations
There have been no material changes to the contractual obligations as disclosed in our Annual Report on Form 10-K for the fiscal year ended April 30, 2020, other than those made in the ordinary course of business.
Off-Balance Sheet Arrangements
There have been no material changes to our off-balance sheet arrangements as discussed in our Annual Report on Form 10-K for the fiscal year ended April 30, 2020.
38
Non-GAAP Financial Measures
Adjusted EBITDA
Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures. We report our financial results in accordance with GAAP. However, we present Adjusted EBITDA and Adjusted EBITDA margin, which are not recognized financial measures under GAAP, because we believe they 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 EBITDA and Adjusted EBITDA margin 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 the ABL Facility and the Term Loan Facility. The ABL Facility and the Term Loan Facility permit us to make certain additional adjustments in calculating Consolidated EBITDA, such as projected net cost savings, which are not reflected in the Adjusted EBITDA data presented in this Quarterly Report on Form 10-Q. We may in the future reflect such permitted adjustments in our calculations of Adjusted EBITDA.
We believe that Adjusted EBITDA and Adjusted EBITDA margin are frequently used by analysts, investors and other interested parties in their evaluation of companies, many of which present an Adjusted EBITDA or Adjusted EBITDA margin measure when reporting their results. Our presentation of 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 EBITDA may not be comparable to similarly titled measures used by other companies in our industry or across different industries.
We also include information concerning Adjusted EBITDA margin, which is calculated as Adjusted EBITDA divided by net sales. We present Adjusted EBITDA margin because it is used by management as a performance measure to judge the level of Adjusted EBITDA that is generated from net sales.
Adjusted EBITDA and Adjusted EBITDA margin have their limitations as analytical tools and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP.
39
The following is a reconciliation of our net income to Adjusted EBITDA and Adjusted EBITDA margin for the three and six months ended October 31, 2020 and 2019:
| | | | | | | | | | | | | | |
| | Three Months Ended | | | Six Months Ended | | ||||||||
| | October 31, | | | | |||||||||
|
| 2020 |
| 2019 | | | 2020 | | 2019 | | ||||
| | (in thousands) | | |||||||||||
Net income | | $ | 28,469 | | $ | 29,138 | | | $ | 55,688 | | $ | 53,958 | |
Interest expense | |
| 13,525 | |
| 17,559 | | |
| 27,606 | |
| 35,836 | |
Write-off of debt discount and deferred financing fees | | | — | | | 707 | | | | — | | | 707 | |
Interest income | |
| (14) | |
| (6) | | |
| (51) | |
| (18) | |
Provision for income taxes | |
| 8,277 | |
| 7,927 | | |
| 17,881 | |
| 15,517 | |
Depreciation expense | |
| 12,710 | |
| 12,592 | | |
| 25,537 | |
| 25,014 | |
Amortization expense | |
| 14,535 | |
| 16,926 | | |
| 28,805 | |
| 33,779 | |
Stock appreciation expense(a) | | | 314 | | | 1,267 | | | | 1,106 | | | 1,327 | |
Redeemable noncontrolling interests(b) | | | 186 | | | (18) | | |
| 438 | | | 644 | |
Equity-based compensation(c) | | | 3,252 | | | 2,315 | | |
| 4,857 | | | 3,710 | |
Severance and other permitted costs(d) | |
| 762 | | | 1,394 | | |
| 2,709 | | | 1,948 | |
Transaction costs (acquisitions and other)(e) | |
| 25 | | | 327 | | |
| 125 | | | 1,299 | |
Loss (gain) on disposal and impairment of assets(f) | |
| 481 | | | (586) | | |
| 875 | | | (742) | |
Effects of fair value adjustments to inventory(g) | | | — | | | — | | | | — | | | 151 | |
Secondary public offering costs(h) | | | — | | | 363 | | | | — | | | 363 | |
Adjusted EBITDA | | $ | 82,522 | | $ | 89,905 | | | $ | 165,576 | | $ | 173,493 | |
| | | | | | | | | | | | | | |
Net sales | | $ | 812,856 | | $ | 861,929 | | | $ | 1,615,429 | | $ | 1,709,105 | |
Adjusted EBITDA Margin | | | 10.2 | % | | 10.4 | % | | | 10.2 | % | | 10.2 | % |
| (a) | Represents non-cash expense 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 share-based awards. |
| (d) | Represents severance expenses and other costs permitted in the calculation of Adjusted EBITDA under the ABL Facility and the Term Loan Facility, including certain unusual, nonrecurring costs due to the COVID-19 pandemic. |
| (e) | Represents costs related to acquisitions paid to third parties. |
| (f) | Includes impairment of assets resulting from restructuring plans to close certain facilities and gains from the sale of assets. |
| (g) | Represents the non-cash cost of sales impact of acquisition accounting adjustments to increase inventory to its estimated fair value. |
| (h) | Represents costs paid to third-party advisors related to secondary offerings of our common stock. |
40
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to our exposure to market risks from those reported in our Annual Report on Form 10-K for the fiscal year ended April 30, 2020.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of October 31, 2020, our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), which are designed to provide reasonable assurance that the information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of October 31, 2020, our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that are filed or submitted under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the three months ended October 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
41
PART II – Other Information
Item 1. Legal Proceedings
From time to time, we are involved in lawsuits that are brought against us in the normal course of business. We are not currently a party to any legal proceedings that would be expected, either individually or in the aggregate, to have a material adverse effect on our business or financial condition. For additional information, see Note 13, “Commitments and Contingencies.”
The building materials industry has been subject to personal injury and property damage claims arising from alleged exposure to raw materials contained in building products as well as claims for incidents of catastrophic loss, such as building fires. As a distributor of building materials, we face an inherent risk of exposure to product liability claims in the event that the use of the products we have distributed in the past or may in the future distribute is alleged to have resulted in economic loss, personal injury or property damage or violated environmental, health or safety or other laws. Such product liability claims have included and may in the future include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. In particular, certain of our subsidiaries have been the subject of claims related to alleged exposure to asbestos-containing products they distributed prior to 1979. Since 2002 and as of October 31, 2020, approximately 1,018 asbestos-related personal injury lawsuits have been filed and we vigorously defend against them. Of these, 973 have been dismissed without any payment by us, 35 are pending and only 10 have been settled, which settlements have not materially impacted our financial condition or operating results. See “Risk Factors—Risks Relating to Our Business and Industry—We are exposed to product liability, warranty, casualty, construction defect, contract, tort, employment and other claims and legal proceedings related to our business, the products we distribute, the services we provide and services provided for us by third parties” listed in Part 1, Item 1A of our Annual Report on Form 10-K for the fiscal year ended April 30, 2020.
Item 1A. Risk Factors
There have been no material changes in the risks facing the Company as described in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The number of shares repurchased and the average price paid per share for each month in the three months ended October 31, 2020 are as follows:
| | | | | | | | | | |
| | | | | | | Total Number of | | | Maximum Approximate |
| | Total Number | | Average | | Shares Repurchased | | | Dollar Value that May | |
|
| of Shares |
| Price Paid |
| as Part of Publicly | |
| Yet be Purchased | |
| | Repurchased | | Per Share | | Announced Program (1) | | | Under the Program | |
| | | | | | | | | | (in thousands) |
August 1 through August 31 | | — | | $ | — | | — | | $ | 58,480 |
September 1 through September 30 | | 19,989 | | | 22.78 | | 19,989 | | | 58,025 |
October 1 through October 31 | | 30,423 | | | 25.19 | | 30,423 | | | 57,259 |
Total | | 50,412 | | | | | 50,412 | | | |
| (1) | On November 30, 2018, our Board of Directors authorized a common stock repurchase program to repurchase up to $75.0 million of our outstanding common stock. We may conduct repurchases under the share repurchase program through open market transactions, under trading plans in accordance with Rule 10b5-1 and/or in privately negotiated transactions, in compliance with Rule 10b-18 under the Exchange Act of 1934, as amended, subject to a variety of factors, including, but not limited to, our liquidity, credit availability, general business and market conditions, our debt covenant restrictions and the availability of alternative investment opportunities. The share repurchase program does not obligate us to acquire any particular amount of common stock, and it may be suspended or terminated at any time at our discretion. |
42
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
None.
43
Item 6. Exhibits
| (a) | Exhibits. The following exhibits are filed as part of this report: |
| ||
Exhibit No. |
| Exhibit Description |
3.1 |
| |
| | |
3.2 |
| |
| | |
4.1 | ||
| | |
10.1 | | |
| | |
10.2 | | |
| | |
10.3 | | |
| | |
31.1 | * | |
| | |
31.2 | * | |
| | |
32.1 | * | |
| | |
32.2 | * | |
| | |
101 INS | * | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data file because its XBRL tags are embedded within the Inline XBRL document. |
| | |
101 SCH | * | Inline XBRL Taxonomy Extension Schema Document. |
| | |
101 CAL | * | Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
| | |
101 DEF | * | Inline XBRL Taxonomy Extension Definition Linkbase Document. |
| | |
101 LAB | * | Inline XBRL Taxonomy Extension Label Linkbase Document. |
| | |
101 PRE | * | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
| | |
104 | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
44
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | |
| | GMS INC. | |
| | | |
Date: December 3, 2020 | | By: | /s/ Scott M. Deakin |
| | | |
| | | Chief Financial Officer |
| | | (Principal Financial Officer) |
45
| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 9/30/24 | ||||
| 2/28/23 | ||||
| 12/31/22 | ||||
| 6/28/22 | ||||
| Filed on: | 12/3/20 | 4, 8-K | ||
| 11/30/20 | ||||
| For Period end: | 10/31/20 | |||
| 7/31/20 | 10-Q | |||
| 5/1/20 | 4 | |||
| 4/30/20 | 10-K | |||
| 2/1/20 | ||||
| 11/1/19 | ||||
| 10/31/19 | 10-Q | |||
| 7/31/19 | 10-Q | |||
| 6/13/19 | ||||
| 6/3/19 | ||||
| 4/30/19 | 10-K | |||
| 2/28/19 | ||||
| 11/30/18 | ||||
| 6/1/18 | 8-K, 8-K/A | |||
| List all Filings | ||||
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 11/10/20 GMS Inc. 8-K:5,9 11/06/20 13:442K Toppan Merrill/FA 10/23/20 GMS Inc. 8-K:5,9 10/19/20 12:432K Toppan Merrill/FA 8/27/20 GMS Inc. DEF 14A 10/22/20 1:6.6M Toppan Merrill/FA 5/16/16 GMS Inc. S-1/A 11:5.6M Toppan Merrill-FA |