GMS : First Quarter Fiscal 2022 Earnings Conference Call Transcript

GMS Inc.

First Quarter Fiscal 2022 Earnings

Conference Call and Webcast

September 2, 2021

GMS Inc. - First Quarter Fiscal 2022 Earnings Conference Call and Webcast, September 2, 2021

C O R P O R A T E P A R T I C I P A N T S

Carey Phelps, Vice President, Investor Relations

John Turner, President, Chief Executive Officer

Scott Deakin, Vice President, Chief Financial Officer

C O N F E R E N C E C A L L P A R T I C I P A N T S

Trey Grooms, Stephens

David Manthey, Baird

Chris, RBC Capital Markets

Samuel Darkatsh, Raymond James

Keith Hughes, Truist Securities

Steven Ramsey, Thompson Research Group

Kevin Hocevar, Northcoast Research

Ashley Kim, Barclays

P R E S E N T A T I O N

Operator

Greetings. Welcome to the GMS Incorporated First Quarter Fiscal 2022 Earnings Conference Call and Webcast.

At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation.

As a reminder, this conference is being recorded.

It is now my pleasure to introduce Carey Phelps, Vice President of Investor Relations. Thank you. You may begin.

Carey Phelps

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GMS Inc. - First Quarter Fiscal 2022 Earnings Conference Call and Webcast, September 2, 2021

Thanks, Darryl.

Good morning and thank you for joining us for the GMS Earnings Conference Call for the First Quarter of Fiscal 2022.

I am joined today by John Turner, President, and Chief Executive Officer, and Scott Deakin, Vice President, and Chief Financial Officer. In addition to the press release issued this morning, we have posted PowerPoint slides to accompany this call in the Investors section of our website at www.GMS.com.

On Slide 2; on today's call, Management's prepared remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward- looking statements address matters that are subject to risks and uncertainties, many of which are beyond our control and may cause actual results to differ from those discussed today.

As a reminder, forward-looking statements represent Management's current estimates and expectations. The Company assumes no obligation to update any forward-looking statements in the future. Listeners are encouraged to review the more detailed discussions related to these forward-looking statements contained in the Company's filings with the SEC, including the Risk Factors section in the Company's 10- K and other periodic report.

Today's presentation also includes a discussion of certain non-GAAP measures. The definitions and reconciliations of these non-GAAP measures are provided in the press release and presentation Slides.

Please note that references on this call to the first quarter of Fiscal 2022 relate to the quarter ended July 31, 2021.

Finally, once we begin the question-and-answer session of the call, in the interest of time, we kindly request that you limit yourself to one question and one follow-up.

With that, I'll turn the call over to John Turner. JT?

John Turner

Thank you, Carey.

Good morning and thank you all for joining us today. We hope that you have had an enjoyable summer, and that your family, friends, and colleagues are remaining safe and well. If you move to Slide 3, the strong momentum we had exiting Fiscal 2021 continued through our first quarter, with net sales topping $1 billion for the first time in our Company's history.

Moreover, through outstanding execution, and our intense focus on delivering superior customer service, our team capitalized on continued strength in the residential market, an inflationary pricing environment, and solid demand for our core and complimentary products, resulting in strong profitability. Specifically, we delivered record levels of net sales, net income, and Adjusted EBITDA, with sales up meaningfully in each of our four reporting product categories.

We realized higher than expected gross margin of 32.2%, as year-over-year increases in ceilings, steel framing, and complementary products, partially offset pressures on wallboard margins, principally due to the timing of our past throughout supplier pricing actions.

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GMS Inc. - First Quarter Fiscal 2022 Earnings Conference Call and Webcast, September 2, 2021

Continued cost discipline and the outpacing of product inflation, relative to operating expenses enabled us to improve SG&A and Adjusted SG&A as a percentage of sales, for the fifth quarter in a row, while at the same time, we maintained the customer focus, that continues to differentiate GMS in the market. As a result, Adjusted EBITDA margin improved to 12.3%, 200 basis points over last year's first quarter. Also contributing to our strong start to Fiscal 2022, was our continuing platform expansion activities, enhancing our product offerings, and broadening our service territories in numerous geographies.

There's no question that we are still living in dynamic times, with continued strength in the residential market, contrasting the lingering softness in commercial. Despite supply chain disruptions in the inflationary environment, the residential market remains strong, and future indicators of sustained growth are mostly positive.

While some builders in the near term temporarily paused construction as material costs skyrocketed and labor was constrained, others continued to build. Solid demand for both new and existing homes continues, as evidenced by the reporting from publicly held builders and the National Association of Realtors. The outlook for relatively low interest rates remains intact.

In commercial, we have seen promising activity in certain sectors, such as those projects supporting education and government, technology, healthcare, and smaller retail and office tenant improvement. New and repair and remodel activity for larger office space and hospitality remains muted in many markets, as developers are facing higher material costs, and many large office tenants have not yet cemented their return to office plans, contributing to the holding pattern in these projects.

Looking forward, however, the Architectural Billings Index has posted six consecutive months of increased billings, as well as growth in inquiries, which have been broadly distributed across the country. Similarly, our internal measures of bidding and backlog are starting to improve, but the timing and the reality of these quotes turning into projects is yet to be fully seen.

Of course, this growth follows 11 months of material decline in this indicator and put in place non- residential spending has yet to show growth on a year-over-year basis since the start of the pandemic in March of 2020. This said, the Architectural Billings Index has always been the benchmark for future commercial activity, and continued strength will eventually lead to a commercial recovery.

On the supply side, across our end markets, product availability continues to be constrained in many areas. Not withstanding, our scale has been a key competitive advantage, and our results this quarter are indicative of our relative ability to secure and deliver product. Our team continues to navigate challenges, as we provide the outstanding level of customer service that is foundational and distinctive for GMS.

Commercially, we continue to reposition our resources to capture demand where it is strongest, demonstrating the agility of our capabilities and business model. Operationally, we have effectively partnered with our suppliers and customers to ensure delivery and fulfilment.

Moving on to Slide 4; our strong quarterly results were also representative of our continued focus on the execution of our strategic priorities. First, expanding share in our core products, particularly in geographies where we are underpenetrated. During the quarter, each one of our core products delivered strong net sales growth, and positive volume growth, demonstrating our team's success in growing our reach, and customer base.

Second, growing our complementary products to diversify and profitably expand our offerings, with strength in products such as tools, insulation, joint treatment, and lumber, we recorded 27% sales growth for the quarter in our complementary products, marking the fifth consecutive quarter of growth in this category.

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GMS Inc. - First Quarter Fiscal 2022 Earnings Conference Call and Webcast, September 2, 2021

Third is our platform expansion. We are expanding our platform through accretive acquisitions and Greenfield opportunities, while maintaining discipline in managing debt leverage. During the first quarter, we made significant strides in expanding our reach, and enabling enhanced service to our customers; with the opening of five new Greenfield locations, and the completion of two important acquisitions.

Notably, on July 1, we added Westside building material to our distribution network, including nine locations in California, and one in Las Vegas, expanding our presence and reach in two critical and previously underserved markets. Westside recorded roughly $200 million in sales for calendar year 2020 and appears on pace to exceed that number in 2021.

Also, during the quarter, as further expansion of our complementary products, we acquired architectural coding's distributors, a specialty EIFS and Stucco operation and providing a platform for further expansion In the Northeast Ohio market. This transaction provided us the opportunity to advance our exterior envelope capabilities in that part of the country.

Even with a slight pause in M&A activity at the outset of COVID, we have added 35 new locations to our footprint in just the last few years. Looking forward, we maintain a robust M&A pipeline, with a focus on opportunities that create shareholder value.

Building materials continues to be a highly fragmented industry, with opportunities to enhance our complementary product offerings, deepen the scale of our core products, and reach customers beyond our current service territories. Our strong balance sheet and liquidity position, provides us the ability to continue to pursue both organic and inorganic opportunities.

And the fourth pillar in our strategic priorities, is to leverage our scale and employ technology and best practices across the business, to drive improved productivity and profitability. We are driving purchasing efficiencies, enhancing our pricing practices, providing improved transactional efficiency and effectiveness for our customers, and supplying our team with the tools and data to make informed business decisions, all with the intent of improving our value proposition for all stakeholders. These efforts are focussed on lowering our cost of doing business, delivering superior service, or both.

With that, I'll now turn it over to Scott to provide more perspective on our financial results for the first quarter. Scott?

Scott Deakin

Thanks, JT, and good morning.

Looking at Slide 5, net sales increased 29.8% for the quarter, to just over $1 billion, rising 23.2% organically. This exceeded our expectations for the quarter as we benefitted from continued strength from the residential market and heightened inflationary trends in the marketplace.

Adjusting for one less selling day year-over-year, net sales increased 31.9%, with daily organic net sales increasing 25.2%. From an end market perspective in the U.S. for example, residential sales showed considerable strength, up more than 30% on both higher volume and price, while commercial sales, which were also up double digits, have continued to be sluggish from a volume perspective, but we're up overall on higher pricing.

Wallboard sales of $390.1 million increased 18.9% or 14% on an organic basis, comprised of a 12.5% increase on wallboard price and mix, and a 1.5% increase in volume, or 3.3% on a per day basis. Overall on a per day basis, wallboard sales increased 20.8%, with volume gains reaching 5.5%, to get over

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ViaVid has made considerable efforts to provide an accurate transcription. There may be material errors, omissions, or inaccuracies in the reporting of the substance of the conference call. This transcript is being made available for information purposes only.

1-888-562-02621-604-929-1352www.viavid.com