GMS : First Quarter Fiscal 2023 Earnings Conference Call Transcript

REFINITIV STREETEVENTS

EDITED

TRANSCRIPT GMS.N -

Q1 2023 GMS Inc Earnings Call

EVENT DATE/TIME: SEPTEMBER 01, 2022 / 12:30PM GMT

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SEPTEMBER 01, 2022 / 12:30PM, GMS.N - Q1 2023 GMS Inc Earnings Call

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

Carey Phelp GMS Inc. - VP of Investor & Media Relations

John C. Turner GMS Inc. - President, CEO & Director

Scott M. Deakin GMS Inc. - VP & CFO

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

Christopher Frank Kalata RBC Capital Markets, Research Division - Assistant VP

Elizabeth Ann Langan Barclays Bank PLC, Research Division - Research Analyst

Jeffrey Patrick Stevenson Loop Capital Markets LLC, Research Division - VP

Keith Brian Hughes Truist Securities, Inc., Research Division - MD

Noah Christopher Merkousko Stephens Inc., Research Division - Senior Research Associate

Steven Ramsey Thompson Research Group, LLC - Senior Equity Research Analyst

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

Operator

Greetings, and welcome to the GMS First Quarter 2023 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is beingrecorded.

I would now like to turn the call over to Carey Phelp, Vice President of Investor Relations. You may begin.

Carey Phelp - GMS Inc. - VP of Investor & Media Relations

Thanks, Darryl. Good morning, and thank you for joining us for the GMS earnings conference call for the first quarter of fiscal 2023. I am joinedtoday 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 websiteat www.gms.com.

Turning to Slide 2. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements asdefined 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 toupdate any forward-looking statement in the future. Listeners are encouraged to review the more detailed discussions related to these forward- lookingstatements 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 measuresare provided in the press release and presentation slides.

Please note that references on this call to the first quarter of fiscal 2023 relate to the quarter ended July 31, 2022. (Operator Instructions)

With that, I'll turn the call over to John Turner. J.T.?

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SEPTEMBER 01, 2022 / 12:30PM, GMS.N - Q1 2023 GMS Inc Earnings Call

John C. Turner - GMS Inc. - President, CEO & Director

Thank you, Carey. Good morning, and thank you all for joining us today.

The momentum we built during fiscal 2022 has continued into our fiscal quarter -- fiscal first quarter of 2023. We again delivered record levels ofnet sales, net income and adjusted EBITDA for the quarter, and continued the solid execution of our strategic priorities. Market demand for ourproducts during the quarter remained elevated, and our yards and storefronts are busy.

Looking at Slide 3. With comparisons to Q1 of fiscal 2022, here are some highlights of our first quarter results. We grew net sales 30.5%, with 29.4%gross profit growth, as our teams continued to work diligently to pass through inflationary product pricing. We recorded more than 20% salesgrowth and double-digit organic sales increases in each of our 4 major product categories.

Volumes in Wallboard improved nearly 9%, while Ceilings and Complementary Products volumes were up low single digits. The inflationary productpricing environment, combined with our continued operating cost discipline, enabled us to improve our SG&A and adjusted SG&A percentagesof sales by 80 and 100 basis points, respectively. Net income improved 46.2%, while adjusted EBITDA grew 36.6%. And finally, adjusted EBITDAmargin of 12.9% was up 60 basis points as compared with a year ago.

Product price inflation, active residential construction and an improving commercial backdrop, coupled with our team's commitment to deliveringoutstanding service, drove these solid results.

Amid this near-term performance, we also continued to execute on our 4 primary strategic priorities. Slide 4 highlights our progress this quarterin advancing these initiatives. First, expanding share in our core products, our teams again worked diligently throughout the quarter to maintainexceptional levels of customer service and ensure product availability, despite continuing supply chain challenges.

Notably, this led to year-over-year volume growth in Wallboard and Ceilings, with organic revenue growth of nearly 18% in Ceilings and over 30%each for both Wallboard and Steel Framing. We are confident that leveraging our scale and our commitment to exceptional customer service willhelp us continue to grow the core business as we move forward.

Second, growing our Complementary Products. We continue to diversify and profitably expand our offerings, thereby enhancing our value to ourcustomers. During the first quarter, benefiting from both higher prices and volumes, we grew our Complementary Product sales by 25% in totaland 11% organically.

In particular, we are focused on growing some of our larger complementary subcategories, including tools and fasteners, the stucco and EIFSproduct lines, insulation and joint treatment, which collectively grew 35% for the quarter.

Third, expanding our platform through accretive acquisitions and greenfield opportunities. During the quarter, we purchased construction supplyof Southwest Florida, a leading local distributor of various stucco and waterproofing products, principally serving the Sarasota market, with broaderoutreach to Tampa and Fort Myers. In addition, we opened 2 new greenfield yard locations and 6 AMES stores during the quarter.

Our pipeline of potential acquisition targets remain strong, and we continue to actively pursue opportunities to broaden our product assortmentand expand our service territory to help us provide added value and best-in-class service to our customers.

Finally, our fourth strategic priority is to drive improved productivity and profitability. This is a broad focus across our organization, as we continueto leverage our scale and employ technology and best practices that improve both cost and service. For example, by the end of this calendar year,we expect to complete the upgrade of all of our U.S. locations to the most advanced version of our ERP system, thereby fully setting the foundationfor our other yard-of-the-future technology initiatives programs, which are expected to drive further improvements in inventory management,warehouse operations, e-commerce capability and back-office efficiency, all with the aim to make us a better business partner for our customersand to help us deliver improved profitability.

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SEPTEMBER 01, 2022 / 12:30PM, GMS.N - Q1 2023 GMS Inc Earnings Call

Overall, I am very pleased with our team's drive this quarter to produce both solid results and move our strategic initiatives forward.

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

Scott M. Deakin - GMS Inc. - VP & CFO

Thanks, J.T. Good morning.

Looking at Slide 5. Net sales increased 30.5% year-over-year to $1.4 billion for the quarter. Organically, sales rose 24.1%. From an end- marketperspective, both residential and commercial first quarter sales in the U.S. were up more than 27% organically year-over-year.

Wallboard sales of $521.6 million increased 33.7%, comprised of a 24.8% increase in price and mix and an 8.8% increase in volume. Organically,first quarter Wallboard sales grew 31.6% year-over-year, comprised of a 25% increase in price and mix and a 6.6% increase in volume.

Multifamily volume gains of nearly 30% outpaced mid-single-digitsingle-family volume growth, and we are very pleased to see, for the first timesince before the pandemic began, commercial volumes in Wallboard grew for the quarter, both sequentially and year-over-year, on improvingcommercial activity levels.

Our average realized wallboard price has increased sequentially for the past 7 quarters. For the quarter ended July, the average realized wallboardprice was $438 per thousand square feet, up more than 5% sequentially and almost 23% as compared with a year ago.

As residential starts have slowed in recent months, we anticipate a slowdown in the pace of price increases going forward, but at this point do notanticipate a marked decline. July's levels were consistent with the quarterly average, and August was trending higher.

Ceiling tile and grid first quarter sales of $167.3 million increased 21.2% over the same period last year, comprised of an 18.1% benefit from priceand mix and a 3.1% increase in volume. Organic sales in Ceilings grew 17.8%, with 15.3% in price and mix and a 2.5% increase in volume.

First quarter Steel Framing sales of $274.9 million increased 40.1%, comprised of a 47.3% benefit from price and mix, partially offset by a 7.2%decline in volumes. On an organic basis, Steel Framing was up 34.6%, comprised of a 44.5% benefit from price and mix, partially offset by a 9.9%decrease in volume.

Despite otherwise improving quoting and shipping activity, labor delays, inventory unwinding within the contractor pipeline and project mix,along with a tough comparable period last year, all contributed to this year-over-year decline.

More broadly speaking, however, on a sequential basis, commercial wallboard, ceiling tiles and ceilings grid volume were all up on a per day basis, while steel commercial volumes were essentially flat, as a number of suburban stick-built developments underway outnumber large office highrises.

While seal stud pricing has remained more resilient than previously expected, as anticipated earlier this year, prices for this product have begunto decline in the second quarter, with August falling roughly 1% below July's level. Although difficult to predict, our current expectation is for thisto continue, with monthly sequential declines likely in the low single digits through at least the start of calendar year 2023.

Complementary Products sales of $395.8 million, which comprised 29% of our total sales for the quarter, were up 24.6% year-over-year, as webenefited from positive contributions from acquisitions as well as strong pricing across the category. On an organic basis, sales of ComplementaryProducts were up 11.2%, with the increase coming mostly from price and mix with moderately increased volume as well.

Now turning to our gross profit during the first quarter. Our gross profit of $434.7 million increased 29.4% as compared with a year ago principallydue to our successful pass-through of product inflation, continued strength in residential market demand and incremental gross profit fromacquisitions. Our gross margin percentage for the quarter came in at 32%, consistent with both the prior year and prior quarter.

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