Strong Multi-Family, Improving Commercial Activity, Resilient Pricing and Continued Complementary Product Momentum Drives Sales, Gross Profit and Adjusted EBITDA Growth

GMS Inc. (NYSE: GMS), a leading North American specialty building products distributor, today reported financial results for the fiscal third quarter ended January 31, 2023.

Third Quarter Fiscal 2023 Highlights

(Comparisons are to the third quarter of fiscal 2022)

• Net sales of $1.2 billion increased 7.0%; organic net sales increased 6.4%.

• 19.9% multi-family and 5.6% commercial Wallboard volume growth in the U.S. helped to partially offset single-family volume declines of 10.6%.

• Net income of $64.8 million, or $1.53 per diluted share, increased 5.5% compared to net income of $61.4 million, or $1.40 per diluted share; Adjusted net income of $78.3 million, or $1.85 per diluted share, compared to $76.5 million, or $1.74 per diluted share.

• Adjusted EBITDA of $140.8 million increased $5.8 million, or 4.3%; Adjusted EBITDA margin was 11.4%, compared to 11.7%.

• Cash provided by operating activities increased $76.9 million to $134.1 million; Free cash flow improved $82.3 million to $122.5 million.

• Net debt leverage was 1.6 times, down from 2.3 times a year ago.

“We were pleased to deliver solid results for our fiscal third quarter, including heightened levels of net sales, net income, Adjusted EBITDA and cash flow,” said John C. Turner, Jr., President and Chief Executive Officer of GMS. “Continued strength in multi-family, improved commercial activity and continued expansion of Complementary Products helped to offset both the early stages of a slowdown in single-family construction as well as difficult weather conditions during the quarter.”

Turner continued, “At the end of December, we acquired Tanner Bolt & Nut, Inc. (“Tanner”) in Brooklyn, NY. Tanner is a leading distributor of tools and fasteners servicing primarily the five New York City Boroughs and Long Island. Complementing this acquisition is our new greenfield yard, also in Brooklyn, with a dedicated focus on Ceilings, which we opened in early January. Combined, these investments give us a meaningful presence in the New York City area and a base from which we intend to continue to invest and grow, demonstrating our ongoing commitment to our strategic priorities of expanding our footprint and growing our Complementary and core product sales.”

“As we look to close out fiscal 2023 at the end of April, it appears single-family demand will continue to soften while multi-family and commercial activity should improve seasonally with continuing year-over-year growth. During this period, we expect to see year-over-year pricing in Wallboard, Ceilings and Complementary Products remain resilient. Similar to this quarter however, pricing and volumes in Steel Framing will likely remain challenged.”

“Given these end market dynamics, subsequent to the end of the quarter, the Company implemented cost reduction initiatives to better align our operations with the current demand outlook. As phased in, these initiatives are expected to reduce fixed SG&A expenses by approximately $15 million on an annualized basis. Approximately $2.5 million in one-time execution costs related to these reductions will be recorded during our fiscal fourth quarter.”

“All considered, we continue to be well-positioned with the scale, wide range of product offerings and expertise to adjust as needed to service the demands of all of our customers and continue to grow our business over the longer term.”

Third Quarter Fiscal 2023 Results

Net sales for the third quarter of fiscal 2023 of $1.2 billion increased 7.0% as compared with the prior year quarter, primarily due to resilient pricing in Wallboard, Ceiling tiles and Complementary Products, strong levels of multi-family construction activity, a slowly recovering commercial construction environment and continued sales growth both organically and otherwise in Complementary Products. These results were partially offset by declining single-family construction demand and a challenging volume and pricing environment in Steel Framing. Organic net sales, which exclude the net sales of acquired businesses until the first anniversary of the acquisition date and the impact of foreign currency translation, increased 6.4%.

Year-over-year quarterly sales changes by product category were as follows:

• Wallboard sales of $500.7 million increased 20.6% (up 21.2% on an organic basis).

• Ceilings sales of $146.8 million increased 4.9% (up 5.2% on an organic basis).

• Steel Framing sales of $234.5 million decreased (17.1)% (down (16.8)% on an organic basis).

• Complementary Product sales of $352.6 million increased 11.7% (up 8.2% on an organic basis).

Gross profit of $402.2 million increased 9.4% compared to the third quarter of fiscal 2022 primarily due to the continued successful pass through of product inflation, improving commercial Wallboard sales, growth in the sales of Complementary Products, and incremental gross profit from acquisitions. Gross margin of 32.6% increased 70 basis points year-over-year with better-than-expected margins in Steel Framing on focused inventory management and project quoting as well as the execution on negotiated year-end volume incentives. End market mix and Complementary Product margins were also favorable in the quarter.

Selling, general and administrative (“SG&A”) expense leverage during the quarter was negatively impacted by demand pull-backs in single-family construction, resulting in a relative mix shift in end market volumes, which while favorable to gross margin, also require a higher operational cost to serve. In addition, inflationary wages, higher fuel and maintenance costs and disruptive weather conditions in several markets ultimately challenged our normal operational efficiency. As a result, SG&A expense as a percentage of net sales increased 80 basis points to 21.7% for the quarter compared to 20.9% in the third quarter of fiscal 2022. Adjusted SG&A expense as a percentage of net sales of 21.4% increased 100 basis points from 20.4% in the prior year quarter.

Net income increased 5.5% to $64.8 million, or $1.53 per diluted share, compared to net income of $61.4 million, or $1.40 per diluted share, in the third quarter of fiscal 2022. Adjusted net income was $78.3 million, or $1.85 per diluted share, compared to $76.5 million, or $1.74 per diluted share, in the third quarter of the prior fiscal year. Earnings per share outpaced net income as a result of the $100.4 million in share repurchases completed since the end of January 2022.

Adjusted EBITDA increased $5.8 million, or 4.3%, to $140.8 million compared to the prior year quarter. Adjusted EBITDA margin was 11.4%, compared with 11.7% for the third quarter of fiscal 2022.

Balance Sheet, Liquidity and Cash Flow

As of January 31, 2023, the Company had cash on hand of $186.7 million, total debt of $1.2 billion and $574.4 million of available liquidity under its revolving credit facilities. Net debt leverage was 1.6 times as of the end of the quarter, down from 2.3 times at the end of the third quarter of fiscal 2022.

The Company recorded significantly improved levels of cash flow for the quarter. Cash provided by operating activities and free cash flow were $134.1 million and $122.5 million, respectively, for the quarter ended January 31, 2023. For the quarter ended January 31, 2022, the Company recorded cash provided by operating activities and free cash flow of $57.2 million and $40.2 million, respectively.

During the quarter, the Company repurchased 656,670 shares of common stock for $33.2 million. As of January 31, 2023, the Company had $128.0 million of share repurchase authorization remaining.

Platform Expansion Activities

During the third quarter of fiscal 2023, the Company continued the execution of its platform expansion strategy with its first entries into the New York City market. These include the acquisition of Tanner Bolt & Nut, Inc. on December 30, 2022 and the opening of a Ceilings-focused greenfield location, expanding upon its existing vendor relationships in other Northeast markets.

In addition, during the quarter, the Company opened a greenfield yard location in Chester, VA and three new AMES store locations.

Conference Call and Webcast

GMS will host a conference call and webcast to discuss its results for the third quarter of fiscal 2023 ended January 31, 2023 and other information related to its business at 8:30 a.m. Eastern Time on Thursday, March 2, 2023. Investors who wish to participate in the call should dial 877-407-3982 (domestic) or 201-493-6780 (international) at least 5 minutes prior to the start of the call. The live webcast will be available on the Investors section of the Company’s website at www.gms.com. There will be a slide presentation of the results available on that page of the website as well. Replays of the call will be available through April 2, 2023 and can be accessed at 844-512-2921 (domestic) or 412-317-6671 (international) and entering the pass code 13735726.

About GMS Inc.

Founded in 1971, GMS operates a network of approximately 300 distribution centers with extensive product offerings of Wallboard, Ceilings, Steel Framing and Complementary Products. In addition, GMS operates approximately 100 tool sales, rental and service centers, providing a comprehensive selection of building products and solutions for its residential and commercial contractor customer base across the United States and Canada. The Company’s unique operating model combines the benefits of a national platform and strategy with a local go-to-market focus, enabling GMS to generate significant economies of scale while maintaining high levels of customer service.

Use of Non-GAAP Financial Measures

GMS reports its financial results in accordance with GAAP. However, it presents Adjusted net income, free cash flow, Adjusted SG&A, Adjusted EBITDA, and Adjusted EBITDA margin, which are not recognized financial measures under GAAP. GMS believes that Adjusted net income, free cash flow, Adjusted SG&A, Adjusted EBITDA, and Adjusted EBITDA margin assist investors and analysts in comparing its operating performance across reporting periods on a consistent basis by excluding items that the Company does not believe are indicative of its core operating performance. The Company’s management believes Adjusted net income, Adjusted SG&A, free cash flow, Adjusted EBITDA and Adjusted EBITDA margin are helpful in highlighting trends in its operating results, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which the Company operates and capital investments. In addition, the Company utilizes Adjusted EBITDA in certain calculations in its debt agreements.

You are encouraged to evaluate each adjustment and the reasons GMS considers it appropriate for supplemental analysis. In addition, in evaluating Adjusted net income, Adjusted SG&A and Adjusted EBITDA, you should be aware that in the future, the Company may incur expenses similar to the adjustments in the presentation of Adjusted net income, Adjusted SG&A and Adjusted EBITDA. The Company’s presentation of Adjusted net income, Adjusted SG&A, Adjusted SG&A margin, Adjusted EBITDA, and Adjusted EBITDA margin should not be construed as an inference that its future results will be unaffected by unusual or non-recurring items. In addition, Adjusted net income, free cash flow, Adjusted SG&A and Adjusted EBITDA may not be comparable to similarly titled measures used by other companies in GMS’s industry or across different industries. Please see the tables at the end of this release for a reconciliation of Adjusted EBITDA, free cash flow, Adjusted SG&A and Adjusted net income to the most directly comparable GAAP financial measures.

When calculating organic net sales growth, the Company excludes from the calculation (i) net sales of acquired businesses until the first anniversary of the acquisition date, and (ii) the impact of foreign currency translation.

Forward-Looking Statements and Information

This press release includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. You can generally identify forward-looking statements by the Company’s use of forward-looking terminology such as “anticipate,” “believe,” “confident,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “seek,” or “should,” or the negative thereof or other variations thereon or comparable terminology. In particular, statements about the markets in which GMS operates, including in particular residential and commercial construction, and the economy generally, pricing, volumes, the demand for the Company’s products, including Complementary Products, the Company’s strategic priorities and the results thereof, performance, growth, including in the New York City area, the Company’s cost reduction initiatives and results thereof contained in this press release may be considered forward-looking statements. The Company has based forward-looking statements on its current expectations, assumptions, estimates and projections. While the Company believes 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 its control, including current and future public health issues that may affect the Company’s business. Forward-looking statements involve risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section in the Company’s most recent Annual Report on Form 10-K, and in its other periodic reports filed with the SEC. In addition, the statements in this release are made as of March 2, 2023. The Company undertakes no obligation to update any of the forward-looking statements made herein, whether as a result of new information, future events, changes in expectation or otherwise. These forward-looking statements should not be relied upon as representing the Company’s views as of any date subsequent to March 2, 2023.

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