Net sales for the fiscal first quarter ended July 31, 2018 increased 21.2% to a record $778.1 million from $642.2 million for the fiscal first quarter ended July 31, 2017. Reported net income decreased to $8.7 million, or $0.20 per diluted share, compared to $15.3 million, or $0.36 per diluted share. As previously disclosed, the decrease in net income is attributable to $10.5 million in pre-tax transaction related costs related to the June 2018 acquisition of WSB Titan, $4.1 million in pre-tax purchase accounting adjustments for Titan inventory and $4.8 million in pre-tax severance costs related to our previously announced cost reduction plan. Adjusted EBITDA for the fiscal first quarter increased to $75.3 million from Adjusted EBITDA of $52.8 million for the first quarter of fiscal 2018.
Mike Callahan, President and CEO of GMS, stated, “We are off to a solid start to the year, generating record sales and strong earnings. We delivered organic revenue growth of 6.1% driven by broad-based growth across each of our product groups. We also generated strong earnings, reflecting the contribution of Titan, our commitment to operational improvement initiatives and continued pricing discipline. The previously announced cost reduction plan coupled with the successful integration of Titan are expected to drive additional benefits as we progress through fiscal 2019 and beyond.
“Looking ahead to the balance of the year, we remain confident in the health of our end-markets and overall market conditions,” he continued. “We were able to capture more than three percent of price growth within the U.S. wallboard market and believe some of the pricing challenges facing our industry have begun to stabilize. As one of the largest wallboard distributors in North America with significant scale advantages and a well-balanced portfolio built for growth, we intend to continue to drive profitable growth while managing our business for the long-term. We remain excited about the overall strength of our business and confident in our ability to deliver another year of record sales and strong earnings in fiscal 2019.”
First Quarter 2019 Results
Net sales for the first quarter of fiscal 2019 ended July 31, 2018 were $778.1 million, compared to $642.2 million for the first quarter of fiscal 2018 ended July 31, 2017.
- Wallboard sales of $317.7 million increased 11.6% compared to the first quarter of fiscal 2018, with the positive impact of the June 1st acquisition of Titan and pricing improvement, slightly offset by an organic wallboard unit volume decline of 0.4%.
- Ceilings sales of $115.9 million rose 16.2% compared to the first quarter of fiscal 2018, mainly due to greater commercial activity, pricing improvement and the positive impact of acquisitions.
- Steel framing sales of $129.1 million grew 23.4% compared to the first quarter of fiscal 2018, mainly driven by greater commercial activity, pricing improvement and the positive impact of acquisitions.
- Other product sales of $215.4 million were up 40.7% compared to the first quarter of fiscal 2018, as a result of the positive impact of the acquisition of Titan and pricing improvement.
Gross profit of $244.8 million grew 19.4% compared to $205.1 million in the first quarter of fiscal 2018, mainly attributable to increased sales from the Titan acquisition. Gross margin adjusted for the non-cash impact of purchase accounting adjustments improved by approximately 10 basis points to 32.0% compared to 31.9% in the first quarter of fiscal 2018.
Net income of $8.7 million, or $0.20 per diluted share, decreased by 43.6% or $6.7 million compared to $15.3 million, or $0.36 per diluted share, in the first quarter of fiscal 2018. The decrease in net income is attributable to $5.7 million in pre-tax mark-to-market currency adjustments, $4.8 million in pre-tax transaction costs, $4.1 million in pre-tax fair value adjustments to inventory, all related to the acquisition of Titan, as well as $4.8 million in previously disclosed severance costs associated with the Company’s cost reduction plan. Adjusted net income of $35.2 million, or $0.82 per diluted share, increased 32.3% or $8.9 million, compared to $26.3 million, or $0.62 per diluted share, in the first quarter of fiscal 2018.
Adjusted EBITDA of $75.3 million increased from $52.8 million in the first quarter of fiscal 2018. Adjusted EBITDA margin was 9.7% as a percentage of net sales or 9.1% excluding the impact of the favorable accounting benefit related to the previously disclosed changes in lease accounting, reflecting strong performance from the Titan business, as well as improvement in our organic operating leverage.
As of July 31, 2018, GMS had cash of $36.9 million and total debt of $1.30 billion, compared to cash of $36.4 million and total debt of $595.9 million, as of July 31, 2017.
On June 1, 2018, the Company amended its First Lien Credit Agreement to provide it with new borrowings consisting of an approximately $997 million term loan facility due in 2025. Borrowings under the new term loan bear interest at a floating rate based on LIBOR, with a 0% floor, plus 2.75%, representing a 25 basis point improvement compared to the previous term loan’s interest rate. Net proceeds from the new term loan were used to repay amounts outstanding on the Company’s prior first lien term loan of approximately $572 million and to finance the acquisition of Titan.
GMS completed its acquisition of Titan, Canada’s largest gypsum specialty dealer with 30 locations across five provinces, on June 1, 2018. Subsequent to July 31, 2018, the Company acquired Charles G. Hardy, Inc. a leading distributor of interior building products that serves residential and non-residential customers in the Los Angeles market. The acquisition marks GMS’ entry into the Los Angeles area, the second largest metropolitan area nationwide.