On Dec. 8, GMS Inc. reported financial results for the fiscal second quarter ended Oct. 31, 2022.

Second Quarter Fiscal 2023 Highlights

(Comparisons are to the second quarter of fiscal 2022)

• Net sales of $1.43 billion increased 24.4 percent; organic net sales increased 22.2 percent.
• 11.6 percent volume growth in wallboard, including the second consecutive quarterly year-over-year expansion in commercial wallboard volume.
• Net income of $103.2 million, or $2.41 per diluted share, increased 38.7 percent compared to net income of $74.4 million, or $1.69 per diluted share; adjusted net income of $119.5 million, or $2.79 per diluted share, compared to $87.8 million, or $2 per diluted share.
• Adjusted EBITDA of $195.5 million increased $46 million, or 30.7 percent; adjusted EBITDA margin improved 70 basis points to 13.7 percent from 13 percent.
• Cash provided by operating activities increased $109.3 million to $107.3 million; free cash flow improved $107.8 to $96.5 million.
• Net debt leverage was 1.6 times, down from 2.4 times a year ago.

“A significant backlog of homes under construction, continued strength in multi-family and improving levels of commercial activity helped drive exceptional results for our fiscal second quarter,” said John C. Turner, Jr., President and Chief Executive Officer of GMS. “As a result, with favorable pricing across our product categories, positive volume growth in wallboard, ceilings and complementary products, and the benefit of our AMES acquisition, our team achieved another quarter of record levels of net sales, net income and adjusted EBITDA and generated significant levels of cash flow.

“With significant scale, a balanced mix of commercial and residential customers and a wide breadth of product offerings, we are confident in our ability to adjust as needed to meet demand in all of our end markets and believe we are well-positioned ahead of the developing slowdown in residential single-family construction,” Turner continued. “We remain focused on the execution of our strategic priorities to expand share in our core products, grow complementary product offerings, expand our platform and leverage our scale to achieve improved productivity and profitability through the use of technology and shared best practices.”

Second Quarter Fiscal 2023 Results

Net sales for the second quarter of fiscal 2023 of $1.43 billion increased 24.4 percent as compared with the prior year quarter, primarily due to a favorable pricing environment, along with active residential construction and an improving commercial landscape, both of which helped drive volume growth in wallboard, ceilings and complementary products. The company also benefited during the quarter from its acquisition of AMES Taping Tools in December 2021 and one additional selling day during the three months ended Oct. 31, 2022, compared to the prior year period. Partially offsetting these increases was the negative impact of foreign currency translation on net sales during the three months ended Oct. 31, 2022. 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 22.2 percent.

Excluding the impact from one additional selling day in the second quarter of fiscal 2023 compared to the same period a year ago, net sales and organic net sales were up 22.5 percent and 20.3 percent, respectively.

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

• Wallboard sales of $584.6 million increased 41 percent (up 41.4 percent on an organic basis).
• Ceilings sales of $159.6 million increased 13.3 percent (up 13.6 percent on an organic basis).
• Steel framing sales of $278.2 million increased 2.3 percent (up 2.5 percent on an organic basis).
• Complementary product sales of $408.7 million increased 26.5 percent (up 17.8 percent on an organic basis).

Gross profit of $464.5 million increased 24.9 percent compared to the second quarter of fiscal 2022, primarily due to the successful pass through of product inflation, continued strength in residential market demand, improving commercial sales and incremental gross profit from acquisitions. Gross margin of 32.5 percent increased 20 basis points year-over-year, with strong margins in complementary products and better-than-expected margins in steel framing on focused inventory management and project quoting as steel pricing declined during the quarter.

Selling, general and administrative expense as a percentage of net sales improved 50 basis points to 19.5 percent for the quarter, compared to 20 percent in the second quarter of fiscal 2022. Adjusted SG&A expense as a percentage of net sales of 18.9 percent improved 50 basis points from 19.4 percent in the prior year quarter, as product inflation outpaced increases in operating costs.

Net income increased 38.7 percent to $103.2 million, or $2.41 per diluted share, compared to net income of $74.4 million, or $1.69 per diluted share, in the second quarter of fiscal 2022. Adjusted net income was $119.5 million, or $2.79 per diluted share, compared to $87.8 million, or $2 per diluted share, in the second quarter of the prior fiscal year.

Adjusted EBITDA increased $46 million, or 30.7 percent, to $195.5 million compared to the prior year quarter. Adjusted EBITDA margin of 13.7 percent improved 70 basis points from 13 percent for the second quarter of fiscal 2022.

Balance Sheet, Liquidity and Cash Flow

As of Oct. 31, 2022, the company had cash on hand of $124.2 million, total debt of $1.2 billion and $293.8 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 2.4 times at the end of the second 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 $107.3 million and $96.5 million, respectively, for the quarter ended Oct. 31, 2022. For the quarter ended Oct. 31, 2021, the Company recorded cash used by operating activities and free cash flow of $2 million and $11.3 million, respectively.

During the quarter, the Company repurchased common stock of $25.8 million. As of Oct. 31, 2022, the Company had $161.2 million of repurchase authorization remaining.