GMS Inc.

Greetings and welcome to the GMS third quarter 2023 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Carrie Phelps, Vice President and Best Relations for GMS. Thank you. You may begin.

Thank you, Melissa. Good morning, and thank you for joining us for the GMS Earnings Conference call for the third quarter of fiscal 2023. I am joined today by John Turner, President and Chief Executive Officer, and Scott Deacon, Senior 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. As highlighted on slide two, during 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 risk 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 reports. 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 third quarter of fiscal 2023 relate to the quarter ended January 31st, 2023. 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 will turn the call over to John Turner. J.T.? ?

Thank you, Carrie. Good morning, and thank you all for joining us today. We are pleased to report solid financial results once again this quarter at levels consistent with our prior expectations, building on the progress realized in the first half of our fiscal year. Strong multifamily residential demand, year-over-year growth in commercial wallboard volumes, and continuing momentum in the sales of complementary products helped to offset a difficult prior year comparison in steel framing, as well as regional volume declines in the single family market this quarter. Looking at slide three, with comparisons to the third quarter of fiscal 2022, our team successfully managed continuing inflationary dynamics in wallboard, ceilings, and complimentary products, while working through a notable shift in end market mix. For the quarter, we grew net sales 7% to $1.23 billion, with a 9.4% increase in gross profit to $402.2 million. Our teams continue to do an excellent job addressing the demands of each of our customer categories, with U.S. volumes in multifamily wallboard continuing to stay strong, up nearly 20%, and with commercial wallboard volumes up 5.6%. sustaining the positive year-over-year growth in commercial wallboard volume that began early this fiscal year. The strength in these customer categories helped to offset a 10.6% decline in U.S. single-family wallboard volumes, as builders have reduced their backlogs in most of our geographic regions. Office construction for both new and remodeled remained quiet during the quarter, resulting in a decline in ceiling tile volumes. Also impacted were steel volumes and pricing. which were challenged this quarter against a tough comparable period when significant gains were reported a year ago during the supply chain dislocation we experienced in this product line. Net income improved 5.5% to $64.8 million, and adjusted EBITDA grew 4.3% to $140.8 million. And finally, our free cash flow improved more than $80 million to $122.5 million. Our team's ability to flex as needed to meet the demands of all of our customer categories, our commitment to delivering outstanding service, and the continued execution of our four strategic priorities help drive these results. On slide four, we highlight our progress this quarter in advancing our strategic initiatives. While volumes are contracting in the single-family space, as most regions have worked through the bulk of their backlogs, Our teams worked hard to maintain or grow our share in our core products and deliver exceptional service to our customers despite significant weather disruptions. Looking at each of our core product categories, recently released industry data indicates that we successfully grew our share in Wallboard for the full calendar year 2022. Likewise, although the overall steel framing market continues to correct from supply chain disruptions and softening demand driven primarily by the office segment decline, Industry data for steel framing also indicates that we grew our share during calendar 2022. Finally, looking at our ceilings business. While acoustical ceiling tile and grid has been negatively impacted by the lack of new office and tenant improvement work, our sales of architectural specialty ceilings, where we have been making key investments in alliance with our manufacturing partners, grew nicely this quarter. We remain confident that over time, leveraging our scale, and commitment to delivering best-in-class service and product availability will help us continue to grow our core product lines. Growing our complementary products has also consistently been an important part of our success over the last few years. Both the organic and inorganic expansions of these adjacent complementary products have enhanced our appeal to our customers and, in many cases, have served as a boost to our EBITDA margins. Comprising nearly 30% of our net sales, we continued to benefit from both higher prices and volumes during the quarter, growing our complementary product sales by 11.7% in total and 8.2% organically. In particular, we are focusing on the expansion of several of our larger complementary subcategories, including tools and fasteners, the Stucco and EAPS product lines, and insulation, which collectively grew 16.8% for the quarter. We intend to continue to further expand our offerings while driving both purchasing and marketing best practices across our regions, thereby enhancing our value to our customers. Another avenue that we are employing to drive growth is through accretive acquisition and greenfield opportunities. During the quarter, we were very pleased to make our first entries into the New York City market. The acquisition of Tanner Bolton Nut added four metro area locations, specializing in the distribution of tools and fasteners and other related construction products. This acquisition represents a platform from which we intend to expand our tools and fastener offerings in New York and surrounding areas. And more broadly, tools and fasteners is a margin accretive product set that we intend to expand across many of our geographies. In addition, during the quarter, we took further steps to expand our platform with the opening of a ceilings-focused greenfield in New York City and another new greenfield yard in Chester, Virginia. Including these additions, we've now opened six greenfields this fiscal year. And finally, we also continued to execute against the growth strategy of our AIMS business during the quarter, opening three more store locations, thereby growing this margin-accreted business as well. Looking ahead, given the still fragmented nature of our industry, the remaining opportunity to fill in service gaps and white space, and our widening pursuit of complementary products, we believe ample acquisition opportunities remain, and we have an active pipeline of candidates that we are pursuing. And finally, with a broad focus across our organization, we continue to leverage our scale and employ technology and best practices that improve both cost and service. In the past, I've discussed our Yard of the Future activities, wherein we are providing online access for our customers to make it easier for them to do business with us. In addition, we are equipping our yard operators with automation tools to improve picking, loading, and staging efficiencies, thereby improving delivery turnaround and customer wait times. At this point, we have rolled out these time-saving tools to our operators in more than 40% of our larger yards and plan to roll out this automation to all of our yards in the U.S. that have the scale to benefit. And so while this work continues, we're also always looking to drive out complexity costs more broadly in our business. For example, we recently completed an internal restructuring of one of our divisions, consolidating back of house functionality across multiple subsidiaries, thereby reducing organizational and process complexity, while also enabling the standardization of product and customer data throughout. Completion of this project reduces costs and serves as a foundation for profit improvement in this region as well as a model for other divisions. Overall, I am again very pleased with the hard work and commitment demonstrated by our team to drive solid results as we execute our strategic priorities in a dynamic market. With that, I'll now turn it over to Scott to provide more perspective on our results. Scott?