GMS Inc.

Greetings and welcome to the GMS Inc. Fourth Quarter Fiscal Year 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief 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. It is now my pleasure to introduce your host, Keri Phelps. Thank you, Ms. Phelps. You may begin.

Thank you, Kat. Good morning, and thank you for joining us for the GMS Earnings Conference Call for the fourth quarter and full year fiscal 2024. 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 investor section of our website at www.gmf.com. Now looking at slide two, on 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 uncertainty, 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 fourth quarter of fiscal 2024 relate to the quarter ended April 30th, 2024. 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'll turn the call over to John Turner, whose discussion will be starting on slide three. JP?

Thank you, Carrie. Good morning and thank you all for joining us today. Volume growth across all four of our major product categories for the year, as well as resilient pricing in wallboard and continued inflation in ceilings and complimentary products, helped drive a record $5.5 billion in net sales and $5.3 billion in organic sales for the full year fiscal 2024. Benefiting from our balanced end markets, continuing demand in multifamily, and solid levels of commercial activity helped to offset a more challenging single-family backdrop as compared with the year before. Looking at just our fourth quarter results, considering the significant steel pricing and associated margin headwinds, which accelerated particularly late in the quarter, we closed out fiscal 2024 with another solid level of performance, including generating net sales of $1.4 billion net income of $56.4 million, and adjusted EBITDA of $146.6 million. Cash flow generation was strong, with $204.2 million of cash from operating activities and $186.7 million of free cash flow. As with our full year results, we delivered fourth quarter volume across all four of our major product categories, albeit at a much slower rate for steel in April than expected, particularly for multifamily applications. Single family, however, began to trend favorably, and for the first time since the fall of 2022, wallboard volumes for this sector were up year over year for the quarter. And although our fourth quarter average wallboard price was down slightly year over year, mostly due to mix, prices were flat sequentially. And in the coming months, we expect to benefit from implementation of the previously announced manufacturer pricing actions consistent with the typical three to six month lag we traditionally see for wall board price realization. As we move into fiscal 2025, we believe we are prepared for what we expect to be an environment of changing end market dynamics once again. First, although temporarily hindered by the current mortgage rate environment and record high home prices, Significant pent-up demand remains for single-family housing, which provides confidence for the medium to long term. Through April, single-family starts were up almost 26% calendar year to date, as compared with a year ago. Therefore, we expect to see continued moderate year-over-year improvement for this end market in the near term, followed by a more robust recovery thereafter, with what we expect will be an eventual downward shift in interest rates. For multifamily, the demand environment was exceptionally strong for fiscal 2024 as compared to the prior year. However, given the significant decline in starts last year, this end market has likely peaked, and we believe it will plateau as we serve the remaining backlog over the next quarter or so before we see a notable decline in activity levels during the back half of our fiscal year. At approximately 15% of our sales, we expect that the pace of declines will be manageable. particularly given the expectation for offsetting demand improvement in single-family construction. Finally, commercial construction activity remained solid during fiscal 2024, with a number of megaprojects underway as well as still attractive demand in certain subsectors, primarily data centers, reshoring-related and stimulus-driven projects, education, and healthcare. However, With put-in-place spending flattening and new commercial starts declining, financing availability and cost, coupled with labor constraints and other inflationary pressures, appear to be headwinds, broadly. In this environment, we would expect a mixed demand profile by sector, as some commercial applications will likely be pressured, while others still have favorable support. As an indication of this varied environment, Steel framing demand softened late in the fourth quarter more than we had previously anticipated, both in terms of volume and price. However, more recently, most of the leading steel framing manufacturers have announced price increases, positive indicators for at least a flattening of recent deflationary pressures in the coming quarters. This dynamic backdrop of end markets brings to light the benefits of our balanced customer base. with a revenue mix that is today roughly 50-50 commercial and residential. While still constrained in the near term, we believe that improvements in single-family construction will help to offset the challenges facing the multifamily and commercial end markets. And all of these markets will ultimately benefit from relief in financing rates and availability when that occurs. I would like to thank the entire GMS team for their continued commitment to delivering outstanding service and adding value for our customers. Through their efforts, we continue to flex our operations to successfully navigate the changing tides of customer demand. Turning now to slide four, I'm very pleased to highlight that GMS continues to improve as we grow, and fiscal 2024 was another year of progress as our team executed with focus against our strategic pillars. We successfully expanded our share of U.S. wallboard sales by close to 80 basis points during the year, when comparing our shipments to those reported by the chips and manufacturers where the 12-month ended March 31, 2024, the closest proxy we have to our fiscal year. Likewise, in steel, for that same time period, we gained approximately 130 basis points of share, as reported by the Steel Framing Industry Association. And based upon available public disclosures from ceilings manufacturers, our share grew in this product space again in fiscal 2024, in total and particularly in the higher-end architectural specialties products. Our service model, commitment to job site safety, and our expertise in every end market we serve, as well as our intentional effort to deepen our customer relationships and use technology to be faster and easier to work with, all contributed to our success this year. Our complementary products grew this past year by 7.4%. In our key areas of focus, EAPS and Stucco, tools and fasteners, and insulation, we grew 11.5%. These outstanding results are due in many respects to those same things driving our core share, but are also due to our expanded sales organization, center-led purchasing programs, and the synergistic leveraging of acquired company expertise across the legacy business, while the newly acquired businesses benefit from GMS's systems and scale. We remain committed to both organic and acquisitive growth in the strategically critical complementary product space. M&A has been and continues to be a key strategic driver of our growth. This past year was no exception, as we acquired home lumber and building supplies, which expanded our presence and complementary product offerings in Western Canada. AMW construction supply, which expanded our complementary tools and fasteners in Phoenix, and Camco Supply Corporation, which provided us with one of the leading market positions in New York City, the largest MSA where we lacked a significant presence prior to this transaction. Also, subsequent to the end of our fiscal year, we announced a smaller acquisition of Howard & Sons to supplement our operations in Southern California, and our agreement to purchase Yvonne Building Supplies and other affiliated companies in Ontario, Canada, which we expect to close next month. we look forward to being able to welcome the Yvonne team and adding their seven locations to our portfolio to better serve the Ontario market. Our current Canadian operations generated approximately 13% of our total net sales during fiscal 2024. And of that, more than half of those sales were in complimentary products, which tend to be margin accretive to the overall business. In addition to our more traditional acquisition targets in the United States, with substantial white space still available for us in Canada, we expect to continue to pursue additional margin-enhancing opportunities like the pending Yvonne transaction. Our Yard of the Future initiatives also took steps forward during fiscal 2024. For example, we have now completed the installation of yard-wide Wi-Fi and added tablets in the 85% of our yards where doing so makes sense. With varying degrees of adoption so far, now that we have all of the tools in place, fiscal year 25 will be the year of further operational progressions of this paperless picking and loading technology. Where we have completed the necessary entity and data consolidations, we have simplified our back of house teams and processes and are working to implement more advanced ERP embedded purchasing capabilities. We've seen improved service and inventory momentum as a result, which contributed to the free cash flow success we achieved in both our fiscal fourth quarter and the full year. We expect to complete our entity consolidation and the associated process, organization, and data simplification of our various divisions by the end of calendar 2025, and expect to see cost and productivity benefits as we continue these efforts. And finally, we are making progress as we promote the value of our direct e-commerce platform to our customers. While adoption continues to evolve, we are seeing usage increase in many areas. For example, More than 70% of our customers had created online accounts by fiscal year-end 2024, and as such, we have seen increases in web orders and activity. Importantly, as of the end of fiscal 2024, the percentage of payments we are receiving through our integrated online customer portal is now approaching 20% each month, making it easier for our customers and saving the company both time and money. Collectively, all of the productivity initiatives we have underway are intended to help preserve and drive additional profits and make it easier to do business with us. We continue to become better operators and reducing complexity in the business with the objective of providing greater value to all of our stakeholders. With that, I will turn the call over to Scott.