GMS Inc.

Greetings. Welcome to the GMS Inc. first quarter 2025 earnings conference 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. Please note this conference is being recorded. I will now turn the conference over to Carrie Phelps, Vice President of Investor Relations. Thank you. You may begin.

Thank you. Good morning and thank you for joining us for the GMS earnings conference call for the first quarter of fiscal 2025. 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 we issued this morning, we've posted PowerPoint slides to accompany this call in the investor section of our website at www.gms.com. Starting with 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 statement 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 the references on this call to the first quarter of fiscal 2025 relate to the quarter ended July 31st, 2024. Finally, once we begin the question and answer session of the call, in the interest of time, we kindly request to 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. JT?

Thank you, Carrie. Good morning, and thank you all for joining us today. For our first quarter, we reported net sales of $1.45 billion, 2.8% higher than a year ago, driven by volume growth in all four of our major product categories, primarily the result of recent acquisitions. Organic sales declined for the quarter on softening demand in multifamily and commercial end markets and steel price deflation, partially offset by year-over-year growth in single-family demand. All of our end markets were weaker than we expected, particularly in July. Gross margin was 31.2% for the quarter, down 80 basis points from a year ago, due to mixed impacts of both steel price deflation and declining commercial and multifamily deliveries, while board margins were also constrained by slower price realization amid weakening demand. Inclusive of a 17% increase in interest expense, at a $3.2 million prior year one-time tax benefit, net income of $57.2 million compared to $86.8 million a year ago. Adjusted EBITDA was $145.9 million compared to $173.3 million in the prior year period. Looking at our end markets, although certain subsectors of commercial activity, including healthcare, education, data centers, and those projects buoyed by governmental incentive programs, such as the CHIPS and Relation Reduction Acts, saw demand during the quarter, high interest rates continued to create a broadly challenging financing environment elsewhere. As a result, commercial demand slowed considerably during the first quarter, with several sizable projects postponed or canceled, particularly impacting our activity in July. Multifamily, too, slowed more than we expected, although pockets of activity do remain as regional backlogs are worked through. For new single family, while activity levels were higher than a year ago, builders have pulled back from a double-digit year-over-year starts rate earlier in the calendar year. The most recent July print was exceptionally soft. However, indicative of myriad mixed economic signals, just last week we saw new home sales post a strong month on an annualized basis. All considered, most forecasts now call for low single-digit growth for calendar 2024 starts. We believe that any new near-term recovery momentum for this end market will largely depend upon the timing and extent of interest rate reductions. But looking forward, we continue to believe that the current headwinds are temporary, as the consensus view is one of significant pent-up demand for housing, and there are numerous indications of improving public support for housing development. This all provides confidence for the medium to long term. More broadly, while somewhat constrained in the near term, we anticipate that easing interest rates will trigger recovery in all of our end markets. With rates widely expected to start declining in September, we believe that the single-family market will lead any recovery, likely followed by commercial and then eventually multifamily. We should know the extent of any single-family recovery by the end of the first quarter of calendar 2025, as permits, starts, and sales reported by that time will indicate the likely pace for the balance of calendar 2025. Additionally, by that time, we will be looking for improvement in the Architectural Billings Index and continued strength in the Dodge Momentum Index, as well as other commercial construction indicators. We'll likely have to wait until mid-2025 and into 2026 for a bottom and subsequent recovery, respectively, in the multifamily market, while in the interim, we shift a declining backlog of units under construction. This dynamic in-market backdrop brings to light the benefits of our balanced customer base with a revenue mix that is roughly equally weighted between commercial and residential. Our scale, operational capability, and flexibility along with our diversified mix of customers, provide us with a solid foundation as the end market dynamics continue to evolve. In terms of pricing, we are encouraged by the resilience in wallboard pricing and our ability to realize like-for-like improvements. While not easy to capture price increases in a softening market, we continue to pass through manufacturer increases. This is a structurally changed industry that with relatively modest improvement in demand, should again face tight capacity conditions. And as coal-fired power plants, which are the primary source of synthetic gypsum, are being shut down or curtailed, manufacturers are turning to more natural gypsum, which must be sourced, then shipped to local facilities, and then processed before it can be used to create wallboard. This dynamic, along with other inflationary costs impacting manufacturers and distributors, has kept wallboard pricing stable. And we believe prices will continue to be resilient before ultimately rising upon a return in demand, particularly in the single-family market. Given this challenging near-term market climate, with pressures that we believe will likely persist over the next several quarters, we are taking decisive actions to implement a $25 million annualized cost reduction program, with focus on simplification and efficiency optimization, made possible by prior investments in technology and process improvements. Specifically, we have reduced back-of-house overhead, are leveraging centralized and automated procurement, we've streamlined picking and loading processes in our yards, improved the routing efficiency of our fleet, and we have consolidated a few yard locations, setting us up to better service our customers from other, more strategically located operations. I would like to thank the entire GMS team for their continued dedication and commitment in an environment that is ever-changing. As a result of their efforts, we continue to deliver outstanding service and value for our customers through the execution of our four strategic pillars, which are highlighted on slide four. Even as demand has temporarily slowed, industry and manufacturer data confirm that we maintained or grew our share across our core product categories during the second calendar quarter, and we are growing complementary products. With total category growth of 4.1% for the fiscal first quarter, Our three focus areas within complementary products, insulation, tools and fasteners, and eaves and stucco, collectively grew a total of 9% over the same period a year ago. We are also excited by our recent acquisition successes. Yvonne in Canada, which closed in July, and RS Elliott, a leading regional distributor of exterior cladding building products, which we announced today. RS Elliott is a well-scaled, highly respected complementary exteriors platform. that distributes stucco, plaster, siding, eaves, and related construction supplies servicing markets across Florida. Adding RS Eliot to GMS and our existing exteriors business in Florida demonstrates our commitment to the continued execution of our strategy, including expanding our platform to better serve our customers and growing our complimentary product offerings. RS Eliot generated net revenues of approximately $70 million for the 12 months ended June 2024 with EBITDA margins that are expected to be nicely accretive to GMS and to our complementary business. We are excited to bring RS Elliott into the GMS family of brands, and we intend to continue focusing on expanding our footprint, scale, and product offerings with an active M&A pipeline. Finally, we continue to make notable strides driving improved productivity and profitability by leveraging our scale and employing technology to deliver a best-in-class customer experience. We are encouraged by the continued ramp of our digital tools and automation for both customers and GMS, in parallel with focused complexity reduction. In particular, we are simplifying our subsidiary structure to reduce organizational complexity and improve the efficiency of our business. We are now roughly 18 months past the completion of our first such divisional project. In addition to productivity in the areas I referenced earlier, as we reduce costs in our business, working capital progress has been meaningful as well. In this division, DSO are down 17%, while total inventory turns improved more than 10%, with wallboard turns increasing from the mid-14s to nearly 16 times. We are using this consolidation as a template to drive additional efficiencies, profitability, and cash generation across the organization, while also improving our ease of doing business, ultimately providing greater value to all of our customers. With that, I will turn the call over to Scott.