GMS Inc.

participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this call is being recorded. It is now my pleasure to introduce Carrie Phelps, Vice President of Investor Relations. Thank you. You may begin.

Thank you, Sherry. Good morning, and thank you for joining us for the GMS Earnings Conference call for the second quarter of fiscal 2025. I'm 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, you can find a set of PowerPoint slides to accompany this call in the Investors section of our website at www.gms.com. On 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 the references on this call to the second quarter of fiscal 2025 relate to the quarter ended October 31st, 2024. Once we begin the question and answer session of the call, we kindly request that you limit yourself to one question and one follow-up in the interest of time. With that, I'll turn the call over to John Turner who will begin on slide three. JT?

Thank you, Carrie. Good morning and thank you all for joining us today. For our second quarter, we reported net sales of $1.47 billion, which increased 3.5% year-over-year, primarily the result of recent acquisitions, with volume growth in ceilings, steel framing, and complementary products. Softened conditions across our end markets, together with the impacts from two major hurricanes, held back our wallboard volumes and our results in general for the quarter, causing the closure of more than 40 of our locations for at least one day during the quarter, plus subsequent slowdowns and disruption in construction activity in the hardest-hit areas as the local focus turned to cleanup and recovery, we estimate that Hurricanes Helene and Milton negatively impacted our net sales and organic sales in the quarter by approximately $20 million and adjusted EBITDA by approximately $6 million, inclusive of lost purchasing leverage and operational inefficiencies impacting SG&A. Organic sales for the quarter declined by 4.6% due to the hurricanes and to softening year-over-year demand, particularly in our multifamily and commercial end markets. Gross margin for the quarter was 31.4%, up 20 basis points sequentially from our fiscal first quarter, but down 90 basis points from a year ago. This variance from last fall can largely be attributed to a mixed shift from commercial and multifamily to single-family deliveries combined with price and cost dynamics in Wallboard, as our team continued to work during the quarter to pass through previously announced manufacturer price increases in a very competitive and cost-sensitive environment. That income for the quarter was $53.5 million compared to $81 million a year ago, and adjusted EBITDA was $152.2 million compared to $167.6 million in the prior year quarter. Given this softer market environment and amid the storm disruption, EBITDA margin was 10.3% for our second quarter compared with 11.8% a year ago, when both the multifamily and commercial end markets were much more active. The trends that we discussed on last quarter's call have continued to impact the industry at large. Although public sector projects, data centers, and other projects backed or influenced by government incentive programs such as the CHIPS and Inflation Reduction Acts continue, overall commercial activity levels were lower than a year ago and are expected to remain challenged until the interest rate and lending backdrop improves. In multifamily, high interest rates and suppressed commercial real estate lending also continue to constrain activity in the near term. Solid absorption rates of recently completed units in this space provide optimism for renewed investment. Given the development cycle for these projects, however, the ramp-up will take some time. For the longer term, the solid underlying demand fundamentals of the housing market, including favorable demographics, low levels of supply of new homes, a chronic undersupply of homes in general, and easing regulatory constraints for development, are expected to provide considerable support for the multifamily market over time. For single family, affordability issues, driven by sustained high mortgage rates and low resale inventory, have muted its recovery. It is particularly difficult for smaller builders, who, already relatively challenged in terms of land acquisition, lack the balance sheets and scale to buy down rates and offer other home buyer incentives common in today's market. Overall, single family activity during the quarter was roughly flat with a year ago, but with a continuing shift to larger builders. We believe that we will see improvement in this end market once mortgage rates recede, as there continues to be significant pent-up demand for housing. Ramping expansionary sentiment for zoning improvement in local markets should also have a positive influence, both single and multifamily. As we noted last quarter, all of these favorable influences should help to trigger eventual recovery in all of our end markets, led first by single family, then followed by commercial and multifamily. Against this backdrop, our diversified customer base and balanced revenue mix continue to serve GMS well, as we can nimbly flex up or down as our end markets fluctuate. In addition, where large national home builders now account for more than half of all new home sales, GMS is very well positioned to serve this demand with our distinct footprint, equipment, expertise, and scale. Taken together, these factors provide us with a great deal of confidence for the long-term prospects of GMS. I'd like to thank our dedicated team for their unwavering commitment to position GMS for success, especially when faced with market and operational challenges, like the weather events that affected our business in the southern regions this fall. As we manage through the continued macro dynamics impacting our industry, the efforts that our team have made to execute against our four strategic pillars are key in maintaining our position as the supplier of choice for our customers. These pillars are highlighted on slide four. Even as demand has further muted, we maintained our focus on growing or maintaining our share across our core product categories throughout the second quarter. For Wallboard, despite being significantly impacted by pacing headwinds in multifamily and commercial, our teams continue to stay close to customers across our end markets, particularly as we work through the quarter to manage through the manufacturer price increases announced in early calendar 2024. Using the Gypsum Association disclosures for the calendar third quarter, our share grew slightly year over year. In steel, framing, and ceilings, where our teams have been working to drive sales in data centers and other large commercial projects, our share also expanded year over year, per information provided by the Steel Framing Industry Association and manufacturer disclosures through September. Data centers represent a growing and attractive opportunity for GMS, in many cases demanding higher-end ceilings products steel framing, wallboard, and complementary products, as well as specialized service and delivery. Next, we continue to prioritize growth in our complementary products. As we've discussed on previous calls, we are focused on expanding high-opportunity growth subcategories, including tools and fasteners, eats and stucco, and insulation. The complementary product category continues to grow faster than our core products, and these three focus areas within the category have even stronger growth rates. We believe that driving solid growth in complementary products beyond that of our core products will, over time, increase the value we bring to our customers while also enabling accelerated growth and margin enhancement. During the quarter, we expanded our platform to the recent openings of one new Greenfield location, plus two more in November, to enhance our service levels in existing markets, complemented by the exciting acquisition of exterior product specialist R.S. Elliott in Florida. Our M&A expertise is one of our core competencies. Since COVID, we have invested just over a billion dollars to acquire 16 companies that generated approximately $1 billion of total annualized net sales and roughly $140 million in annualized adjusted EBITDA at the time of the deal closures. Six of these transactions were focused on the expansion of our core products, while 10 primarily helped us accelerate our complementary product initiatives, including those focused on Eats and Stucco, and tools and fasteners in the U.S., together with adding broadened offerings and scale to the one-stop, more broad-line model in place in Canada. Finally, we continue to make progress to drive improved productivity and profitability. Our team worked diligently during the quarter to implement the cost savings initiatives we announced in August, which we now believe will achieve closer to $30 million of annualized cost savings for the company. These results are realized through simplification and efficiency optimization. which were made possible by our prior investments in technology and other process improvements and structural changes. On a run rate basis, we achieved roughly half of the 30 million annualized savings in the second quarter and expect the remainder of the pacing to be realized in the third quarter. With that, I'll turn the call over to Scott.